<PAGE>
Amendment No. 1
to
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or
sec. 240.14a-12
ALLIED DIGITAL TECHNOLOGIES CORP.
---------------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11. (1) Title of each class of securities to which transaction
applies:
Common Stock, par value of $.01 per share
(2) Aggregate number of securities to which transaction applies:
This transaction applies to an aggregate of 12,448,286 shares ("Cash Out
Shares") of Common Stock of Allied Digital Technologies Corp. computed as
follows:
(i) 13,623,394 outstanding shares of Allied Common Stock, less (ii) the sum of
(a) 74,998 shares held by certain members of management which will be
converted into shares of Surviving Corporation capital stock after the Merger
as described in the Proxy Statement and (b) 1,100,110 shares currently owned
by 399 Venture Partners, Inc. which will be converted into shares of Surviving
Corporation capital stock
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$5.00 per share of Common Stock
(4) Proposed maximum aggregate value of transaction:
$63,777,061 -- The proposed maximum aggregate value of the transaction is (sum
of (i) the product of the Cash Out Shares and $5.00, and (ii) cash consideration
of $1,535,631 to be paid for the options being surrendered in connection with
the transaction).
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(5) Total fee paid:
$12,755.42
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
COVER LETTER
[Logo of Allied Digital Technologies Corp.]
MERGER PROPOSED
The Board of Directors of Allied Digital Technologies Corp.
("Allied") has approved a merger in which Allied and Analog
Acquisition Corp., a Delaware corporation ("AAC"), a corporation
formed at the direction of 399 Venture Partners, Inc. ("399") which
is an affiliate of Citicorp Venture Capital, Ltd. ("CVC"), will
merge, with Allied being the surviving corporation (the "Merger").
The Board of Directors of Allied has determined that the right to
receive $5.00 in cash for each share of Allied Common Stock is fair
to Allied stockholders and is in the best interests of Allied
stockholders. Accordingly, the Board of Directors recommends that
stockholders vote in favor of the Merger. Certain members of Allied's
Board of Directors have interests in the Merger in addition to the
interests of Allied stockholders generally. See "Special Factors --
Conflicts of Interest" in the Proxy Statement attached hereto.
The Board of Directors has called a Special Meeting of
stockholders to vote whether to approve and adopt the Merger in
accordance with the Agreement and Plan of Merger, dated May 5, 1998,
between Allied and AAC.
YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the Allied Special
Meeting, please take the time to vote on the proposal submitted by
completing and mailing the enclosed proxy card to us. Please sign,
date and mail your proxy card indicating how you wish to vote. If you
fail to return your proxy card, the effect will be a vote against the
Merger.
The date, time and place for the Special Meeting is:
- August , 19, at ____ a.m., local time
- at the [address]
This document provides you with detailed information about the
Merger. In addition, you may obtain information about Allied from documents
filed with the Securities and Exchange Commission. We encourage you to read
this entire document carefully.
Very truly yours,
George N. Fishman
Co-Chairman and Chief Executive Officer
Allied Digital Technologies Corp.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THE PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THIS PROXY STATEMENT IS DATED , 1998, AND FIRST MAILED TO
STOCKHOLDERS ON , 1998.
<PAGE>
[LOGO OF ALLIED DIGITAL TECHNOLOGIES CORP.]
ALLIED DIGITAL TECHNOLOGIES CORP.
140 FELL COURT
HAUPPAUGE, NEW YORK 11788
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST , 1998
To the Stockholders of
Allied Digital Technologies Corp.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Allied Digital Technologies Corp., a Delaware corporation
("Allied" or the "Company"), will be held at
___________________________________ _______________________________ , at _____
a.m., local time, on August , 1998,
to consider and act upon the following matters which are described in more
detail in the accompanying Proxy Statement:
1. To consider and vote upon a proposal recommended by the
Board of Directors of Allied to approve and adopt a plan of
merger in accordance with the Agreement and Plan of Merger,
dated May 5, 1998, between Allied and Analog Acquisition
Corp. ("AAC"), a Delaware corporation formed at the
direction of 399 Venture Partners, Inc. ("399"), pursuant to
which (i) AAC shall be merged with and into Allied (the
"Merger") with Allied being the surviving corporation (the
"Surviving Corporation") and (ii) each stockholder of Allied
(other than 399, certain management stockholders who have
elected to retain an aggregate of 74,998 shares of Allied
Common Stock in the aggregate which shall be converted into
shares of Surviving Corporation Common Stock, and
stockholders who are entitled to, and have perfected,
their appraisal rights) will become entitled to receive
$5.00 in cash for each outstanding share of Allied Common
Stock owned immediately prior to the effective date of
the Merger. A copy of the Agreement and Plan of Merger is
attached as Annex B to, and is described in, the
accompanying Proxy Statement.
2. To transact any and all other business that may properly
come before the Special Meeting or any adjournment(s)
thereof.
Allied has fixed the close of business on July , 1998, as the record
date for determining stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment thereof. A complete list of the
stockholders entitled to vote at the Special Meeting or any adjournment
thereof will be maintained at Allied's principal executive offices, will be
open to examination by any stockholder for any purpose relevant to the Special
Meeting during ordinary business hours for a period of ten days prior to the
Special Meeting, and will be available at and during the Special Meeting.
Any stockholder of Allied giving a proxy has the unconditional right
to revoke his proxy at any time prior to its use at the Special Meeting (i) by
attending the Special Meeting and voting in person, (ii) by delivering to
Allied prior to the vote at the Special Meeting a duly executed proxy bearing
a later date, or (iii) by giving written notice of revocation to Allied
addressed to Mr. Charles P. Kavanagh, Secretary, Allied Digital Technologies
Corp., 140 Fell Court, Hauppauge, New York 11788, prior to the vote at the
Special Meeting. If a stockholder returns a proxy but does not specify a
choice on his proxy, the proxy will be voted in favor of the Merger. Further
information regarding the Special Meeting is set forth in the attached Proxy
Statement.
You are cordially invited to attend the Special Meeting. However,
whether or not you expect to attend the Special Meeting in person, please
complete, sign, vote and return the accompanying proxy without delay in the
enclosed postage prepaid envelope. The proxy is revocable and will not be used
if you are present and prefer to vote in person. If you receive more than one
proxy card because you own shares registered in different names, or at
different addresses, sign and return each proxy card.
<PAGE>
By Order of the Board of Directors
Charles P. Kavanagh
Secretary
Hauppauge, New York
July __, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER.............................. 1
SUMMARY............................................................. 4
SUMMARY PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA................ 9
MARKET PRICE AND DIVIDEND INFORMATION............................... 10
INFORMATION CONCERNING THE ALLIED SPECIAL MEETING................... 11
Record Date; Voting Rights....................................... 11
Proxies.......................................................... 12
Surrender of Share Certificates...................................
SPECIAL FACTORS..................................................... 13
Background of the Merger Transaction............................. 13
Recommendation of the Allied Board; Effects and Reasons
for the Merger................................................ 18
The Board's Recommendation....................................... 21
Purposes and Reasons of 399 and AAC for the Merger............... 21
Positions of 399 and AAC as to the Fairness of the Merger........ 21
Purposes and Reasons of Mr. Olesen in Agreeing to the Merger..... 22
Position of Mr. Olesen as to the Fairness of the Merger.......... 22
Fairness Opinion................................................. 22
Conflicts of Interest............................................ 26
Material Federal Income Tax Consequences of the Merger........... 28
THE MERGER.......................................................... 29
Ownership of Capital Stock....................................... 29
Litigation....................................................... 32
Certain Effects of The Merger.................................... 32
Conduct of Allied's Business After the Merger.................... 32
Selected Historical Consolidated Financial Data.................. 32
Selected Pro Forma Financial Information......................... 33
Effective Time................................................... 33
Accounting Treatment............................................. 34
Appraisal Rights................................................. 34
Debt Financing................................................... 37
Expenses of the Transaction...................................... 37
THE MERGER AGREEMENT................................................ 37
The Merger....................................................... 37
The Surviving Corporation........................................ 37
Consideration to be Received in the Merger....................... 38
Surrender and Payment for Shares................................. 39
Representations and Warranties................................... 40
Certain Pre-Closing Covenants.................................... 40
No Solicitation of Transactions.................................. 41
Directors and Officers of Allied Following the Merger............ 42
Indemnification.................................................. 42
Financing........................................................ 43
Cooperation and Reasonable Best Efforts.......................... 43
Conditions to the Consummation of the Merger..................... 43
Termination...................................................... 44
Termination Fees................................................. 45
Amendment and Waiver............................................. 46
Expenses......................................................... 46
Certificate of Incorporation..................................... 46
Designations..................................................... 47
Stockholder Voting Agreements.................................... 47
Rollover Agreements.............................................. 49
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BUSINESS AND OPERATIONS OF ALLIED................................... 49
General.......................................................... 49
Corporate Organization........................................... 50
Forward Looking Statements....................................... 50
Multimedia Software Industry..................................... 50
Demand for Primary Products and Services......................... 50
Sales and Marketing.............................................. 51
Manufacturing.................................................... 54
Licenses......................................................... 55
Competition...................................................... 56
Employees........................................................ 57
Properties....................................................... 57
Legal Proceedings................................................ 59
PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA........................ 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................... 66
OWNERSHIP OF COMMON STOCK........................................... 70
STOCKHOLDER PROPOSALS............................................... 75
WHERE YOU CAN FIND MORE INFORMATION................................. 76
INDEPENDENT AUDITORS................................................ 76
OTHER MATTERS....................................................... 77
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS.............. F-1
Annex A -- Fairess Opinion.......................................... A-1
Annex B -- Merger Agreement with Exhibits attached thereto.......... B-1
Exhibit A-1 -- Form of Stockholder Voting Agreement
Exhibit A-2 -- Form of Rollover Agreement
Exhibit B-1 -- Form of Amended and Restated Certificate
of Incorporation of Allied Digital Technologies Corp.
(with staggered Board of Directors provision)
Exhibit B-2 -- Form of Amended and Restated Certificate
of Incorporation of Allied Digital Technologies Corp.
(without staggered Board of Directors provision)
Exhibit C -- Amended and Restated By-Laws of Allied
Digital Technologies Corp.
Exhibit D -- Schedule of Rollover Stockholers
Exhibit E -- Form of Opinion of Warshaw Burstein
Cohen Schlesingders & Kuh LLP
Annex C -- Section 262 of the Delaware General Corporation Law...... C-1
Annex D-1 -- Form of Amended and Restated Certificate of
Incorporation (with staggered Board of Directors
provision)........................................... D-1
Annex D-2 -- Form of Amended and Restated Certificate of
Incorporation (without staggered Board of Directors
provision............................................ D-2
Annex E -- Form of Stockholder Voting Agreement..................... E
Annex F -- Form of Rollover Agreement............................... F
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHY SHOULD ALLIED MERGE WITH AAC?
For Allied stockholders, the Merger provides liquidity for their shares of
common stock of the Company, par value $.01 per share ("Allied Common Stock"),
at a premium of approximately 47% over the average closing price for the
four-week period immediately preceding the date that Allied first made any
public announcement regarding the Merger. The Board of Directors has
determined that the Merger and the consideration to be received is fair and is
in the best interests of the Company's stockholders. See "Special Factors --
Recommendation of the Allied Board; Effects and Reasons for the Merger." Certain
members of Allied's Board of Directors have interests in the Merger in addition
to the interests of Allied Stockholders generally. See "Special Factors --
Conflicts of Interest."
WHO IS AAC?
Analog Acquisition Corp. is a Delaware corporation formed at the direction of
399 Venture Partners, Inc. ("399"), an affiliate of Citicorp Venture Capital,
Ltd., for the purpose of merging with and into Allied.
WHAT WILL BE RECEIVED IN EXCHANGE FOR ALLIED COMMON STOCK?
Other than 74,998 shares owned by certain members of management (collectively,
the "Rollover Shares"), 1,100,110 shares owned by 399 and shares owned by
stockholders who have demanded appraisal rights and satisfied the procedures
relating to appraisal rights, each share of Allied Common Stock will be
converted automatically into the right to receive $5.00 per share, without
interest. See "The Merger -- Ownership of Capital Stock."
WHERE AND WHEN IS THE SPECIAL MEETING?
The Special Meeting (and any adjournments of the Special Meeting) of Allied
Stockholders will be held at ______, local time, on August , 1998, at the
___________ .
HOW WILL I BE TAXED ON THE MERGER?
For U.S. Federal income tax purposes, the receipt of cash by holders of Allied
Common Stock will be a taxable transaction. All stockholders are urged to
consult their tax advisors to determine the effect of the Merger under federal
tax law (or foreign tax law where applicable), and under their own state and
local tax laws. See "The Merger -- Certain Federal Income Tax Consequences of
the Merger."
WHAT WILL HAPPEN TO ALLIED AFTER THE MERGER?
After the Merger, Allied Common Stock will no longer be publicly traded and,
therefore, the public will no longer participate in its future earnings and
growth. Allied will be privately owned by a group of investors, including
certain members of management who will continue to be employed by Allied after
the Merger. After the Merger, shares of Allied Common Stock will no longer be
listed on the American Stock Exchange, see "The Merger -- Certain Effects of
the Merger."
ARE THERE RISKS TO BE CONSIDERED?
The cash consideration of $5.00 for each share of Allied Common Stock will not
change even if the market price of Allied Common Stock changes before the
Merger is completed. For other factors to be considered. See "Special Factors
- -- Background of the Merger Transaction."
ARE ALLIED STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
Yes. Under Delaware General Corporation Law ("DGCL"), Allied stockholders are
entitled to appraisal rights. The rules governing satisfaction of the
requirements for exercising appraisal rights must be strictly complied with or
a stockholder's appraisal rights may be lost. For a description of these
rights and how to satisfy the requirements of the DGCL, see "The Merger --
Appraisal Rights" and Annex C.
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WHO CAN VOTE AT THE SPECIAL MEETING?
Holders of Allied Common Stock at the close of business on July __, 1998
(which is the Record Date) may vote at the Special Meeting. Each share of
Allied Common Stock is entitled to one vote.
WHAT VOTE IS REQUIRED?
The Merger must be approved by the holders of a majority of the shares of
Allied Common Stock outstanding on the Record Date. On the Record Date, there
were 13,623,394 shares of Allied Common Stock outstanding. In connection with
the Merger Agreement, AAC entered into stockholder voting agreements
("Stockholder Voting Agreements") with certain stockholders of Allied who are
directors and/or members of management. These Stockholder Voting Agreements
provide that shares of Allied Common Stock subject to these Stockholder Voting
Agreements will be voted in favor of the Merger and the Merger Agreement.
However, the provision in the Stockholder Voting Agreements that restricts the
stockholders from soliciting or responding to any Acquisition Proposal (as
defined therein) does not restrict any stockholder who is a director of Allied
from taking any actions that are taken in such stockholder's capacity as a
director of Allied. The number of shares of Allied Common Stock that will vote
for the Merger pursuant to all of these Stockholder Voting Agreements is
8,233,641, which represents approximately 60.4% of the shares of Allied Common
Stock that are entitled to vote at the Special Meeting. In addition, 399 owns
1,100,110 shares of Allied Common Stock or approximately 8.1%, which together
with the shares of Allied Common Stock that are subject to Stockholder Voting
Agreements amount to approximately 68.51% of the outstanding shares of Allied
Common Stock.
WHAT WILL HAPPEN TO OPTIONS TO PURCHASE ALLIED COMMON STOCK AND WARRANTS TO
PURCHASE ALLIED COMMON STOCK?
Except as otherwise provided in the Rollover Agreements, each option to
purchase Allied Common Stock, except for "Substitute Options" (as defined in
the Allied Amended and Restated 1994 Long Term Incentive Plan (the "Option
Plan")) or the Anchor Bay Option (as defined in the Merger Agreement),
outstanding immediately prior to the Effective Time (whether or not the option
is vested or exercisable) will be canceled and in exchange therefor, each
holder of an option to purchase Allied Common Stock will receive a cash
payment equal to the product of (a) the excess of the cash consideration in
the Merger over the exercise price of the option multiplied by (b) the number
of shares subject to the option, less any applicable withholding taxes.
The Class A warrants issued by Allied with an exercise price of $6.75 per
share of Allied Common Stock, Class B warrants issued by Allied with an
exercise price of $7.50 per share of Allied Common Stock and Class C warrants
issued by Allied with an exercise price of $9.00 per share of Allied Common
Stock (collectively, the "Warrants"), the Substitute Options, and the Anchor
Bay Option will have been adjusted in accordance with their terms, unless any
such Warrants have expired in accordance with their terms, such that, upon
exercise and payment of the exercise price, any holder thereof will have the
right to receive only $5.00 per share, and in no event will have the right to
receive any shares of capital stock of Allied or the Surviving Corporation.
Note that the Class A and Class B Warrants expire on July 28, 1998.
Certain members of management of Allied, including Donald L. Olesen, a Director
and President - National Sales and Marketing Division of Allied, and John K.
Mangini, Chief Operating Officer of Allied, will exercise certain options to
acquire shares of Allied Common Stock held by them which will be converted
into shares of Class A Common Stock of Surviving Corporation at the Effective
Time. See "Special Factors -- Conflicts of Interest".
IF MY SHARES OF ALLIED COMMON STOCK ARE HELD IN "STREETNAME" BY MY BROKER,
WILL MY BROKER VOTE MY SHARES FOR ME?
No. The law does not allow your broker to vote your shares of Allied Common
Stock on the Merger at the Special Meeting without your direction. You should
have received instructions from your broker regarding how to vote your shares.
Please follow the directions your broker provides to you. Shares that are not
voted because you do not instruct your broker are called "broker non-votes,"
and will have the effect of a vote "AGAINST" the Merger.
IF I SEND IN MY PROXY CARD BUT FORGET TO INDICATE MY VOTE, HOW WILL MY SHARES
BE VOTED?
If you sign and return your proxy card but do not indicate how your shares are
to be voted at the Special Meeting, the shares
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represented by your proxy will be voted "FOR" the Merger.
3
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WHAT SHOULD I DO NOW TO VOTE AT THE SPECIAL MEETING?
Sign, mark and mail your proxy card indicating your vote on the Merger in the
enclosed return envelope as soon as possible, so that your shares of Allied
Common Stock can be voted at the Special Meeting.
MAY I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
Yes. You may change your vote at any time before your proxy is voted at the
Allied Special Meeting. You can do this in three ways: First, you can send
Allied a written statement that you would like to revoke your proxy (which to
be effective must be received by Allied at its executive offices prior to the
vote of the Special Meeting). Second, you can send Allied a new proxy card
prior to the vote at the Special Meeting, which to be effective must be received
by Allied prior to the vote at the Special Meeting. You should send your
revocation or new proxy card to the Secretary of the Company at the address on
the cover of this Proxy Statement. Third, you can attend the Allied Special
Meeting and vote in person. However, your attendance alone will not revoke
your proxy, you must attend and cast your vote at the Special Meeting. If your
shares are held by a broker, you must follow the directions provided by your
broker to have your shares voted or to change your instructions.
DO I SEND IN MY STOCK CERTIFICATES NOW?
No. Assuming the Merger is completed, you will receive written instructions
for delivering your certificates representing Allied Common Stock in order to
receive the $5.00 cash consideration in the Merger from American Stock
Transfer & Trust Company, who has been appointed as Paying Agent in connection
with the Merger. DO NOT SEND YOUR CERTIFICATES NOW.
SUMMARY
Throughout this document the term "Merger" refers to the merger between Analog
Acquisition Corp., a Delaware corporation ("AAC"), and Allied Digital
Technologies Corp., a Delaware corporation ("Allied" or the "Company"), with
Allied being the surviving corporation (the "Surviving Corporation"). The term
"Merger Agreement" refers to the Agreement and Plan of Merger, dated May 5,
1998, between Allied and AAC, a copy of which is included as Annex B to this
Proxy Statement.
This summary may not contain all of the information that is important to you.
For a more complete understanding of the Merger and the other information
contained in this document, you should read this entire document carefully, as
well as the additional documents to which it refers. For instructions on
obtaining more information, see "Where You Can Find More Information."
ALLIED.................. Allied is engaged primarily in the duplication and
replication of multimedia software products.
Through its subsidiary, Allied Digital, Inc.
(formerly known as Hauppauge Record Manufacturing,
Ltd.), a New York corporation, the Company
duplicates and replicates film and video products
for the corporate communication, educational,
religious and special interests video markets, as
well as analog audiocassettes for the recorded
music and spoken word industries and compact discs
with a primary focus on the recorded music
industry. The Company's principal executive office
is located at 140 Fell Court, Hauppauge, New York
11788 and its telephone number is (516) 232-2323.
AAC..................... AAC is a Delaware corporation which was formed at
the direction of 399 Venture Partners, Inc.
("399"), an affiliate of Citicorp Venture Capital,
Ltd., solely for the purpose of merging with and
into Allied and furthering the transactions
contemplated by the Merger Agreement. 399 owns
1,100,110 shares of Allied Common Stock or
approximately 8.1% of the issued and outstanding
shares of Allied Common Stock. AAC has no other
material operations.
REASONS FOR
THE MERGER.............. The Company operates its businesses in industries
where its products are viewed by customers as
commodities with the primary product purchase
decision made on price, all other factors being
equal. Accordingly, the Company's products have
experienced declining unit prices over the past
several years. The restrictive nature of Allied's
existing credit facility limits Allied's ability to
expand its operating capacity and
4
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to offer additional services to its customers. The
Board of Directors of Allied believes that these
factors together with the relatively low public
float of the Company's stock make it improbable
that the public markets will value shares of
Allied's Common Stock consistently with the
Company's prospects. Accordingly, the Board of
Directors believes that it is fair and in the best
interests of Allied stockholders to accept $5.00 in
cash for their shares, a price determined by the
Allied Board of Directors' financial advisor to be
fair and a 47% premium over the average closing
price of Allied Common Stock for the four-week
period immediately preceding the date on which the
Company first publicly announced the Merger. See
"Special Factors -- Recommendation of the Allied
Board; Effects and Reasons for the Merger."
RECOMMENDATION
TO
STOCKHOLDERS............ Allied's Board of Directors has approved the Merger
and recommends that Allied stockholders vote "FOR"
the proposal to approve the Merger. See "Special
Factors -- The Board's Recommendation." Certain
members of Allied's Board of Directors have
interests in the Merger in addition to Allied
stockholders generally. See "Special Factors --
Conflicts of Interest".
DATE, TIME AND
PLACE OF THE
SPECIAL MEETING......... This Proxy Statement is being furnished to holders
of shares of Allied Common Stock in connection with
the approval of the Merger for use at the Special
Meeting. The Special Meeting will be held at the
__________________________________, located at
____________________, at __________, local time, on
August _, 1998, and at any adjournments thereof.
RECORD DATE............. The Company has set a record date for determining
those stockholders who are entitled to notice of
and to vote at the Special Meeting. The Record Date
is July __, 1998.
TOTAL VALUE OF
THE MERGER.............. The total transaction value of the Merger is expected
to be approximately $108,777,061, which includes
(i) approximately $62,241,430 in cash to be paid
for shares of Allied Common Stock, other than the
Rollover Shares, based on the number of shares of
Allied Common Stock outstanding on May 28, 1998;
(ii) $1,535,631 in cash to be paid to holders of
options to purchase shares of Allied Common Stock
(net of option exercise prices) when the Merger is
completed; and (iii) indebtedness of approximately
$45 million.
OPTIONS/
WARRANTS................ Except as otherwise provided in the Rollover
Agreements, each option to purchase Allied Common
Stock, except for Substitute Options or the Anchor
Bay Option, outstanding immediately prior to the
Effective Time (whether or not the option is vested
or exercisable) will be canceled and in exchange
therefor, each holder of an option to purchase Allied
Common Stock will receive a cash payment equal to
the product of (a) the excess of the cash
consideration in the Merger over the exercise price
of the option multiplied by (b) the number of shares
subject to the option, less any applicable
withholding taxes.
The Class A warrants issued by Allied with an
exercise price of $6.75 per share of Allied Common
Stock, Class B warrants issued by Allied with an
exercise price of $7.50 per share of Allied Common
Stock and Class C warrants issued by Allied with an
exercise price of $9.00 per share of Allied Common
Stock (collectively, the "Warrants"), the
Substitute Options, and the Anchor Bay Option will
have been adjusted in accordance with their terms,
unless any such Warrants have expired in accordance
with their terms, such that, upon exercise and
payment of the exercise price, any holder thereof
will have the right to receive only $5.00 per share,
and in no event will have the right to receive any
shares of capital stock of Allied or the Surviving
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Corporation. Note that Class A and Class B Warrants
expire on July 28, 1998.
INTERESTS OF
ALLIED
OFFICERS AND
DIRECTORS IN
THE MERGER AND
OTHER SPECIAL
FACTORS................. Donald L. Olesen, President - National Sales and
Marketing Division and a director of Allied, and
John K. Mangini, Chief Operating Officer of Allied,
will retain 26,250 and 26,248 shares of Allied
Common Stock, respectively, and convert them into
26,250 and 26,248 shares of Surviving Corporation
Class A Common Stock, respectively. In addition, Mr.
Mangini will own two shares of AAC Common Stock at
Closing which will be converted in the Merger into
two shares of Surviving Corporation Class A Common
Stock. Certain other members of management who are
not officers will retain an aggregate of 22,500
shares of Allied Common Stock which will be
converted into 22,500 shares of Surviving Corporation
Class A Common Stock after the Merger. It is
anticipated that George Fishman and William H.
Smith will retire upon consummation of the Merger.
Neither AAC nor Allied has any present intention to
change members of management of Allied. See
"Special Factors -- Conflicts of Interest" and
"Rollover Agreements" for further information.
APPRAISAL
RIGHTS.................. Under the DGCL, Allied's stockholders are entitled
to appraisal rights. Pursuant to the Merger
Agreement, the obligation of AAC to merge with and
into Allied is subject to the condition, which may
be waived by AAC, that holders of no more than 10%
of the outstanding shares of Allied Common Stock
qualify for appraisal rights in accordance with the
DGCL. See "Appraisal Rights" and Annex C.
CONDITIONS TO
THE MERGER.............. The Merger will be completed only if a number of
conditions are met or waived by Allied and AAC, as
appropriate. These conditions include:
- The stockholders of Allied approve the
Merger;
- Allied shall have received all necessary
financing for the consideration to
be paid to stockholders in the Merger;
- Holders of not more than 10% of the
outstanding shares of Allied Common
Stock qualify for appraisal rights in
accordance with the DGCL;
- AAC shall be reasonably satisfied that
the Merger will be recorded as a
recapitalization for financial reporting
purposes;
- No judgment, injunction or order
prohibiting the Merger exists;
- All necessary government approvals are
obtained.
See "Merger Agreement -- Conditions to the
Consummation of the Merger" for a complete
description.
SUPERIOR ACQUISI-
TION PROPOSALS
AND TERMINATION
FEE..................... Allied may accept another offer under certain
circumstances. However, Allied must pay AAC
$3,375,000, and reimburse AAC for its reasonable
out-of-pocket expenses up to a maximum of
$1,000,000, if the Merger Agreement is terminated
in the event that:
6
<PAGE>
- Allied's Board of Directors notifies AAC
that it has determined, in good faith,
and after consultation with and advice
from its financial advisors, that
another acquisition proposal is
reasonably likely to be subject to
completion and, if consummated, is
more favorable from a financial point
of view than the Merger ("Superior
Acquisition Proposal");
- Allied's Board of Directors approves,
recommends or endorses a Superior
Acquisition Proposal;
- Allied breaches any material
representation, warranty, covenant,
agreement or other obligation under
the Merger Agreement and the breach
continues without cure for a period of
30 days after notice by AAC, another
acquisition proposal has been made and
within 12 months of the termination by
AAC, Allied enters into a definitive
agreement or consummates an agreement
with respect to any other acquisition
proposal;
- the Merger has not occurred before
September 30, 1998, another
acquisition proposal has been made
and within 12 months of the
termination by AAC, Allied enters
into a definitive agreement or
consummates an agreement with respect
to any other acquisition proposal;
- Allied's Board of Directors
withdraws, modifies or amends, in a
manner adverse to AAC, its approval
of the Merger or its recommendation
that Allied's stockholders approve
the Merger, another acquisition
proposal has been made and, within 12
months of the termination by AAC,
Allied enters into a definitive
agreement or consummates an agreement
with respect to any other acquisition
proposal; or
- Allied fails to call a special
meeting of its stockholders to
consider and vote upon the Merger,
another acquisition proposal has been
made and, within 12 months of the
termination by AAC, Allied enters
into a definitive agreement or
consummates an agreement with respect
to any other acquisition proposal.
AMENDING OR WAIVING
TERMS OF THE
MERGER
AGREEMENT............... Allied and AAC may amend the Merger Agreement by
mutual consent before or after Allied's
stockholders vote on the Merger. Once Allied's
stockholders approve the Merger, however,
applicable law may require that subsequent
amendments be approved by Allied stockholders.
Also, either Allied or AAC may waive circumstances
that, under the Merger Agreement, would allow them
to withdraw from the Merger.
FEDERAL INCOME TAX
CONSEQUENCES............ The receipt of cash by holders of Allied Common Stock
will be a taxable transaction. All stockholders are
urged to consult their tax advisors to determine
the effect of the Merger on the holder under
federal law, and under their own state and local
tax laws. See "Special Factors -- Material Federal
Income Tax Consequences of the Merger."
ACCOUNTING
TREATMENT............... The Merger is intended to qualify as a
recapitalization for accounting purposes.
Accordingly, the Merger will have no impact on the
historical basis of Allied's assets and liabilities.
7
<PAGE>
REGULATORY AND
THIRD-PARTY
APPROVALS............... There are no material regulatory approvals required.
Failure to obtain non-material governmental
consents will not prevent completion of the Merger.
Note that, as a condition to the Merger, which may
be waived by AAC, Allied is obligated to obtain the
consents of various third parties, if necessary,
who are parties to contracts with Allied.
ALLIED COMMON STOCK
INFORMATION............. The closing price of a share of Allied Common Stock
on April 20, 1998, which was the day immediately
preceding Allied's announcement that it had received
an offer for a cash merger at $5.00 per share, was
$3.9375. The closing price of a share of Allied
Common Stock on May 4, 1998, which was the
last day before the public announcement of the
signing of the Merger Agreement, was $4.375. Also,
the closing price of a share of Allied Common Stock
on July __, 1998, which was the last trading day
for which a closing price was available before this
document was mailed, was $________.
ALLIED RECENT
EARNINGS................ Allied reported (i) second quarter net sales of
$39,554,000 and net income of $488,000, or $.04 per
dilutive share and (ii) for the six-month period
ended January 31, 1998, net sales of $88,592,000
and net income of $1,578,000, or $0.12 per dilutive
share.
OPINION OF
FURMAN SELZ............. Furman Selz LLC ("Furman Selz"), financial advisor
to the Independent Committee of the Allied Board of
Directors, has provided an opinion to the Board of
Directors dated May 4, 1998 that, subject to
certain factors stated in the opinion, the cash
price of $5.00 per share of Allied Common Stock
provided in the Merger Agreement is fair, from a
financial point of view, to holders of Allied
Common Stock. The full text of Furman Selz's
written opinion, which sets forth assumptions made,
matters considered and limitations on the review
undertaken by Furman Selz, is included at the back
of this document as Annex A. Furman Selz's opinion
was provided for the information and assistance of
Allied's Board of Directors and is not a
recommendation as to how Allied stockholders should
vote at the Special Meeting. Stockholders of Allied
are urged to, and should, read Furman Selz's opinion
carefully in its entirety. See Annex A.
8
<PAGE>
SUMMARY PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA
The following table sets forth summary pro forma unaudited condensed financial
data for the Company, as adjusted to give effect to the Transactions (as defined
herein), which have been derived from, and should be read in conjunction with,
the Pro Forma Unaudited Condensed Financial Data, including the notes thereto,
appearing elsewhere in this Proxy Statement. The summary pro forma unaudited
condensed financial data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Transactions had been consummated on the dates
indicated, nor is it necessarily indicative of future operating results or
financial position.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS DATA
(in thousands)
<TABLE>
<CAPTION>
Nine Month Period Ended Year Ended
April 30, 1998 July 31, 1997
------------------------- -------------
<S> <C> <C>
Net sales $ 127,110 $ 159,148
Cost of sales 99,868 127,034
----------- -----------
Gross profit 27,242 32,114
Operating expenses 19,539 24,830
----------- -----------
Income from operations 7,703 7,284
Interest expense (8,820) (12,195)
Other, net 162 168
----------- -----------
Loss before income taxes (955) (4,743)
Provision (benefit) for income taxes 446 (1,108)
----------- -----------
Net loss (1,401) (3,635)
Preferred stock dividends (1,485) (1,980)
----------- -----------
Net loss available to common stockholders $ (2,886) $ (5,615)
=========== ===========
Other Data:
Ratio of earnings to fixed charges(a) -- --
</TABLE>
- --------------
(a) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and fixed charges. Fixed
charges consist of the total of (i) interest, whether expensed or
capitalized, (ii) amortization of debt expense, whether expensed or
capitalized and (iii) that portion of rental expense considered to
represent interest cost. On a pro forma basis, for the nine months ended
April 30, 1998 and for the twelve months ended July 31, 1997, giving effect
to the Recapitalization as if it occurred on August 1, 1997 and August 1,
1996, respectively, earnings were insufficient to cover fixed charges by
$955,000 and $4,743,000, respectively.
9
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Information. Allied Common Stock is traded on the American Stock
Exchange, Inc. ("AMEX") under the symbol "ADK".
The Company's Class A Redeemable Warrants and the Company's Class B Redeemable
Warrants are traded on AMEX under the symbols "ADK.WS.A." and "ADK.WS.B." The
Company's Class C Warrants are privately held and no trading market for the
Company's Class C Warrants currently exists.
The following table sets forth for the periods indicated the high and low
sales prices per share for the Allied Common Stock and the high and low sales
prices per warrant of the Redeemable Warrants on AMEX. The information
with respect to AMEX quotations was obtained from AMEX.
<TABLE>
<CAPTION>
Allied Digital Allied Digital
Class A Class B
Allied Digital Redeemable Redeemable
Common Stock Warrants Warrants
------------ -------- --------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1996:
First Quarter (quarter ended October 31, 1995)......... $6 3/8 $5 1/8 $1 $7/8 $5/8 $1/2
Second Quarter (quarter ended January 31, 1996)........ $4 1/8 $3 3/4 $3/4 $5/16 $3/8 $1/4
Third Quarter (quarter ended April 30, 1996)........... $4 1/8 $3 3/8 $5/8 $3/8 $3/16 $1/4
Fourth Quarter (quarter ended July 31, 1996)........... $3 1/4 $2 5/8 $3/8 $1/4 $1/8 $1/8
Fiscal 1997:
First Quarter (quarter ended October 31, 1996)......... $3 1/8 $2 9/16 $5/16 $1/16 $1/8 $1/8
Second Quarter (quarter ended January 31, 1997)........ $3 3/8 $2 $1/8 $1/64 $1/8 $1/16
Third Quarter (quarter ended April 30, 1997)........... $2 5/8 $1 7/8 $1/32 $1/64 $1/8 $1/16
Fourth Quarter (quarter ended July 31, 1997)........... $2 1/8 $1 1/2 $1/32 $1/32 $1/16 $1/16
</TABLE>
As of May 28, 1998, the last sales price reported on AMEX for Allied Common
Stock was $4.625. The last sales prices reported on AMEX for the Class A
Redeemable Warrants and the Class B Redeemable Warrants were $0.03125 on May 28,
1998 and $0.01325 on May 28, 1998, respectively.
10
<PAGE>
As of May 28, 1998, there were approximately 82 record holders of Common Stock,
4 record holders of Class A Redeemable Warrants, 1 record holder of Class B
Redeemable Warrants, and 15 record holders of Class C Warrants.
Dividends. The Company has not paid any dividends on Allied Common Stock since
its inception. The payment of dividends, if any, will be contingent upon the
Company's revenues and earnings, if any, capital requirements and general
financial condition. It is the current policy of the Company's Board, in view
of the Company's contemplated financial requirements, to retain all earnings,
if any, for use in the Company's business operations.
In July 1997, the Board of Directors voted to extend the expiration date of
the Class A Redeemable Warrants and the Class B Redeemable Warrants one year
to July 28, 1998.
The Company is a legal entity separate and distinct from its subsidiaries. As
a holding company with no significant operations of its own, the principal
sources of its funds are dividends and other distributions from its operating
subsidiaries, borrowings and sales of equity. The right of the Company, and
consequently its shareholders, to participate in any distribution of assets of
any of its subsidiaries is subject to prior claims of creditors of such
subsidiary (except to the extent claims of the Company in its capacity as a
creditor are recognized). Restrictions contained in Allied's credit agreement
impose limitations on the amount of distributions that the Company's
subsidiaries may make to the Company and prohibit the Company from using any
such distributions to pay dividends to its shareholders.
On May 28, 1998, there were 13,623,394 shares of Allied Common Stock outstanding
and approximately 82 stockholders of record.
Prior to the commencement of trading on April 21, 1998, Allied publicly
announced that it had received a proposal to acquire all of Allied's outstanding
shares in a cash merger at $5 per share. The closing sale price of a share of
Allied Common Stock on the American Stock Exchange on April 20, 1998, the last
trading day prior to such announcement, was $3.9375.
The Company does not pay any cash dividends on its common stock and does not
have any plans to do so in the future. The Company intends to continue a policy
of retaining income for use in its business.
INFORMATION CONCERNING THE ALLIED SPECIAL MEETING
Throughout this document the term "Merger" refers to the merger between Analog
Acquisition Corp., a Delaware corporation ("AAC"), and Allied Digital
Technologies Corp., a Delaware corporation ("Allied" or the "Company"), with
Allied being the surviving corporation (the "Surviving Corporation"). The term
"Merger Agreement" refers to the Agreement and Plan of Merger, dated as of May
5, 1998, between Allied and AAC, a copy of which is included as Annex B to
this Proxy Statement.
This Proxy Statement (the "Proxy Statement") is being furnished to the
stockholders of Allied in connection with the solicitation of proxies by the
Board of Directors of Allied for use at the Special Meeting of Stockholders of
Allied (the "Special Meeting") to be held at the ____________________ located
at _____________________________________, at ____ a.m., local time, on August ,
1998, and at any adjournments or postponements of the Special Meeting. At the
Special Meeting, holders of record as of _________, 1998 of Allied Common
Stock will be eligible to vote upon the Allied Board of Directors'
recommendation to approve and adopt a plan of merger in accordance with the
Merger Agreement, pursuant to which (i) AAC shall be merged with and into
Allied, with Allied being the surviving corporation, and (ii) each outstanding
share of Allied Common Stock will be canceled and converted automatically into
the right to receive $5.00 in cash, payable to the holder thereof, without
interest, other than 74,998 shares of Allied Common Stock (the "Rollover
Shares") held by certain members of management, 1,100,110 shares of Allied
Common Stock owned by 399 and shares of Allied Common Stock held by
stockholders who are entitled to, and who have perfected, their appraisal
rights. See "Appraisal Rights" and "Rollover Agreements" for further
information.
This Proxy Statement and the accompanying form of proxy are first being mailed
on or about July ____, 1998, to all stockholders of record of Allied as of the
Record Date (as defined below).
RECORD DATE; VOTING RIGHTS
The Board of Directors has fixed the close of business on July __, 1998 as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of, and to vote at, the Special Meeting and any adjournment or
postponements thereof. Each holder of record of Allied Common Stock at the
close of business on the Record Date is entitled to one vote
11
<PAGE>
for each share then owned on each matter submitted to a vote of stockholders.
As of the Record Date, there were 13,623,394 shares of Allied Common Stock
outstanding. The holders of a majority of the outstanding shares entitled to
vote at the Special Meeting must be present in person or represented by proxy
to constitute a quorum for the transaction of business. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business.
Approval of the principal terms of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Allied Common
Stock entitled to vote at the Special Meeting pursuant to the General
Corporation Law of the State of Delaware (the "DGCL"). A failure to vote, an
abstention from voting, or a broker non-vote, will have the same legal effect as
a vote cast against approval of the Merger and the Merger Agreement. Brokers,
and in many cases nominees, will not have discretionary power to vote on the
proposals to be presented at the Special Meeting. Accordingly, beneficial owners
of shares must instruct their brokers or nominees how to vote their shares at
the Special Meeting.
Each of George Fishman, Donald L. Olesen (and related entities), and William
Smith (and related entities) have entered into Stockholder Voting Agreements
with AAC ("Stockholder Voting Agreements") setting forth, among other things,
that shares of Allied Common Stock owned by them will be voted in favor of the
Merger and the Merger Agreement. See "Stockholder Voting Agreements" for
further information. The shares covered by the Stockholder Voting Agreements,
together with the shares owned by 399 represent approximately 68.51% of the
issued and outstanding Allied Common Stock. Votes at the Special Meeting will
be tabulated by an Inspector of Election appointed by Allied.
The Allied Board of Directors, relying in part on the advice of its financial
advisors, has determined that the right to receive $5.00 in cash for each
share of Allied Common Stock is fair, from a financial point of view, to, and
in the best interests of, all of Allied's stockholders. However, any holder of
record of shares of Allied Common Stock who makes a written demand prior to
the taking of the vote regarding the Merger at the Special Meeting, by
following the procedures prescribed by Section 262 of the DGCL, and has the
right under Section 262 to an appraisal of the "fair value" of such shares by
the Delaware Court of Chancery, and to the payment of such fair value, by
Allied, as the surviving corporation in the Merger, in lieu of receiving the
consideration provided under the Merger Agreement (the "Appraisal Rights"). A
summary of the procedures relating to the exercise of Appraisal Rights as
provided in Section 262 of the DGCL is included herein under "The Merger --
Appraisal Rights" and a reproduction of Section 262 of the DGCL is attached as
Annex C. The obligation of AAC to merge with and into Allied is subject to the
condition, which may be waived by AAC, that holders of no more than 10% of the
outstanding shares of the Allied Common Stock satisfy the DGCL's procedures to
qualify for Appraisal Rights in accordance with Delaware law. See "The Merger
- -- Appraisal Rights" and Annex C.
PROXIES
A stockholder giving a proxy has the power to revoke it at any time before it
is exercised (i) by filing with the Secretary of Allied an instrument revoking
it before the vote of the Special Meeting; (ii) by executing a proxy bearing a
later date; or (iii) by attending the Special Meeting and voting in person at
the Special Meeting. Subject to such revocation, all shares represented by
each properly executed proxy received by Allied will be voted in accordance
with the instructions indicated thereof, and if no instructions are indicated,
will be voted to approve the Merger.
Allied will bear all of the expenses in connection with the printing and
mailing and the solicitation of proxies in connection with this Proxy
Statement. Allied will reimburse brokers, fiduciaries, custodians and other
nominees for reasonable out of pocket expenses incurred in sending this Proxy
Statement and other proxy materials to, and obtaining instructions relating to
such materials from, beneficial owners of stock. Allied stockholder proxies
may be solicited by directors, officers, regular employees or agents of
Allied, in person, by letter or by telephone or telegram.
Allied will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of their stock in
accordance with regulations of the Securities and Exchange Commission ("SEC")
and AMEX.
SURRENDER OF SHARE CERTIFICATES
American Stock Transfer & Trust Company has been designated to act as agent (the
"Paying Agent") for the benefit of the holders of shares of Allied Common Stock
in connection with the Merger to receive the $5.00 cash consideration to which
holders of shares will become entitled, and will deposit with the Paying Agent
the proceeds of the Debt Financing (as defined herein) required in order to
consummate the Merger. Such funds will be invested by the Paying Agent as
directed by the Surviving Corporation. Promptly after the date the Merger
becomes effective (the "Effective Time"), the Surviving Corporation will send,
or will cause
12
<PAGE>
the Paying Agent to send, to each holder of shares of Allied Common Stock
outstanding immediately prior to the Effective Time a letter of transmittal
(the "Letter of Transmittal") for use in effecting the surrender of
certificates. The Letter of Transmittal will specify that the delivery will be
effected, and risk of loss and title will pass, only upon proper delivery of
the certificates representing shares of Allied Common Stock to the Paying
Agent. American Stock Transfer & Trust Company will receive a fee which Allied
expects will not exceed $12,500 as compensation for its services plus
reimbursement of its out-of-pocket expenses in connection therewith. Allied
has agreed to indemnify the Paying Agent against certain liabilities arising
out of or in connection with its engagement.
Each holder of Allied Common Stock that has been converted into the right to
receive the cash consideration in the Merger, upon surrender to the Paying
Agent of a certificate or certificates representing such shares, together with
a properly completed Letter of Transmittal covering such shares, will be
entitled to receive the cash consideration payable in respect of such shares.
Until so surrendered, each such certificate will, after the Effective Time,
represent for all purposes, only the right to receive such cash consideration.
No interest will be paid or will accrue on any cash payable as cash
consideration in the Merger.
If any portion of the cash consideration is to be paid to a person other than
the registered holder of the shares of Allied Common Stock represented by the
certificate or certificates surrendered in exchange therefor, it will be a
condition to such payment that the certificate or certificates so surrendered
will be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such payment will pay to the Paying Agent any transfer
or other taxes required as a result of such payment to a person other than the
registered holder of such shares or establish to the satisfaction of the
Paying Agent that such tax has been paid or is not payable.
At any time following the sixth month after the Effective Time, the Surviving
Corporation will be entitled to require the Paying Agent to deliver to it any
funds which had been made available to the Paying Agent and not disbursed to
holders of Allied Common Stock, and thereafter such holders will be entitled
to look to the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) only as general creditors thereof with respect to any
cash consideration that may be payable upon due surrender of the certificates
held by them to the fullest extent permitted by law. Notwithstanding the
foregoing, to the fullest extent permitted by law, neither the Surviving
Corporation nor the Paying Agent will be liable to any holder of a share for
any merger consideration delivered in respect of such share to a public
official pursuant to any abandoned property, escheat or other similar law.
Any portion of the cash consideration made available to the Paying Agent to
pay for shares of Allied Common Stock for which appraisal rights have been
perfected will be returned to Allied, upon demand.
At the Effective Time, the stock transfer books of Allied will be closed to the
extent permitted by applicable law and thereafter there will be no further
registration of transfers of Allied Common Stock on the records of Allied. From
and after the Effective Time, the holders of Allied Common Stock outstanding
immediately prior to the Effective Time will cease to have any rights with
respect to such shares except as provided in the Merger Agreement or by
applicable law.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE TO
THE STOCKHOLDERS OF ALLIED.
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROXY STATEMENT AND TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ALLIED IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
SPECIAL FACTORS
BACKGROUND OF THE MERGER TRANSACTION
The terms of the Merger Agreement are the result of arms-length negotiations
between representatives, legal counsel and financial advisors of Allied and
those of AAC. The following is a brief discussion of the background of those
negotiations.
The Board of Directors of Allied believes that the public markets have not
valued Allied's Common Stock consistently with the prospects of Allied's
business. Accordingly, the Board of Directors and management of Allied have
from time to time considered and/or acted upon strategic alternatives for
Allied, including acquisitions within its industry and a sale of all or a
portion of its business.
13
<PAGE>
In June 1997, Allied received an unsolicited inquiry from a company in its
industry (the "First Bidder") concerning a possible transaction between the
First Bidder and Allied. Following such inquiry, Allied entered into a
confidentiality agreement with the First Bidder, and members of management of
Allied met and shared certain non-public information with its representatives.
As a result of such discussions and its review of such information, the First
Bidder submitted a written proposal in which it offered to acquire Allied at
the then current market price of $1.875 per share, payable in common stock of
the First Bidder. After reviewing the proposal, management of Allied, with the
knowledge of the Board, determined that the consideration offered by the First
Bidder was substantially below the fair value of Allied's Common Stock and
would not maximize shareholder value. Based upon such determination, Allied
rejected the First Bidder's proposal.
Around November of 1997, members of the Board of Directors and management held
internal discussions concerning the desirability of pursuing a sale of Allied in
light of Allied's recent financial performance, the present strength of the
mergers and acquisitions market, the conditions in the industry and the state of
the economy in general. At such time, George N. Fishman, Co-Chairman and Chief
Executive Officer of Allied, was approached by John K. Percival, an investment
banker and financial advisor who had business relations with persons with whom
Mr. Fishman was familiar, to discuss possible strategic opportunities for
Allied. Mr. Fishman met with Mr. Percival to conduct more detailed discussions
regarding strategic alternatives that might be available to Allied. Based upon
these discussions, Mr. Percival was retained by Allied on November 20, 1997 to
act as Allied's financial advisor in connection with the possible merger with,
or sale of all of Allied's assets or stock to, a third party.
Following the engagement of Mr. Percival, Mr. Percival discussed with the
Board of Directors various strategies for finding potential strategic
partners. Based upon Mr. Percival's advice, the Board determined that a public
canvass of the marketplace might adversely affect Allied's relationships with
its employees, customers and suppliers and concluded that conducting a general
solicitation for an acquiror could potentially diminish Allied's perceived
value to acquirors and was not the best way to maximize shareholder value.
Rather, the Board decided that the best way to maximize shareholder value was
to contact, through Mr. Percival, a select group of potential acquirors and to
cooperate fully with any potential bidder who came forward.
In accordance with the Board's decision, Mr. Percival began contacting a
select group of potential acquirors in December 1997 to solicit their interest
in a possible transaction with Allied and arranged for the execution of
confidentiality agreements by interested parties. Upon execution of a
confidentiality agreement, each potential acquiror was provided with a package
of non-public information relating to Allied, including certain projections.
On December 15, 1997, Allied entered into a confidentiality agreement with one
such interested party (the "Second Bidder"). The Second Bidder visited Allied's
facilities in Hauppauge, New York on December 16, 1997 for the purpose of
meeting with management and examining non-public information relating to Allied.
The Second Bidder submitted a written proposal dated January 26, 1998, in which
it offered to acquire Allied in a transaction that would result in management
and directors receiving $4.00 per share, consisting of $2.40 in cash and $1.60
in notes, and the remaining stockholders receiving cash consideration of $5.00
per share. The Second Bidder conditioned consummation of a merger with Allied on
Allied achieving certain targeted earnings benchmarks. After considering the
proposal, the Board determined that the Second Bidder's proposal was inadequate.
Upon instructions from the Board, Mr. Percival communicated the Board's decision
to the Second Bidder and invited it to increase the consideration offered in its
proposal and eliminate the condition relating to targeted earnings. The Second
Bidder declined to do so and withdrew its bid and discussions with the Second
Bidder were then terminated.
In early January, 1998, Mr. Percival contacted Citicorp Venture Capital, Ltd.
("CVC") to solicit its interest in a possible transaction with Allied. CVC
already had familiarity with Allied because 399, an affiliate of CVC, is the
owner of 1,100,110 shares of Allied or approximately 8.1% of the outstanding
shares of Allied Common Stock. On January 12, 1998, CVC signed a
confidentiality agreement with the Company and on February 4, 1998, CVC
representatives met with members of Allied management at Allied's headquarters
in Hauppauge, New York and reviewed a package of non-public information
relating to Allied.
On February 9, 1998, CVC delivered a letter to Allied proposing to acquire
Allied in a cash merger, through a new company to be formed, directly or
indirectly, at the direction of CVC, in which all Allied shareholders would
receive $5.00 cash per share. The proposal was contingent upon completion of due
diligence, including a pre-acquisition review by a public accounting firm, and
completion of financing arrangements.
On February 20, CVC delivered a follow-up letter to Allied in which it
disclosed additional details pertaining to its proposal. First, CVC would
seek to enter into an exclusivity agreement with Allied that would prohibit
Allied while negotiating with CVC from soliciting other offers or providing
information to competing bidders over a seven week period; Allied would be
entitled, however, to consider unsolicited offers during such time. Second,
CVC would be entitled to a break up/expense reimbursement
14
<PAGE>
fee of 3% of the total transaction value, or $3.375 million, in the event
Allied elected to pursue alternative proposals or offers during the seven-week
exclusivity period.
On February 23, 1998, the Board held a telephonic meeting to discuss the CVC
proposal. The Board was advised by Mr. Fishman that CVC appeared to be
unwilling to invest more time, money and resources toward pursuing a
transaction with Allied unless Allied was willing to negotiate exclusively
with it, subject to Allied being permitted to consider unsolicited offers.
After considering all relevant issues, including the fact that all other
interested parties had either declined to make an offer or, as stated above in
the case of the First Bidder and the Second Bidder, offered consideration
inferior to what CVC was offering, the Board authorized Mr. Percival to seek
an exclusivity agreement with CVC on terms more favorable to Allied, including
a lower break-up fee and a shorter exclusivity period, which might otherwise
have a discouraging effect on other potential bidders.
The Allied Board met again on February 26, 1998 prior to and immediately
following Allied's annual stockholder meeting. The Board further discussed the
terms of the CVC proposal. The Board also discussed an unsolicited letter that
was delivered to Allied on February 23, 1998 from a third party (the "Third
Bidder") in which the Third Bidder proposed to acquire all outstanding shares
for cash at a price per share that reflected a total enterprise value
(including outstanding debt) of approximately $110-$120 million. The Third
Bidder made its proposal contingent on obtaining satisfactory financing, on
completion of a satisfactory due diligence review and on Allied meeting
certain minimum financial tests. The Board agreed that it was in the best
interests of Allied's Stockholders to have discussions with the Third Bidder.
The Board instructed Mr. Percival to secure a confidentiality agreement with
the Third Bidder and arrange for it to review the package of non-public
information inspected by the other interested parties. The Board also
instructed Mr. Percival to solicit a higher cash offer from CVC.
Representatives of the Third Bidder met with members of Allied's management at
Allied's Hauppauge, New York headquarters on March 5, 1998 and reviewed the
package of non-public information. Following such meeting, the Third Bidder
informed Allied that it would be unable to secure the requisite financing to
support a transaction with Allied and withdrew its proposal, and discussions
with the Third Bidder were terminated.
Following the February 23, 1998 Board Meeting, Mr. Percival held several
discussions with representatives of CVC to solicit a higher cash offer and
negotiate an exclusivity arrangement on terms more favorable to Allied than
those originally proposed. As a result of such discussions, CVC declined to
raise its cash offer but agreed to reduce the period of exclusivity from seven
to six weeks and to reduce the break up/expense reimbursement fee from $3.375
million. Specifically, CVC agreed to reduce the break-up/expense reimbursement
fee as follows: if Allied breached the exclusivity agreement prior to the
earlier of (i) 30 days following the date of signing of the exclusivity
agreement and (ii) the date of delivery by CVC to Allied of a highly confident
letter from a nationally recognized financial institution and a letter of
acknowledgment from CVC that a pre-acquisition due diligence review by a
public accounting firm has been completed and that CVC was then prepared to
proceed with negotiations toward completion of a definitive merger agreement
(the "CVC Delivery Letters"), Allied would be required to reimburse CVC for
all of its reasonable out-of-pocket expenses up to $1 million, or if Allied
received a superior offer, Allied would have to reimburse CVC for such
expenses up to $1 million if Allied consummated such other transaction, or
consummated any other transaction within six months of notifying CVC of the
original superior offer. If Allied breached the exclusivity agreement
following the delivery of the CVC Delivery Letters, Allied would have to pay
CVC $2.5 million promptly. In addition, if CVC delivered the CVC Delivery
Letters prior to the expiration of the six week exclusivity period (the
"Termination Date") and following such delivery of the CVC Delivery Letters,
Allied delivered a notice to CVC that Allied accepted a superior offer, Allied
would be obligated to pay CVC $2.5 million if any other acquisition were
consummated within six months following the Termination Date.
The Allied Board approved the foregoing terms and Allied and CVC executed the
exclusivity agreement on March 10, 1998 (the "Exclusivity Agreement").
Following the execution of the Exclusivity Agreement, representatives of CVC
began conducting its due diligence investigation of Allied. On March 20 and
March 23, representatives of CVC held meetings with Allied management at
Allied's headquarters in Hauppauge, New York. Also in attendance at such
meetings were representatives of JP Morgan Securities Inc. ("JP Morgan"), with
whom CVC had been conducting discussions regarding the possibility of JP
Morgan participating in the contemplated public or private offering of debt
securities to partly finance the Merger. During such time, representatives of
Price Waterhouse L.L.P. performed a review and analysis of Allied's business
for the purpose of preparing and delivering a report of their findings to CVC.
On approximately April 2, 1998, Allied, its counsel and Mr. Percival, and
representatives of CVC and AAC and their counsel, began negotiating the terms
of the Merger Agreement, including, among other issues, the amount of the
break-up fee payable
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<PAGE>
following the execution of the Merger Agreement, the scope of Allied's
representations and warranties and the disclosure schedules, and
responsibility for expenses payable upon termination. AAC had also expressed
its unwillingness to enter into the Merger Agreement unless certain
stockholders of Allied executed the Stockholder Voting Agreements to vote
their shares in favor of the Merger. See "Stockholder Voting Agreements."
Because of the additional resources to be devoted by AAC following the
execution of the Merger Agreement, AAC insisted that it be entitled to a
break-up fee payable by Allied following the execution of the Merger Agreement
that was higher than the break-up fee payable pursuant to the Exclusivity
Agreement, consisting of $3.375 million plus reimbursement of its expenses
(without a maximum) as well as a fee payable by each of the Allied
stockholders who would be party to any of the Stockholder Voting Agreements
equal to 50% of the differential between the consideration offered by AAC and
the consideration agreed to with a higher bidder. As a result of extensive
negotiations conducted by counsel to the respective parties during which AAC
made it clear that it would withdraw its offer if its proposed terms for a
break-up fee were not substantially agreed to, the parties agreed that AAC
would be entitled to a break-up fee payable by Allied equal to $3.375 million,
but with a cap on its right to expense reimbursement equal to $1 million, and
with no right to share in any increased consideration payable to stockholders
who are parties to the Stockholder Voting Agreements. In addition, the parties
agreed to limit the stockholders who would be required to execute a
Stockholder Voting Agreement to George N. Fishman, William H. Smith, related
trusts and members of his family, and Donald L. Olesen, and related trusts and
members of his family.
CVC proposed that Allied itself, as opposed to AAC, issue the debt securities
to be offered in connection with the Merger (the "Debt Financing") in order
that the transaction be treated as a leveraged recapitalization. Accordingly,
Allied insisted that it be reimbursed for all expenses incurred by it in the
event that the Merger is not consummated, or at a minimum, any expenses
relating to the Debt Financing and new revolving credit facility. After
extensive negotiations, the parties agreed that Allied would not incur any
expenses relating to the Debt Financing and the revolving credit facility. On
May 4, 1998, 399 and AAC signed an agreement (the "Debt Expense Agreement")
providing that in the event the Merger is not consummated, 399 and AAC will,
jointly and severally, be responsible for the payment of any fees due, or
reimbursement of any expenses incurred by, JP Morgan or any other lender
relating to the Debt Financing proposed in connection with the Merger,
including without limitation the new revolving credit facility. The Debt
Expense Agreement specifically provided that Allied would be entitled to rely
on it.
Because CVC's proposal letter of March 2, 1998 contemplated that certain
members of management, including Donald L. Olesen, who is also a director of
Allied, would retain a continuing equity interest in the Surviving Corporation
following the merger, the Board of Directors elected to establish an
independent committee of directors (the "Independent Committee") consisting of
Seymour Leslie and Eugene A. Gargaro, Jr., neither of whom is contemplated to
have any continuing interest in Allied following the Merger, and authorized
the Independent Committee to engage a financial advisor (which would include
interviewing candidates and negotiating compensation for the financial
advisor) to render a fairness opinion to the Board of Directors, and to
coordinate with the financial advisor in presenting the conclusions of the
financial advisor to the Board.
On April 15, 1998, Mr. Leslie, on behalf of the Independent Committee, held
separate meetings with Furman Selz and BT Alex.Brown Incorporated, and
considered proposals from each as to the possible engagement of such institution
by the Independent Committee to render an opinion as to the fairness from a
financial point of view of the $5.00 offer. The Independent Committee had
invited two other institutions, Cowen & Co. ("Cowen") and SBC Warburg Dillon
Read, Inc. ("Dillon Read") to make proposals for such engagement. Dillon Read
declined to bid for the engagement. Cowen declined the invitation to meet in
person with the Independent Committee but submitted its proposal in writing.
Based upon all relevant factors, including professional reputation and fees, and
after reviewing the proposal letters submitted by each of the foregoing
institutions, the Independent Committee recommended to the Board that Allied
retain Furman Selz to render an opinion as to the fairness, from a financial
point of view, of the $5.00 per share proposal by CVC. The Independent Committee
also recommended the engagement of the law firm of Olshan, Grundman, Frome &
Rosenzweig ("Olshan Grundman") as special counsel to the Independent Committee.
The Board approved the engagement of both firms, and on April 29, 1998, Allied
executed an engagement letter with Furman Selz and retained Olshan Grundman.
On April 20, 1998, Allied and AAC agreed to amend the Exclusivity Agreement
and extend the termination of the exclusivity period from April 21, 1998 to
May 12, 1998.
On April 21, 1998, in response to unusual trading activity in shares of Allied
Common Stock, Allied publicly announced that it received a proposal to acquire
all of Allied's outstanding shares in a cash merger at $5.00 per share and
that it agreed with the party making the proposal not to solicit offers for a
certain period of time.
On April 21, 1998, 399 delivered a letter to AAC pursuant to which 399 agreed
to acquire outstanding capital stock of AAC in exchange for $13,124,450 (the
"Equity Investment") and not to receive cash merger consideration in the
Merger in the sum
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<PAGE>
of $5,500,550 in respect of the 1,100,110 shares of Allied Common Stock owned
by 399, which shares will be converted into shares of Capital Stock in the
Surviving Corporation following the Merger.
On April 21, 1998, JP Morgan delivered a letter to CVC stating that it was
highly confident that up to $100 million principal amount of debt securities
can be sold as publicly registered securities or in a private sale to
institutions pursuant to Rule 144A under current capital market conditions
(the "Highly Confident Letter").
The Highly Confident Letter, however, expressly states that it does not
constitute a commitment or undertaking on the part of JP Morgan to purchase or
place any of these debt securities on behalf of CVC or Allied. In addition,
the Highly Confident Letter, speaks only as of the date of its issuance and is
subject to a number of significant qualifications, including: (i) the absence
of any material adverse change in the current U.S. financial markets or U.S.
regulatory conditions generally, or in the high yield debt market for new
issuance of senior subordinated securities specifically, or in the condition
(financial or otherwise), business or prospects of Allied and its subsidiaries
taken as a whole, since the date of Allied's latest financial statements; (ii)
all necessary actions by governmental agencies having been taken and the
receipt of any necessary third-party approvals or consents, the absence of any
order or injunction restraining the merger and the absence of other pending
litigation involving AAC or Allied or its subsidiaries as to which, in the
judgment of JP Morgan, there is a reasonable possibility of an outcome which
could materially adversely affect AAC's or Allied's ability to perform its
obligations under the debt securities; (iii) the negotiation and execution of
all necessary agreements to provide for the Merger and the financings thereof,
including a customary underwriting agreement with respect to the debt
securities, all on terms and conditions satisfactory to JP Morgan; (iv) the
rating of the debt securities by Standard & Poor's Rating Group of at least B-
or higher and by Moody's Investor Services of at least B3 or higher; (v) the
availability of audited and unaudited consolidated financial statements of AAC
and Allied, as well as any required audited and unaudited pro forma
consolidated financial statements of AAC and Allied that meet the requirements
of Regulation S-X; (vi) the satisfaction of all conditions regarding the
availability of the Equity Investment (other than the closing of the sale of
the debt securities) as well as evidence of committed bank financing
acceptable to JP Morgan in the form of a working capital facility and (vii)
satisfactory completion by JP Morgan of its due diligence (including
discussions with customers and consultants and advisors employed by CVC) up
until the issuance of the debt securities with respect to the financial
condition, business, results of operations and prospects of AAC, Allied and
their businesses.
On May 1, 1998, Mr. Leslie, on behalf of the Independent Committee, met with
representatives of Furman Selz, who made an oral presentation to Mr. Leslie
regarding the fairness of the consideration, from a financial point of view, to
be paid to the Allied stockholders in the Merger.
On May 3, 1998, AAC delivered the Highly Confident Letter to the Company.
On May 4, 1998, the Board of Directors of Allied held a special telephonic
meeting for the purpose of considering the draft of the Merger Agreement that
was delivered to each of the directors. All the directors were present except
Mr. Olesen, who is expected to remain employed by, and retain a continuing
equity interest in, the Surviving Corporation. Also in attendance at the
meeting were Mr. Percival, counsel to Allied, counsel to the Independent
Committee, and representatives of Furman Selz. After the Special Meeting was
called to order, Mr. Percival brought the Board of Directors up-to-date
regarding his activities on behalf of Allied and reported on the entities that
he contacted regarding a possible transaction involving Allied. Mr. Percival
reported that, other than CVC, no other viable bidder had emerged. In
addition, Mr. Percival noted that since the Company's public announcement on
April 21, 1998 of the receipt of an offer of $5.00 per share, no other candidate
had proposed a transaction involving the Company.
Furman Selz then delivered its oral opinion (subsequently confirmed in
writing) to the Board of Directors of Allied that, based upon and subject to
the matters set forth in its written opinion, the consideration to be
offered in the Merger is fair, from a financial point of view, to the holders
of Allied Common Stock. See "Fairness Opinion".
The Board of Directors then reviewed the basic provisions of the Merger and
the actions contemplated by the Merger. In addition, the Board of Directors
discussed the execution of the Stockholder Voting Agreements by certain
stockholders. Counsel to the Company outlined for the Board of Directors the
structure of the Merger and the principal terms of the Merger Agreement,
including the significant covenants and conditions, the provisions for
termination, payment of a termination fee, expense reimbursement and the
directors' responsibilities as members of the Allied Board of Directors.
After a lengthy discussion, the Board of Directors (except Mr. Olesen, who did
not participate in the meeting (see above)) (i) voted to approve the Merger
Agreement, stating its belief that the Merger is fair and in the best
interests of the stockholders, and recommended to the stockholders that they
approve and adopt the Merger Agreement; and (ii) authorized the officers to
sign the Merger Agreement.
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On May 5, 1998, the Company and AAC entered into the Merger Agreement. On the
same day, the Company announced that it had entered into a definitive Merger
Agreement with AAC. To date, there have been no other indications of interest
from other prospective parties.
Other than in connection with the transactions as described above, there have
been no material transactions between the Company and AAC.
RECOMMENDATION OF THE ALLIED BOARD; EFFECTS AND REASONS FOR THE MERGER
From April 28, 1998 until May 4, 1998, Furman Selz, at the request of the
Independent Committee, evaluated and reported on the $5.00 offer made by CVC. At
its May 4, 1998 meeting, the Board of Directors received a presentation by
representatives of Furman Selz with respect to the fairness, from a financial
point of view, of the $5.00 per share in cash to be received by the Allied
stockholders in the Merger. Following their presentation, Furman Selz
delivered its opinion that the cash consideration to be received by the Allied
stockholders in the Merger was fair, from a financial point of view, to
Allied's stockholders.
The Merger has not been structured so that approval of at least a majority of
unaffiliated security holders is required.
THE BOARD OF DIRECTORS, IN A VOTE OF 7 TO 0 WITHOUT THE PARTICIPATION OF MR.
OLESEN (SEE " -- BACKGROUND OF THE MERGER TRANSACTION"), DETERMINED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE ALLIED UNAFFILIATED
STOCKHOLDERS AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE IN FAVOR OF THE
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT INCLUDING A MAJORITY OF
NON-EMPLOYEE DIRECTORS. CERTAIN MEMBERS OF THE BOARD OF DIRECTORS HAVE INTERESTS
IN THE MERGER IN ADDITION TO THE INTERESTS OF ALLIED STOCKHOLDERS GENERALLY.
SEE "-- CONFLICTS OF INTEREST". A MAJORITY OF DIRECTORS OF ALLIED WHO ARE NOT
EMPLOYEES OF ALLIED HAVE APPROVED THE MERGER.
In reaching its determination and recommendation, the Board was influenced by
the following factors:
(i) During a three month period beginning in December of 1997, Mr.
Percival contacted a select group of potential acquirors to solicit
their interest in a possible transaction with Allied. Despite these
efforts, only CVC made a firm offer to acquire Allied. See
"--Background of the Merger Transaction";
(ii) Furman Selz presented its analysis and rendered its opinion to
the effect that, as of the date of such opinion, and based upon and
subject to the assumptions, limitations and qualifications set forth
in such opinion, the $5.00 per share in cash to be received by
Allied's stockholders in the Merger was fair to such holders from a
financial point of view. In arriving at its opinion, Furman Selz
reviewed premiums paid on companies' stock prices in comparable
transactions performed a leveraged acquisition analysis to determine
an overall implied pre-tax value per share for Allied, and performed
an aggregate valuable analysis based on discounted cash flows. See
"-- Fairness Opinion";
(iii) Following the public announcement of the receipt by Allied of a
proposal to acquire all of Allied's outstanding shares in a cash
merger at $5.00 per share and during the two-week period leading up to
the execution of the Merger Agreement, no other party proposed any
other transaction for the Company to consider;
(iv) The combined resources of 399 and CVC, together with the nature
and sources of financing, including that to be provided by other
sources, contemplated to complete the Merger, indicated a strong
likelihood that the Merger would be completed. 399 had made a
commitment in writing on April 21, 1998 to make an equity
contribution of $13,124,450 to be used to partially fund the payment
of the cash consideration and expenses incurred in the Merger. JP
Morgan had delivered a letter to CVC on April 21, 1998, which was
delivered to Allied on May 3, 1998, stating that it was highly
confident that up to $100 million principal amount of debt securities
can be sold as publicly registered securities or in a private sale to
institutions. See "The Merger -- Debt Financing".
(v) The combination of the Company's products experiencing declining
unit prices as a result of the
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<PAGE>
Company's customers' viewing the Company's products as commodities
with their primary product purchase decision made on price, and the
low public float of Allied Common Stock making it improbable that
Allied Common Stock would be valued in the public market at levels
consistent with the Company's prospects;
(vi) The restrictive nature of Allied's existing credit facility
limits Allied's ability to expand its operating capacity and offer
additional services to its customers; and
(vii) The Merger consideration of $5.00 per share represents a 47%
premium over the average closing price for shares of Allied Common
Stock for the four-week period immediately preceding the date that
Allied first made any public announcement regarding the Merger.
The foregoing factors contributed to the Board's determination that the Merger
is fair to the unaffiliated stockholders. In view of the wide variety of
factors considered in connection with its consideration of the proposed
Merger, the Board of Directors did not find it practicable, and did not
quantify or otherwise attempt, to assign relative weights to the specific
factors considered in reaching its determination. The Board did not consider
Allied's liquidation value because a liquidation of Allied was not considered by
management to be a viable option and, in any event, would have resulted in a per
share value far below the $5 consideration offered in the Merger.
In making its fairness determination, the Board of Directors considered that,
although the Merger Agreement provides that the Company may not solicit or
encourage any Acquisition Proposal (as defined in the Merger Agreement) the
Company may, if the Board's fiduciary responsibilities under applicable law (as
advised by counsel) so require, participate in negotiations with third parties
with respect to a Superior Acquisition Proposal (as defined in the Merger
Agreement) before the Merger is consummated. In this regard, the Board of
Directors considered the potential chilling effect on offers or proposals for an
Acquisition Proposal that could be caused by the provisions of the Merger
Agreement that provide for the payment of a $3.375 million termination fee and
reimbursement of expenses incurred by AAC up to $1 million under certain
circumstances. The Board of Directors believed that (i) a discrete but effective
solicitation process had taken place in a way that did not adversely affect
relationships with Allied's employees, customers and suppliers and that Allied's
perceived value to potential acquirors was not diminished; (ii) the lack of an
expression of interest from any other potential bidder following the public
announcement on April 21, 1998 made it unlikely that an Acquisition Proposal
from another party would materialize; (iii) preliminary proposals received from
and the financing resources of 399 and CVC enhanced the probability of closing
the transaction; and (iv) CVC made it clear that it would withdraw its offer if
the termination fees and expense reimbursement terms of the Merger Agreement
were not accepted. After considering these factors, in addition to the fact that
the termination fee requested by CVC as a percentage of Allied's total
enterprise value was equal to the mean of termination fees payable in
approximately 150 transactions of this size that reported termination fees since
1995, the Board concluded that the provisions relating to the expense
reimbursement and termination fees requested by CVC were not unreasonable and
that the Company still would be able to entertain a Superior Acquisition
Proposal that would benefit the stockholders notwithstanding such termination
fees and expenses.
Because the Board of Directors created an Independent Committee of directors,
consisting of directors who are not employees of Allied and who will not have
any continuing interest in the Surviving Corporation, to engage an investment
bank to render an opinion as to the fairness, from a financial point of view,
of the consideration to be paid to Allied's stockholders in the Merger, and
the investment bank engaged by the Independent Committee delivered its opinion
that such consideration was fair to Allied's stockholders, and because the
Merger was approved unanimously by all directors who are not employees of
Allied, the Board believed it was not necessary to structure the Merger so as
to (i) require approval of at least a majority of unaffiliated security
holders, and (ii) have a majority of directors who are not employees of Allied
retain an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purpose of negotiating the terms of the Merger and/or
preparing a report concerning the fairness of the Merger.
In considering whether the Merger is fair to Allied's unaffiliated
stockholders and whether to approve the Merger, the Board reviewed estimates
of future financial results prepared by management. The Company does not, as a
matter of course, make public forecasts or estimates as to future financial
results. However, management of the Company, in connection with the possible
sale of the Company, prepared and provided to John K. Percival for delivery to
potential bidders (including 399), to representatives of Furman Selz, to
members of the Independent Committee, and to various financing sources certain
estimates of future operations for fiscal years 1998 through 2002. These
estimates of future operations, which are summarized in the table below, do
not reflect the debt to be incurred in connection with the Merger. See "The
Merger -- Debt Financing."
None of these estimates was prepared with a view to public disclosure or
compliance with published guidelines of the SEC or the guidelines established
by the American Institute of Certified Public Accountants regarding
projections. Grant Thornton LLP, the Company's independent public accountants,
has not performed any procedures with respect to these estimates of future
operations and assumes no responsibility for them. Although the Company
believes it had a reasonable basis for the
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<PAGE>
estimates at the time of their presentation, they are only an estimate, and
actual results may vary considerably. Neither the Board of Directors nor any of
the Company's advisors, agents or representatives assumes any responsibility for
the accuracy of any of these estimates. Actual results may be materially higher
or lower than those shown. Because estimates of future operations of this type
are based on a number of significant uncertainties and contingencies, all of
which are difficult to predict and most of which will be beyond the control of
the Company, there can be no assurance that any of these estimates will be
realized.
The 1998 estimates of future operations reflect the Company's detailed
operating plan while the estimates for the remaining years were developed by
senior management in contemplation of seeking and implementing a transaction
to enhance stockholder value.
<TABLE>
<CAPTION>
1998E 1999E 2000E 2001E 2002E
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $167,155 $172,342 $182,975 $190,968 $197,504
Cost of Services.................................... $132,262 $135,745 $142,950 $149,055 $153,757
Gross Margin........................................ $34,893 $36,597 $40,025 $41,913 $43,747
1998E 1999E 2000E 2001E 2002E
(IN THOUSANDS)
Total Operating Expenses............................ $22,396 $21,600 $21,000 $21,000 $21,000
Operating Income.................................... $12,497 $14,997 $19,025 $20,913 $22,747
Earnings before interest, taxes, depreciation
and amortization.................................. $20,617 $23,658 $28,190 $30,077 $31,911
</TABLE>
The Company's estimates of future operations were focused on cashflow and the
current base business only. The Company did not attempt to estimate the
beneficial effects of implementing its strategic plan or take into account the
development of DVD (as defined herein). The estimates are based on sales and
operating assumptions that include (i) an increase in sales from $167.2 million
in Fiscal 1998 to $197.5 million in Fiscal 2002, and (ii) an increase in gross
margin from 20.87% of sales in Fiscal 1998 to 22.15% of sales in Fiscal 2002.
The sales growth referred to in the above sentence assumes (i) a 44.48% increase
in CD unit volume, and (ii) a 25.32% increase in video duplication unit volume.
The improvement in gross margin referred to above assumes better utilization of
both CD replication and video duplication equipment.
These estimates of future operations do not give effect to the Merger
(including payment of any fees or expenses) or the Debt Financing. The fact
that the estimates were furnished to CVC and certain other parties who had
expressed an interest in a transaction with Allied and signed a
confidentiality agreement, and subsequently were adapted for inclusion in
information given to prospective lenders and investors in Allied, as the
Surviving Corporation, should not be regarded as an indication that Allied or
any person who received such information considers them an accurate prediction
of future events. Because the estimates and assumptions underlying the above
estimates are inherently subject to significant economic and competitive
uncertainties beyond Allied's control, there can be no assurance that the
projected results can be realized or that actual results would not be higher
or lower than those estimated. See "Selected Pro Forma Unaudited Condensed
Financial Data" of Allied for actual results for the year ended July 31, 1997.
Moreover, such estimates of future operations are included in this Proxy
Statement only because such information was provided to CVC and certain other
parties who had expressed an interest in acquiring Allied, and prospective
lenders and other investors. Consequently, the inclusion of the estimates of
future operations herein should not be regarded as a representation by the
Company, the holders of Rollover Shares, or any other person or entity that
these results will be achieved. Readers are cautioned not to place undue
reliance on this information.
The Merger is being proposed at this time because the relatively low public
float of the Allied Common Stock, the declining unit prices for Allied's
products over the past several years as a result of such products being viewed
as commodities and Allied's limited ability to expand operating capacity and
offer additional services as a result of the restrictive nature of its
existing credit facility making it improbable that the public markets will
value the Common Stock consistently with Allied's prospects. The Merger is
being structured so that Allied will be the Surviving Corporation and certain
current officers and directors of Allied will retain an equity interest in the
Surviving Corporation in order to (i) effect a recapitalization for accounting
purposes, (ii) avoid the negative tax consequences of an asset sale, and (iii)
preserve the corporate identity of the
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<PAGE>
Company and its existing contractual arrangements with third parties.
In approving the transaction, the Board of Directors was aware of and
considered as a negative factor that as a result of the Merger, Allied's
stockholders would no longer participate in the future growth and earnings of
the Company. However, after taking into account that the public markets
historically failed to value Allied Common Stock consistently with Allied's
prospects, the Board of Directors believed that a sale of the Company would
achieve a fair price for the Company and a greater value for Allied's
stockholders than if it remained a public company.
THE BOARD'S RECOMMENDATION
The Allied Board has approved the Merger Agreement, the Merger and the
transactions contemplated thereby and recommends that the shareholders of
Allied vote "FOR" approval and adoption of the Merger Agreement and the Merger
and believes that the consideration to be received by Allied stockholders is
fair and in the best interests of Allied stockholders. Certain members of the
Allied Board of Directors have interests in the Merger in addition to the
interests of Allied's stockholders generally. See "-- Conflicts of Interest".
The Merger was approved by a majority of non-employee directors of the Company.
PURPOSES AND REASONS OF 399 AND AAC FOR THE MERGER
The purposes of the Merger are to enable 399, facilitated by its participation
in AAC, to make an investment in the Company.
The transaction has been structured as a merger pursuant to which
Allied is the Surviving Corporation (the "Surviving Corporation") and certain
current officers and directors of Allied retain an equity interest in the
Surviving Corporation in order to (i) effect a recapitalization for accounting
purposes, (ii) avoid the negative tax consequences of an asset sale, and (iii)
preserve the corporate identity of the Company and its existing contractual
arrangements with third parties.
POSITIONS OF 399 AND AAC AS TO FAIRNESS OF THE MERGER
399 and AAC, as the parties proposing to acquire the Company, did not
participate in the deliberations of the Board regarding, or receive advice
from the Company's financial advisors as to, the fairness of the Merger to the
Company's stockholders. As a result, 399 and AAC are not in a position to
specifically adopt the conclusions of the Board as to such matters. In
addition, neither 399 nor AAC has conducted any separate investigation,
analysis or formal evaluation with respect to the fairness of the Merger to
the stockholders of the Company.
However, 399 and AAC have analyzed publicly available information, as
well as other information that is set forth in this Proxy Statement, regarding
Allied. Based upon that analysis and their understanding from discussions with
senior management of the Company regarding the factors considered by the Board
set forth herein, 399 and AAC believe that the Merger is fair to the Company's
unaffiliated stockholders. In addition, the results of the due diligence
investigation conducted by 399, including visits to the Company's facilities,
document review and analysis of publicly available information regarding
comparable companies in the industry, validated the position of 399 and AAC as
set forth above. In particular, 399 and AAC have considered (i) the historical
market prices for shares of the Allied Common Stock, as reported on the AMEX,
including (A) the closing price on April 20, 1998, the last day
the Allied Common Stock traded before the announcement of the Merger Agreement,
of $3.9375 per share and (B) the range from a low of $1.50 to a high of $4.00
during the 52 weeks prior to April 21, 1998, (ii) the substantial premium the
Company stockholders per share cash price represents in relation to the
historical market prices for the Allied Common Stock, including the
approximately 47% premium of that price over the average closing price for
the four week period immediately preceding the date Allied first made any public
announcement relating to the Merger (see "-- Fairness Opinion"), (iii) the
extent of the Board's efforts to sell the Company described in "Background of
the Merger," (iv) the fact that the Company's three largest stockholders
(together with related family members or affiliated trusts) agreed to enter into
Stockholder Voting Agreements to vote their shares of Allied Common Stock in
favor of the Merger Agreement and the transactions contemplated thereby, (v) the
receipt by the Board of the written opinion of its independent financial advisor
(see "-- Fairness Opinion") to the effect that, based on the assumptions made,
matters considered and limits of the review undertaken, the Merger is fair from
a financial point of view to Allied's stockholders (other than holders of the
Rollover Shares), (vi) the arm's-length nature of the negotiations between 399,
AAC and the Company, and (vii) the other analyses of and factors examined by the
Board (as set forth in detail above in "--Recommendation of the Allied Board;
Effects and Reasons for the Merger"). Although neither 399 nor AAC has assigned
specific relative weights to the aforementioned factors, 399 and AAC believe
they provide a reasonable basis for the belief that the Merger is fair to the
stockholders of the Company (other than holders of the Rollover
21
<PAGE>
Shares). This belief should not, however, be construed as a recommendation to
the Company's stockholders by 399 and AAC to vote to approve the Merger
Agreement and the transactions contemplated thereby.
PURPOSES AND REASONS OF MR. OLESEN FOR THE MERGER
The purposes of Donald L. Olesen in agreeing to the transactions contemplated
by the Merger Agreement are to continue the pursuit of his strategic view of the
future of Allied and to enable existing stockholders of the Company to realize a
substantial premium on the shares of Allied Common Stock owned by them. See
"--Recommendation of the Allied Board; Effects and Reasons for the Merger" and
"--Conflicts of Interest".
POSITION OF MR. OLESEN AS TO FAIRNESS OF THE MERGER
Mr. Olesen believes that the Merger is fair to the unaffiliated stockholders
of Allied. This belief should not, however, be construed as a recommendation
by Mr. Olesen, in his personal capacity, to Allied's stockholders to vote to
approve the Merger Agreement and the transactions contemplated thereby.
Mr. Olesen has not undertaken any formal evaluation of the fairness of the
Merger to the stockholders of Allied and did not find it practicable to
quantify or otherwise attach relative weights to the various factors
considered by him. However, in arriving at his belief that the Merger is fair
to the unaffiliated stockholders of the Company, Mr. Olesen considered the
same factors as considered by the Board, as well as certain considerations
resulting from his general familiarity with the multimedia manufacturing
business. Finally, Mr. Olesen considered the presently favorable environment
for merger transactions in the United States capital markets and the
availability to 399 and CVC of financing, both of which factors could be
subject to change.
Mr. Olesen believes that the Merger is procedurally fair, although the
approval of a majority of Allied's unaffiliated stockholders is not separately
required, and an unaffiliated representative was not retained to act on behalf
of such stockholders. In reaching this conclusion, Mr. Olesen took into
account a number of factors relevant to procedural fairness as described
above, including the bidding process conducted by Allied, the establishment of
the Independent Committee and its deliberations, and the fairness opinion
issued by Allied's financial advisor.
FAIRNESS OPINION
Furman Selz was retained by the Independent Committee to render a fairness
opinion with respect to the Merger. Furman Selz was hired based on its
qualifications and expertise in providing advice to companies in the media
industry, as well as its reputation as an internationally recognized
investment banking firm. Pursuant to a letter agreement dated April 29, 1998,
the maximum fee payable to Furman Selz for its role as the Independent
Committee's financial advisor is $250,000.
At the request of Allied, on May 4, 1998, Furman Selz delivered an oral
opinion to the Allied Board, which was subsequently confirmed in writing,
that, based upon and subject to the matters set forth in its written opinion
as of such date, the cash price of $5.00 per share of Allied Common Stock (the
"Merger Consideration") to be paid in the Merger to the holders of the Company
Common Stock excluding treasury shares, shares held directly or indirectly by
AAC, the Rollover Shares and Dissenting Shares, was fair, from a financial
point of view. The full text of the written opinion of Furman Selz, dated as
of May 4, 1998, is set forth as Annex A to this Proxy Statement and describes
the assumptions made, matters considered and limits on the review undertaken.
Allied stockholders are urged to read the opinion in its entirety.
Furman Selz's opinion addresses only the fairness of the Merger Consideration
to be offered in the Merger, from a financial point of view, to the
stockholders of Allied excluding treasury shares, shares held directly or
indirectly by AAC, the Rollover Shares and Dissenting Shares, and does not
constitute a recommendation to any stockholder of Allied as to how such
stockholder should vote with respect to the approval of the Merger.
For purposes of the opinion, Furman Selz was not requested to, and did not,
solicit third party indications of interest in acquiring all or any part of
the Company.
In arriving at its opinion, Furman Selz assumed and relied upon the accuracy and
completeness of the financial and other information obtained from public sources
or provided to it by the Company and Furman Selz has not assumed responsibility
for any independent verification of such information or undertaken any
obligation to verify such information. In addition, with respect to the
financial forecasts and projections of the Company used in Furman Selz's
analysis, the management of the Company informed Furman Selz that such forecasts
and projections represent the best current judgment of the management of the
Company as to the future financial performance of the Company on a stand-alone
basis, and Furman Selz assumed that the projections had been reasonably prepared
based on such current judgment. Furman Selz assumed no responsibility for and
expresses no view as to such forecasts and projections or the assumptions on
which they were based.
Furman Selz also took into account its assessment of general economic, market
and financial conditions and its experience in similar transactions, as well as
its experience in securities valuation in general. Furman Selz's opinion
necessarily is based upon regulatory, economic, market and other conditions, as
well as information made available to Furman Selz as of May 4, 1998. The
regulatory, economic, market and other conditions and the information made
available to Furman Selz could only be evaluated by Furman Selz on the date of
the fairness opinion.
In connection with rendering its opinion, dated as of May 4, 1998,
Furman Selz: (i) reviewed the Merger Agreement and certain related documents
and the financial terms of the Merger set forth therein; (ii) reviewed
Allied's Annual Report on Form 10-K for the fiscal year ended July 31, 1997,
Quarterly Report on Form 10-Q for the quarter ended January 31, 1998 and
certain other filings with the SEC made by the Company, including Proxy
Statements and Forms 8-K; (iii) reviewed certain other publicly available
information concerning Allied and the trading market for Allied Common Stock;
(iv) reviewed certain non-public information relating to Allied, including
financial forecasts and projections furnished to Furman Selz by Allied; (v)
reviewed certain publicly available information, including research reports,
concerning certain other companies engaged in businesses which Furman Selz
believed to be comparable to the Company's and the trading markets for certain
of such companies' securities; (vi) reviewed the financial terms of certain
recent mergers and acquisitions which Furman Selz believed to be relevant; (vii)
conducted discussions with certain members of senior management of Allied
concerning its businesses and operations, assets, present condition and future
prospects; and (viii) performed such other analyses, examinations and
procedures such as a review of Allied's historical stock price peformance,
reviewed such other agreements and documents, and considered such other factors,
such as a comparison of Allied's historical stock price performance to the
historical stock price performance of comparable companies and broad market
indices, as Furman Selz deemed, in its sole judgment, to be necessary,
appropriate or relevant to render its opinion.
22
<PAGE>
The following is a summary of the six primary valuation analyses of Allied
performed by Furman Selz: (i) a transaction valuation analysis, which was used
to determine transaction related multiples based on the Merger Consideration to
be offered to the holders of Allied Common Stock for comparative purposes; (ii)
a premiums paid analysis, which referenced premiums paid in transactions similar
to the Merger based on a specific set of criteria defined below; (iii) a
comparable company trading analysis, which consisted of comparing financial
market and operating performances of selected publicly traded media duplication
and post production services companies that were determined to be in similar
lines of business as Allied; (iv) a comparable transaction analysis, which
consisted of reviewing financial aspects of selected acquisitions of assets,
businesses or interests of media duplication and post production services
companies that were determined to be in similar lines of business as Allied; (v)
a leveraged acquisition analysis; and (vi) a discounted cash flow analysis, both
of which were used to calculate an implied pretax value per share at which
Allied Common Stock could be valued.
Transaction Valuation Analysis
Furman Selz calculated the Transaction Value, defined as the transaction value
of equity, which in the case of the Merger is based on AAC's offer of $5.00 per
share for Allied Common Stock multiplied by the fully diluted shares outstanding
(the "Transaction Equity Value"), plus net debt. Transaction Value was analyzed
as a multiple of current (1997 actual) and forward (1998) year earnings before
interest, taxes, depreciation and amortization ("EBITDA"). Transaction Equity
Value was analyzed as a multiple of current (1997 actual) and forward (1998)
year net income. The Transaction Value multiples of current and forward year
EBITDA associated with the Merger are 5.5x and 5.0x, respectively. The
Transaction Equity Value multiples of current and forward year net income
associated with the Merger are 39.7x and 20.9x, respectively. Furman Selz
calculated EBITDA and net income multiples based on Transaction Value and
Transaction Equity Value, respectively, in order to compare such multiples to
the multiples calculated in the comparable company trading analysis and
comparable transaction analysis discussed below.
Premiums Paid Analysis
Furman Selz reviewed premiums paid on comparable target companies' stock prices
one day, one week and one month prior to the announcement of an acquisition.
Furman Selz reviewed transactions that met the following criteria: (i)
transaction value was greater than $50 million and less than $150 million, (ii)
acquiror acquired a 50% or greater interest in the target and (iii) the
announcement occurred between December 31, 1995 and May 1, 1998. The review
resulted in a range of premiums (discounts) paid (i) one day prior to
announcement of (70.4%) to 132.0%, with a median of 20.6% and a mean of 24.2%,
(ii) one week prior to announcement of (85.0%) to 169.8%, with a median of 26.6%
and a mean of 28.5%, and (iii) one month prior to announcement of (86.3%) to
540.0%, with a median of 31.2% and a mean of 37.4%. Furman Selz noted that the
Merger Consideration was a 27.0%, 48.1% and 63.3% premium to the closing price
of Allied's common stock one day, one week and one month, respectively, prior to
the first public announcement of the Merger and the merger premiums compared
favorably with premiums paid in the other transactions reviewed by Furman Selz.
<TABLE>
<CAPTION>
Summary of Multiple Analyses
Current Forward
---------------- ----------------
<S> <C> <C>
Transactions Valuation Analysis
EBITDA 5.5x 5.0x
Net Income 39.7x 20.9x
</TABLE>
<TABLE>
<CAPTION>
Current Forward
----------------------------------------- ----------------------------------------
High Low Mean Median High Low Mean Median
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comparable Company Trading Analysis
EBITDA 13.7x 6.0x 8.7x 6.7x 5.9x 4.6x 5.2x 5.2x
Net Income 36.2x 16.3x 23.9x 21.6x 19.9x 14.8x 16.7x 16.0x
Comparable Transaction Analysis
EBITDA 8.0x 3.2x 5.5x 5.1x -- -- -- --
Net Income 27.0x 11.2x 17.5x 15.4x -- -- -- --
</TABLE>
Comparable Company Trading Analysis
Furman Selz prepared a comparable company trading analysis that consisted of
comparing financial market and operating performances of selected publicly
traded media duplication and post production services companies, which Furman
Selz determined to be in similar lines of business as Allied ("Selected
Comparable Companies"). Furman Selz noted that each of the selected companies
is distinguishable from Allied, and that, accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in the financial and operating
characteristics of the companies and other factors to which they are being
compared. The multiples and ratios for each of the Selected Comparable
Companies were based on the most recent publicly available information and
published estimates of research analysts. The Selected Comparable Companies
included: Four Media Company; Video Services
23
<PAGE>
Corporation; The Todd-AO Corporation; Nimbus CD International, Inc.; Cinram
International Inc. and Vaughn Communications, Inc. With respect to the Selected
Comparable Companies, Furman Selz considered total enterprise value as a
multiple of current (1997 Actual) and forward (1998) year EBITDA. Furman Selz's
analysis of the Selected Comparable Companies indicated total enterprise value
multiples of current and forward year EBITDA ranging from 6.0x to 13.7x, with a
median of 6.7x and a mean of 8.7x, and 4.6x to 5.9x, with a median of 5.2x and a
mean of 5.2x, respectively. In addition, with respect to the Selected Comparable
Companies, Furman Selz considered equity value as a multiple of current (1997
Actual) and forward (1998) year net income. Furman Selz's analysis of the
Selected Comparable Companies indicated equity value multiples of current and
forward year net income ranging from 16.3x to 36.2x, with a median of 21.6x and
a mean of 23.9x, and 14.8x to 19.9x, with a median of 16.0x and a mean of 16.7x,
respectively. Furman Selz noted that the Transaction Value multiple of current
year EBITDA calculated for the merger (see "Transaction Valuation Analysis") was
below the range of current year EBITDA multiples for the Selected Comparable
Companies; however, the Transaction Value multiple of forward year EBITDA and
Transaction Equity Value multiples of current and forward year net income
calculated for the merger (see "Transaction Valuation Analysis") compared
favorably with the respective multiples derived in the comparable company
trading analysis.
Comparable Transaction Analysis
Furman Selz prepared a comparable transaction analysis that consisted of
reviewing financial aspects of selected acquisitions of assets, businesses or
interests in businesses in the media duplication and post production industries,
which Furman Selz determined to be in similar lines of business as Allied
("Selected Comparable Transactions"). Furman Selz noted that no such
transactions took place under directly comparable market conditions or
competitive conditions or circumstances and that, accordingly, qualitative
judgments must be made concerning the differences between the characteristics of
these transactions and other factors and issues which would affect the price an
acquiror is willing to pay in an acquisition. Selected Comparable Transactions
included (acquiror/target): Four Media Company/Visualize Inc.; The Todd-AO
Corporation/Hollywood Digital; Cinram International Inc./Disc Manufacturing
Inc.; Vaughn Communications, Inc./Satastar Corporate Services, Inc.; Carlton
Communications Plc/Technicolor Holdings Inc.; Vaughn Communications,
Inc./Centercom, Inc.; McCown De Leeuw & Co./Nimbus CD International, Inc.; The
Todd AO Corporation/ Chrysalis Television Facilities, Ltd.; The Todd-AO
Corporation/ Kaytea Rose, Inc. (dba Skywalker Sound South); Allied Digital
Technologies Corp./HMG Digital Technologies Corp.; The Todd-AO
Corporation/Paskal Video and International Post Limited/Audio Plus Video
International, Inc. The analysis of Selected Comparable Transactions yielded a
range of transaction value multiples of current year EBITDA of 3.2x to 8.0x,
with a median of 5.1x and a mean of 5.5x. The analysis of Selected Comparable
Transactions yielded a range of transaction equity value multiples of current
year net income of 11.2x to 27.0x, with a median of 15.4x and a mean of 17.5x.
Furman Selz noted that the Transaction Value multiples of current year EBITDA
and Transaction Equity Value multiples of current year net income calculated for
the Merger (see "Transaction Valuation Analysis") compared favorably with the
multiples derived in the comparable transaction analysis.
Leveraged Acquisition Analysis
24
<PAGE>
In order to estimate, based on Furman Selz's reasonable judgement, an overall
implied pre-tax value per share at which Allied could be valued, Furman Selz
prepared a leveraged acquisition analysis. Furman Selz relied, at the request of
Allied's management, without independent verification, upon forecasted financial
information for Allied provided by Allied's management. The leveraged
acquisition analysis for the Company assumed management projections for the
years 1998 through 2003, a capitalization structure similar to the one proposed
by AAC, and that certain members of management will own 15% of the common equity
immediately following the transaction and 25% of the common equity in the year
2003. The analysis was performed assuming a range of required rates of return to
the equity sponsor of 25% to 40% and a range of EBITDA exit multiples of 4.0x to
5.0x. The analysis produced a range of implied equity values per share of Allied
of $4.64 to $6.16. Furman Selz noted that the Merger Consideration to be offered
in the Merger compared favorably with the range of implied equity values per
share calculated in the leveraged acquisition analysis.
Discounted Cash Flow Analysis
In order to estimate, based on Furman Selz's reasonable judgment, an overall
implied pre-tax value per share at which Allied could be valued, Furman Selz
prepared an aggregate valuation analysis and a segment valuation analysis
based on discounted cash flows. Furman Selz relied, at the request of Allied's
management, without independent verification, upon forecasted financial
information for Allied provided by Allied's management.
Aggregate Valuation Analysis. The aggregate valuation analysis, based on
information provided by Allied's management, consisted of (i) calculating a
range of net present values for the projected unleveraged free cash flows in the
forecast for Allied using various discount rates reflecting weighted average
costs of capital which Furman Selz deemed appropriate in its reasonable judgment
and (ii) combining such values with terminal values calculated by multiplying
projected EBITDA in 2003 by a range of EBITDA terminal value multiples, which
Furman Selz deemed appropriate in its reasonable judgment, and discounting the
values using the same discount rates utilized for the unleveraged free cash
flows. Furman Selz applied discount rates ranging from 10.0% to 20.0% and EBITDA
terminal value multiples ranging from 4.0x to 5.0x. The net present value of the
projected free cash flows combined with the net present value of the terminal
value yielded a range of total enterprise values. In order to derive a range of
implied equity values per share for Allied, Furman Selz subtracted from the
range of total enterprise values net debt and divided the result by the number
of fully diluted shares outstanding of Allied Common Stock. Based on such
analysis, Furman Selz derived a range of implied equity values per share of
Allied of $4.02 to $8.42. The Merger Consideration to be offered in the Merger
compared favorably with the range of implied equity values per share calculated
in the Aggregate Valuation Analysis.
Segment Valuation Analysis. The segment valuation analysis, based on
information provided by Allied's management, consisted of (i) calculating a
range of net present values for the projected unleveraged free cash flows in the
forecast for each segment of Allied, video, audio and CD/CD-ROM, using various
discount rates reflecting weighted average costs of capital which Furman Selz
deemed appropriate in its reasonable judgment and (ii) combining such values
with terminal values for each segment calculated by multiplying each segment's
projected EBITDA in 2003 by a range of EBITDA terminal value multiples, which
Furman Selz deemed appropriate in its reasonable judgment, and discounting the
values using the same discount rates utilized for the unleveraged free cash
flows of the respective segment. Furman Selz applied (i) discount rates ranging
from 10.0% to 20.0% and EBITDA terminal value multiples ranging from 4.0x to
6.0x to the Video segment, (ii) discount rates ranging from 10.0% to 20.0% and
EBITDA terminal value multiples ranging from 2.0x to 4.0x to the Audio segment
and (iii) discount rates ranging from 10.0% to 20.0% and EBITDA terminal value
multiples ranging from 6.0x to 9.0x to the CD/CD-ROM segment. The aggregate of
each segment's net present value of projected free cash flows combined with the
net present value of the terminal values yielded a range of implied total
enterprise values. In order to derive a range of implied equity values per share
for Allied, Furman Selz subtracted from the range of implied total enterprise
values the aggregate of the estimated value of corporate expenses and net debt
and divided the result by the number of fully diluted shares outstanding of
Allied Common Stock. Based on such analysis, Furman Selz derived a range of
implied equity values per share of Allied of $3.60 to $9.00. The Merger
Consideration to be offered in the Merger compared favorably with the range of
implied equity values per share calculated in the Segment Valuation Analysis.
The foregoing is a summary of the material aspects of the financial analyses
used by Furman Selz in connection with rendering its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible
to partial analysis or summary description. Selecting portions of the analyses
or of the summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes underlying Furman
Selz's opinion. In arriving at its opinion, Furman Selz considered the results
of all such analyses. The analyses were prepared solely for the purposes of
Furman Selz providing its opinion as to the fairness of the Merger
Consideration to be offered in the Merger, from a financial point of view, to
the holders of Allied Common Stock, excluding treasury shares, shares held
directly or indirectly by AAC, the Rollover
25
<PAGE>
Shares and Dissenting Shares, and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Any analysis of the fairness of the Merger Consideration to be
offered in the Merger, from a financial point of view, to the holders of
Allied Common Stock, involves complex considerations and judgments concerning
differences in the potential financial and operating characteristics of the
comparable companies and transactions and other factors in relation to the
trading and acquisition values of the comparable companies. Analyses based
upon forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than those
suggested by such analyses. The estimates utilized by Furman Selz were
developed solely for purposes of its analysis and the presentations to the
Allied Board and reflected computations of the potential values through the
application of various generally accepted valuation techniques. Such estimates
may not reflect actual market values, and do not necessarily reflect values
which may be realized if any other assets of Allied are sold. Furman Selz has
not appraised or undertaken any valuation of any assets or property nor has it
made any solvency analysis of Allied. Furman Selz's opinion and the related
presentation to the Allied Board on May 4, 1998 was one of many factors taken
into consideration by the Allied Board in making its determination to approve
the Merger. The foregoing summary does not purport to be a complete
description of the analyses performed by Furman Selz.
Furman Selz's opinion is for the use and benefit of the Allied Board in its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to the Merger. Furman Selz was not requested to opine
as to, and its opinion does not in any manner address, Allied's underlying
business decision to proceed with or effect the Merger, or the relative merits
of the Merger as compared to any alternative business strategies which might
exist for Allied or the effect of any other transaction in which Allied might
engage.
In the ordinary course of its business, Furman Selz may actively trade the
securities of Allied for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Pursuant to a letter agreement dated April 29, 1998, Allied paid to Furman
Selz a cash fee of $250,000 when Furman Selz delivered its opinion to the
Allied Board on May 4, 1998. Furthermore, Allied has agreed to reimburse
Furman Selz for certain out-of-pocket expenses and to indemnify Furman Selz
for certain liabilities arising in connection with Furman Selz's opinion.
CONFLICTS OF INTEREST
Because the Board of Directors created an Independent Committee of directors
consisting of directors who are not employees of Allied and who will not have
any continuing interest in the Surviving Corporation to engage an investment
bank to render an opinion as to the fairness, from a financial point of view,
of the consideration to be paid to Allied's shareholders in the Merger, and
the investment bank engaged by the Independent Committee delivered its opinion
that such consideration was fair to Allied's shareholders, and because the
Merger was approved unanimously by all directors who are not employees of
Allied, the Board believed it was not necessary to structure the Merger so as
to (i) require approval of at least a majority of unaffiliated
securityholders, and (ii) have a majority of directors who are not employees
of Allied retain an unaffiliated representative to act solely on behalf of
unaffiliated securityholders for the purpose of negotiating the terms of the
Merger and/or preparing a report concerning the fairness of the Merger.
In considering the recommendation of Allied's Board of Directors with respect
to the Merger, the Merger Agreement and the transactions contemplated thereby,
Allied's stockholders should be aware that certain members of Allied's
management and Board of Directors (as identified in the following paragraphs)
have interests in the Merger which are in addition to the interests of
stockholders of Allied generally. The Board of Directors of Allied was aware
of these interests and considered them, among other matters, in approving the
Merger, the Merger Agreement, and the transactions contemplated thereby. These
interests are detailed below.
1. Certain officers and employees of the Company (the "Rollover Stockholders")
will be exchanging 74,998 shares of Allied Common Stock (the "Rollover Shares")
set forth opposite his or her name below for the same number of shares of Class
A Common Stock of the Surviving Corporation as follows:
26
<PAGE>
<TABLE>
<CAPTION>
Rollover Stockholder Rollover Shares
- -------------------- ---------------
<S> <C>
John K. Mangini 26,248 shares of Allied Common Stock
Donald L. Olesen 26,250 shares of Allied Common Stock
Steven Granat 2,500 shares of Allied Common Stock
Brian Wilson 5,000 shares of Allied Common Stock
Emily M. Hill 3,750 shares of Allied Common Stock
David R. Conrad 3,750 shares of Allied Common Stock
Charles Mantione 2,500 shares of Allied Common Stock
John J. Mangini 2,500 shares of Allied Common Stock
Edward Simek 2,500 shares of Allied Common Stock
</TABLE>
Mr. Donald L. Olesen, a Director and President - National Sales and Marketing
Division of Allied, has beneficial ownership, directly or indirectly, of
872,400 shares of Allied Common Stock (approximately 6.4% of the Allied Common
Stock). As of the date hereof, Mr. Olesen holds options to purchase 30,000
shares of Allied Common Stock at an exercise price of $2.4375. Mr. Olesen will
receive the cash consideration in the Merger (or, with respect to shares
subject to options, the cash consideration in the Merger less the option
exercise price) with respect to approximately 876,150 shares of Allied Common
Stock or approximately $4,380,750. It is expected that Mr. Olesen will
exercise options to acquire 26,250 shares of Allied Common Stock which will be
converted into 26,250 shares of Surviving Corporation Class A Common Stock and
not be converted into the right to receive the cash consideration in the
Merger. Mr. Olesen will receive the cash consideration in the Merger less the
option exercise price relating to 3,750 shares covered by options and will
receive cash consideration in the Merger for 872,400 shares owned by him.
John K. Mangini, who serves as Chief Operating Officer of Allied, holds
options to purchase 225,000 shares of Allied Common Stock at a weighted
average exercise price of $2.0972 and no shares of Allied Common Stock. It is
expected that Mr. Mangini will exercise options to acquire 26,248 shares of
Allied Common Stock which will be converted into 26,248 shares of Surviving
Corporation Class A Common Stock and not be converted into the right to
receive the cash consideration in the Merger. Mr. Mangini will receive the
cash consideration in the Merger less the option exercise price with respect
to 198,752 shares of Allied Common Stock. See "The Merger -- Ownership of
Capital Stock" and "-- Certain Effects of the Merger." In addition, Mr.
Mangini will own 2 shares of AAC Common Stock, upon issuance of capital stock,
which will be converted into 2 shares of Class A Common Stock.
2. 399 beneficially owns 1,100,110 shares of Allied Common Stock representing
approximately 8.1% of the outstanding Allied Common Stock. Michael Delaney,
Vice President of 399 does not own beneficially any shares of Allied Common
Stock but holds options to purchase 25,000 shares of Allied Common Stock at an
exercise price of $8.63 per share. AAC does not beneficially own any shares
or options or warrants to purchase shares of Allied Common Stock.
3. In connection with the Merger, Allied will prepay $10,016,027 aggregate
principal amount of loans owed to certain stockholders or option holders, some
of whom are members of the Board of Directors or management including (a)
$8,770,643 payable to William H. Smith, (b) $670,130 payable to George N.
Fishman (c) $284,303 payable to Donald L. Olesen, (d) $137,518 payable to 399,
(e) $42,123 payable to Brian Wilson, (f) $40,412 payable to Charles Kavanagh;
(g) $70,898 payable to Seymour Leslie. $9,975,615 aggregate principal amount
of such indebtedness is being prepaid by Allied to persons who will have a
continuing equity interest in the Surviving Corporation. For a description of
such indebtedness, see "Notes To Condensed Consolidated Financial Statements --
Subordinated 10% Notes Payable to Stockholders", "-- Additional Subordinated 10%
Notes Payable to Stockholders", and "-- Subordinated 11% Series B Notes Payable
to Stockholders."
4. Allied has employment agreements with Messrs. Olesen and Mangini with
terms expiring December 31, 2001 and July 31, 2000, respectively, and had an
employment agreement with Mr. Fishman which expired December 31, 1997. Pursuant
to such employment agreements, (i) Mr. Fishman has continued to serve as the
Chairman of the Board and Chief Executive Officer of Allied Digital, Inc.
(formerly known as Hauppauge Record Manufacturing, Ltd.), a wholly-owned
subsidiary of Allied ("ADI"), and as Co-Chairman of the Board and Chief
Executive Officer of Allied at a base salary of $206,000 per annum, (ii) Mr.
Olesen has continued to serve as the President of ADI and serves as
President-National Sales and Marketing.
27
<PAGE>
Division of Allied at a base salary of $355,000 per annum, and (iii) Mr.
Mangini has continued to serve as the Chief Operating Officer of Allied at a
base salary of $275,000 per annum. In Fiscal 1997, Mr. Fishman, upon his own
initiative, accepted a reduced salary of $173,153. The base salary of each of
Messrs. Olesen and Mangini is subject to a cost of living increase on an annual
basis based upon a percentage equal to the percentage rate of inflation during
the previous calendar year as measured by the Consumer Price Index for urban
wage earners published by the U.S. Department of Labor, Bureau of Labor
Statistics for the New York-Northern New Jersey area. If either Messrs. Olesen
or Mangini is terminated without cause prior to the expiration of his employment
term, such executive will be entitled to receive an amount equal to his
respective base salary (as adjusted) until the scheduled expiration of such
term. In addition, each employment agreement prohibits such executive from
competing with the Company during the term of agreement, provided that in the
case of termination by the employer without cause, the employer continues to pay
such executive his salary.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a general summary of the material United States
federal income tax consequences of the Merger. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), regulations
promulgated by the United States Treasury Department, judicial authorities,
and current rulings and administrative practice of the Internal Revenue
Service (the "Service") in each case as in effect as of the date hereof and
all of which are subject to change at any time, possibly with retroactive
effect. This discussion does not address all aspects of federal income
taxation that might be relevant to particular holders of Allied Common Stock
in light of their status or personal investment circumstances; nor does it
discuss the consequences to such holders who are subject to special treatment
under the federal income tax laws such as foreign persons, dealers in
securities, regulated investment companies, life insurance companies, other
financial institutions, tax-exempt organizations, pass-through entities,
taxpayers who hold Allied Common Stock as part of a "straddle," "hedge" or
"conversion transaction" or who have a "functional currency" other than the
United States dollar or to persons who have received their Allied Common Stock
as compensation. Further, this discussion does not address the state, local or
foreign tax consequences of the Merger.
For United States federal income tax purposes, AAC will be disregarded as a
transitory entity and the Merger of AAC with and into Allied will be treated as
exchanges of a portion of Allied Common Stock for the cash or stock
consideration in the Merger by its holders.
The receipt of the cash consideration in the Merger by holders of Allied
Common Stock will be a taxable transaction for federal income tax purposes.
Each holder's gain or loss per share will be equal to the difference between
the cash consideration received in the Merger and the holder's basis per share
in the Allied Common Stock. Except as provided in the following paragraph, if
a holder holds Allied Common Stock as a capital asset, the gain or loss from
the exchange will be a capital gain or loss. This gain or loss will be
long-term if the holder's holding period is more than eighteen months. Under
current law, net long-term capital gains of individuals are subject to a
maximum federal income tax rate of 20% (not taking into account any phase-out
of personal exemptions and certain itemized deductions) whereas, the maximum
federal income tax rate on ordinary income and net short-term capital gains
(i.e., gain on capital assets held for less than twelve months) of an
individual is currently 39.6% (not taking into account any phase-out of
personal exemptions and certain itemized deductions). For capital assets held
by an individual more than twelve months but not more than eighteen months,
the maximum capital gains tax rate is 28%. Under a provision of the pending tax
legislation that has been passed by the United States House of Representatives
and the Senate, the maximum tax rate of 20% would be afforded to capital assets
that are held by individuals for more than one year, rather than eighteen
months. If this provision is enacted in its present form, it will be effective
with respect to capital gains that are properly taken into account on or after
January 1, 1998. For corporations, capital gains and ordinary income are taxed
at the same maximum rate of 35%. Capital losses are currently deductible only to
the extent of capital gains plus, in the case of taxpayers other than
corporations, $3,000 of ordinary income ($1,500 in the case of married
individuals filing separate returns). In the case of individuals and other
non-corporate taxpayers, capital losses that are not currently deductible may be
carried forward to other years, subject to certain limitations. In the case of
corporations, capital losses that are not currently deductible may generally be
carried back to each of the three years preceding the loss year and forward to
each of the five years succeeding the loss year, subject to certain limitations.
A holder of Rollover Shares (or any other holder of Allied Common Stock who,
after application of certain constructive ownership provisions of the Code, is
considered to own Rollover Shares) who receives the cash consideration of
$5.00 in the Merger for a portion of the holder's Allied Common Stock in the
Merger, and who also continues to own stock (either directly or
constructively) in Allied after the Merger, will be treated as having received
such cash as a distribution in redemption of such holder's Allied Common Stock
and will recognize a capital gain or loss in the manner described above,
unless such payment, under each such holder's particular facts and
circumstances, is deemed to have the effect of a dividend distribution and not
a redemption treated as an exchange under the principles of Section 302 of the
Code. Therefore, any holder of Rollover Shares who will continue to own shares
of Allied Common Stock after the Merger, either directly or constructively by
reason of the ownership of Allied Common Stock by a related person or entity
(or any other holder of Allied Common Stock who is considered to own
constructively Rollover Shares by reason of the ownership of Rollover Shares
by a related person or entity) should consult his or her own tax advisor in
connection with the proposed Merger.
399 will be treated as retaining a portion of its Allied Common Stock and
exchanging a portion of its Allied Common Stock for Series A Preferred Stock of
Allied. There will be no United States federal income tax consequences with
respect to the portion of Allied Common Stock retained by 399. With respect to
the portion exchanged for Series A Preferred Stock of Allied, 399 will be
treated as receiving a dividend equal to the fair market value of such preferred
stock from Allied. Depending on particular circumstances of 399 with respect to
its investment in Allied (e.g., eligibility to claim a dividend received
deduction, tax basis, etc.) and the earnings and profits of Allied, such
dividend may be taxed as ordinary income, capital gain or part ordinary income
and part capital gain. The tax basis in the shares of Series A Preferred Stock
received by 399 in exchange for Allied Common Stock as well as shares of Series
A Preferred Stock purchased by 399 will equal the fair market value of such
preferred stock at the time of such exchange or purchase, as the case may be.
A holder of Allied Common Stock may be subject to backup withholding at the
rate of 31% with respect to payments of cash
28
<PAGE>
consideration in the Merger received pursuant to the Merger, unless the holder
(a) provides a correct taxpayer identification number ("TIN") in the manner
required or (b) is a corporation or other exempt recipient and, when required,
demonstrates this fact. To prevent the possibility of backup federal income
tax withholding on payments made to certain holders with respect to shares of
Allied Common Stock pursuant to the Merger, each holder must provide the
disbursing agent with his correct TIN by completing a Form W-9 or Substitute
Form W-9. A holder of Allied Common Stock who does not provide Allied with his
or her correct TIN may be subject to penalties imposed by the Service, as well
as backup withholding. Any amount withheld under these rules will be
creditable against the holder's federal income tax liability. Allied (or its
agent) will report to the holders of Allied Common Stock and the Service the
amount of any "reportable payments," as defined in Section 3406 of the Code,
and the amount of tax, if any, withheld with respect thereto.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT A COMPLETE
DESCRIPTION OF ALL OF THE POTENTIAL TAX CONSEQUENCES THAT MAY OCCUR AS A
RESULT OF THE MERGER. ALLIED STOCKHOLDERS SHOULD THEREFORE CONSULT THEIR TAX
ADVISORS REGARDING THE FEDERAL TAX CONSEQUENCES OF THE MERGER, AS WELL AS THE
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER
JURISDICTION OF THE ABOVE-DESCRIBED TRANSACTIONS.
THE MERGER
OWNERSHIP OF CAPITAL STOCK
Immediately after the Merger, each outstanding share of Allied Common Stock,
other than the Rollover Shares, the 1,100,110 shares owned by 399 and shares
owned by stockholders who are entitled to, and have perfected, their appraisal
rights, will be canceled and converted into the right to receive $5.00 per share
in cash.
Simultaneously therewith, each Rollover Share will be converted into one share
of Class A Common Stock of the Surviving Corporation, representing approximately
51% of the Class A Common Stock of the Surviving Corporation after the Merger.
See "-- Certain Effects of the Merger." In addition, (i) each share of common
stock of AAC outstanding immediately prior to the Effective Time of the Merger
will be canceled and converted into one share of Class A Common Stock of the
Surviving Corporation and (ii) each share of Series A Preferred Stock of AAC
outstanding prior to the Effective Time in the Merger will be canceled and
converted into one share of Series A Preferred Stock of the Surviving
Corporation. 1,100,110 shares of Allied Common Stock owned by 399 will be
converted into 73,999 shares of Class A Common Stock, 351,000 shares of Class B
Common Stock and 33,375.55 shares of Series A Preferred Stock.
As a result of the cancellation and conversion of the shares of AAC and the
conversion of 1,100,110 shares of Allied Common Stock owned by 399 described
above, 399 will own immediately after the Merger 165,000 shares of Series A
Preferred Stock, 74,000 shares of Class A Common Stock and 351,000 shares of
Class B Common Stock. Members of management will own 75,000 shares of Class A
Common Stock. The following illustration sets forth the security ownership of
the Rollover Stockholders and 399 in AAC and the Company immediately prior to
Closing and immediately after Closing. See "Special Factors -- Conflicts of
Interest."
<TABLE>
<CAPTION>
Pre-Closing Post-Closing
AAC ADT
- --------------- --------------------- ---------------- -----------------
<S> <C> <C> <C>
John K. Mangini 2 Common
399 1 Common 399 74,000 Class A
399 131,244.45 Preferred 399 351,000 Class B
399 165,000 Preferred
ADT
- --------------- --------------------- John K. Mangini 26,250(1) Class A
399 1,100,110 Common(2) Donald Olesen 26,250 Class A
John K. Mangini 26,248 Common Steven Granat 2,500 Class A
Donald Olesen 26,250 Common Brian Wilson 5,000 Class A
Steven Granat 2,500 Common Emily M. Hill 3,750 Class A
Brian Wilson 5,000 Common David R. Conrad 3,750 Class A
Emily M. Hill 3,750 Common Charles Mantione 2,500 Class A
David R. Conrad 3,750 Common John J. Mangini 2,500 Class A
Charles Mantione 2,500 Common Edward Simek 2,500 Class A
John J. Mangini 2,500 Common
Edward Simek 2,500 Common
</TABLE>
(1) Represents 26,248 Rollover Shares plus conversion of 2 shares of AAC
Common Stock.
(2) 1,100,110 shares of Common Stock of ADT owned by 399 will be converted into
73,999 shares of Class A Common Stock of Surviving Corporation, 351,000 shares
of Class B Common Stock of Surviving Corporation and 33,755.55 shares of
Preferred Stock of Surviving Corporation.
The Series A Preferred Stock, Class A and Class B Common Stock of the Surviving
Corporation will have the following designations:
Preferred Stock. The Amended and Restated Certificate of Incorporation of the
Surviving Corporation will be amended in the Merger to provide that the
Surviving Corporation may issue 500,000 shares of Preferred Stock. The Amended
and Restated Certificate of Incorporation will also be amended in the Merger
to create a series of Preferred Stock designated as Series A Preferred Stock
consisting of 250,000 authorized shares (the "Series A Preferred Stock"). The
Series A Preferred Stock will have a stated value of $100 per share and will
be entitled to semi-annual dividends when, as and if declared, which dividends
will be cumulative, whether or not earned or declared, and will accrue at a
rate of 12%, compounding daily. The vote of holders of a majority of the
outstanding shares of Series A Preferred Stock, voting as a separate class,
will be required to (i) amend the Surviving Corporation's Certificate of
Incorporation or By-Laws or alter the powers, rights, privileges or
preferences of the Series A Preferred Stock, if such amendment or alteration
would adversely affect the relative rights and preferences of the holders of
the Series A Preferred Stock, and (ii) authorize the issuance of any class of
Preferred Stock which ranks senior to or pari passu with the Series A
Preferred Stock with respect to dividends upon liquidation, dissolution or
winding up of the Surviving Corporation, (iii) increase the number of shares
of Series A Preferred Stock authorized for issuance or (iv) issue after the
Effective Time any shares of Series A Preferred Stock (with certain
exclusions, except for any issuance of shares of Series A Preferred Stock
which have been redeemed or otherwise acquired. Except as described in the
immediately preceding sentence or as otherwise required by law, the Series A
Preferred Stock will not be entitled to vote. The Surviving Corporation may
not pay any dividend upon (except for a dividend payable in Junior Stock, as
defined below), or redeem or otherwise acquire shares of, capital stock junior
to the Series A Preferred Stock (including the Surviving Corporation Common
Stock) ("Junior Stock") unless all cumulative dividends on the Series A
Preferred Stock have been paid in full. Upon liquidation, dissolution or
winding up of the Surviving Corporation, holders of Series A Preferred Stock
will be entitled to receive out of the legally available assets of the
Surviving Corporation, before any amount shall be paid to holders of Junior
Stock, an amount equal to $100 per share of Preferred Stock, plus all accrued
and unpaid dividends to the date of final distribution. If such available
assets are insufficient to pay the holders of the outstanding shares of Series
A Preferred Stock in full, such assets, or the proceeds thereof, will be
distributed ratably among such holders. The Series A Preferred Stock will not
be mandatorily redeemable prior to the earlier of the eleventh anniversary of
the Closing and the date upon which a Sale of the Surviving Corporation or a
Qualifying Offering (as such terms are defined in the Amended and Restated
Certificate of Incorporation) occurs.
Common Stock. The Amended and Restated Certificate of Incorporation will provide
that the Surviving Corporation may issue 750,000 shares of Common Stock, divided
into two classes consisting of 500,000 shares of Class A Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of the
stockholders of the Surviving Corporation. Except as required by law, the
holders of Class B Stock will have no voting rights. Under the Common Stock may
convert any or all of his shares into an equal number of shares of the other
class of Common Stock.
Accounting Treatment. The Merger is intended to qualify as a recapitalization
for accounting purposes and not as a transaction that would require a change in
basis of accounting.
29
<PAGE>
Stock Options/Warrants. The Merger Agreement provides that on the effective date
of the Merger, Allied's stock option plans will terminate, and except as
otherwise provided in the Rollover Agreements, each option to purchase Allied
Common Stock, except for "Substitute Options" (as defined in the Option Plan)
or the Anchor Bay Option (as defined in the Merger Agreement), outstanding
immediately prior to the Effective Time (whether or not the option is vested
or exercisable) will be canceled and in exchange therefor, each holder
of an option to purchase Allied Common Stock will receive a cash payment equal
to the product of (a) the excess of the cash consideration in the Merger over
the exercise price of the option multiplied by (b) the number of shares subject
to the option, less any applicable withholding taxes.
The Class A warrants issued by Allied with an exercise price of $6.75 per
share of Allied Common Stock, Class B warrants issued by Allied with an
exercise price of $7.50 per share of Allied Common Stock and Class C warrants
issued by Allied with an exercise price of $9.00 per share of Allied Common
Stock (collectively, the "Warrants"), the Substitute Options, and the Anchor
Bay Option will have been adjusted in accordance with their terms, unless any
such Warrants have expired in accordance with their terms, such that, upon
exercise and payment of the exercise price, any holder thereof will have the
right to receive only $5.00 per share, and in no event will have the right to
receive any shares of capital stock of Allied or the Surviving Corporation.
30
<PAGE>
As of April 13, 1998, there were options outstanding to purchase an aggregate
of 973,750 shares of Allied Common Stock at a weighted average exercise price
of $3.9483, which options were held by 24 persons and one entity.
The following table sets forth, as to each executive officer and director of
Allied, (i) the number of shares of Allied Common Stock subject to options
held by such persons as of the Record Date, (ii) the respective weighted
average per share exercise price of such options, and (iii) except as noted,
the amount of cash such persons would be entitled to receive in connection
with the Merger in respect of such options. The information appearing below
with respect to beneficial ownership of Allied Common Stock underlying options
has been determined as of May 27, 1998 and includes all vested and unvested
options held by these persons. However, information as to the receipt of the
cash consideration in the Merger for shares subject to outstanding options has
been determined after giving effect to acceleration of the vesting of all
outstanding options as a result of the Merger.
<TABLE>
<CAPTION>
Name of Option Number of Shares Weighted Average Aggregate Net
Holder Subject to Option Exercise Price Value of Options
<S> <C> <C> <C>
William H. Smith - - -
George N. Fishman - - -
Donald L. Olesen 30,000 $2.4375 $ 76,875
H. Sean Mathis 50,000 $7.5025 0
Seymour Leslie 25,000 $8.6300 0
Eugene A. Gargaro, Jr. - - -
Werner H. Jean - - -
John A. Morgan - - -
Charles P. Kavanagh 20,000 $2.4375 $ 51,250
John K. Mangini 225,000 $2.0972 $653,130
All Directors and 350,000 $3.3846 $565,390
Executive officers as a
Group (10 persons)
</TABLE>
Benefits Under Employment Agreements. Allied is not a party to any employment
agreements with any of its executive officers that would require the payment
of any lump sum severance amounts as a result of employment termination of the
executive officer in the event of a "change of control" of Allied.
Employment by Allied or AAC. As a result of the Merger, Allied will be the
surviving corporation, and employees of Allied will remain employees of the
surviving corporation.
Indemnification. Pursuant to the terms of the Merger Agreement, for a period
of six (6) years after the Effective Time, and subject to any limitation
imposed from time to time under applicable law, the Surviving Corporation will
indemnify and hold harmless the present and former officers and directors of
Allied and its subsidiaries in respect of acts or omissions occurring prior to
the Effective Time to the maximum extent provided under Allied's certificate
of incorporation and bylaws, or any of its subsidiary's certificate of
incorporation or bylaws, in either case, as in effect on the date of the
execution of the Merger Agreement.
For a period of six (6) years after the Effective Time, the Surviving
Corporation will provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering
each such person currently covered by Allied's or any of its subsidiary's
officers' and directors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy in effect on
the date hereof, provided, that, in satisfying its obligation to provide
liability insurance, the Surviving Corporation will not be obligated under the
Merger Agreement, to pay premiums in excess of 150% of the amount per annum
Allied paid in its last full fiscal year.
The Company's Certificate of Incorporation contains provisions eliminating a
director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve
31
<PAGE>
intentional misconduct or a knowing violation of law; (iii) under Section 174
of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
In addition, the Company's By-Laws require the Company to indemnify Allied
directors and officers to the fullest extent permitted under the law. The
Company maintains director and officer insurance coverage for directors and
officers of Allied.
LITIGATION
On May 12, 1998, a complaint purporting to state a class action was filed in
the Delaware Court of Chancery by Crandon Capital Partners, alleged to be a
stockholder of Allied, on behalf of itself and all others similarly situated,
against Allied and its directors. The plaintiffs allege that the Merger is
wrongful, unfair and harmful to holders of Allied Common Stock and that it has
been effected with unfair dealing, that the proposed consideration of $5.00
per share is unfair to Allied's Shareholders and that the directors of Allied
have violated their fiduciary obligation owed to the plaintiffs and
other members of the class. The complaint seeks to enjoin the Merger and an
unspecified amount of damages, in addition to payment of attorneys' fees and
reimbursement of expenses. Management believes that this claim is without
merit and does not believe such claim will have a material adverse effect on
the Merger or on the Company's financial condition, results of operations or
liquidity.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the holders of Rollover Shares will own
approximately 51% of the aggregate shares of Class A Common Stock of Surviving
Corporation. Other than the Rollover Shareholders, current stockholders of
Allied will not have an opportunity to continue their equity interest in the
Surviving Corporation and therefore will not share in the future earnings and
potential growth of Allied, nor have the right of equity ownership. Upon
consummation of the Merger, the Allied Common Stock will no longer be traded
on the American Stock Exchange, trading information will no longer be
available and the registration of the Allied Common Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will be terminated. The
termination of the registration of the Allied Common Stock under the Exchange
Act will reduce the information required to be furnished to the SEC and will
make certain of the provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b) and the requirement of furnishing
a proxy or information statement in connection with stockholder meetings, no
longer applicable. However, in connection with the offering by the Surviving
Corporation of certain senior subordinated 10 year notes, the Company may be
required pursuant to applicable agreements, and may voluntarily continue, to
file annual or quarterly reports on Forms 10-K and 10-Q, respectively, with the
SEC. See "Debt Financing" for further information.
Because the Rollover Shares will remain outstanding after the Merger, the
Rollover Stockholders may share in the future earnings and potential growth of
Allied, if any. Although an investment in the Surviving Corporation following
the consummation of the Merger involves substantial risk resulting from the
limited liquidity of any such investment and the high debt-to-equity ratio and
consequent substantial fixed charges that will apply to Allied subsequent to
the Merger, if the projections made by Allied are realized, the value of such
an equity investment would be considerably greater than the original cost
thereof. Further, even if the projections are not met, the investors in Allied
may earn a substantial return on their investment. See "Certain Forward
Looking Information." The receipt of cash pursuant to the Merger will be a
taxable transaction. See "-- Federal Income Tax Consequences."
CONDUCT OF ALLIED'S BUSINESS AFTER THE MERGER
As a condition to the consummation of the Merger, all directors of Allied
designated by AAC will submit their resignations effective upon consummation
of the Merger; however, neither Allied nor AAC has any present intention to
change the composition of management. Except with respect to Messrs. Fishman
and Smith who are retiring, AAC and members of management of Allied expect
that the day to day business and operations of Allied will be conducted
substantially as they are currently being conducted by Allied. In addition,
after the Merger, Allied intends to seek certain strategic acquisitions of
companies in comparable industries to take advantage of increased margins by
combining operations.
Other than the transactions contemplated hereby and the proposed debt financing,
the Company does not have, nor does it anticipate, any plans or proposals which
would result in a sale or transfer of a material amount of assets, or a material
change in the Company's dividend rate or policy or indebtedness or
capitalization. See "Merger -- Debt Financing."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company
and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section appearing
elsewhere in this Proxy Statement. The consolidated financial statement
data as of and for the fiscal years ended July 31, 1997 and 1996 are
derived from, and are qualified by reference to, the audited
Consolidated Financial Statements of the Company included elsewhere in
this Proxy Statement. The Consolidated Financial Statements of the
Company have been audited by Grant Thornton LLP, independent certified
public accountants, for the fiscal years ended July 31, 1997 and 1996.
The Consolidated Financial Statements of the Company for the fiscal year
ended July 31, 1995, the seven months ended July 31, 1994, and the years
ended December 31, 1993 and 1992 have been audited by Arthur Andersen
LLP, independent certified public accountants. The consolidated financial
statement data as of and for the seven months ended July 31, 1993 is
unaudited. The consolidated financial statement data as of April 30, 1998
and for the nine months ended April 30, 1998 and 1997 has been derived
from, and is qualified by reference to, the Unaudited Condensed Consolidated
Financial Statements of the Company included elsewhere in this Proxy
Statement. Such interim data, in the opinion of management, contain all
adjustments necessary for a fair presentation of such information. The
results of operations for the interim periods should not be taken as
indicative of results for the full year.
<TABLE>
<CAPTION>
(dollars in thousands) Nine Months Ended Year Ended Year Ended Year Ended
April 30, July 31, July 31, July 31,
1998 1997 1997 1996 1995(a)
---- ---- ---- ---- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales $127,110 $119,367 $159,147 $160,942 $116,564
Cost of Sales 99,868 95,500 127,034 132,262 89,442
Nonrecurring Charge -- -- -- 1,250(b) --
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit 27,242 23,867 32,113 27,430 27,122
Operating Expenses 19,539 18,460 24,829 30,029(b) 23,815
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations 7,703 5,407 7,284 (2,599) 3,307
Interest Expense (3,359) (3,573) (5,025) (6,186) (3,816)
Other Income, Net 162 162 168 665 761
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
Income Taxes 4,506 1,996 2,427 (8,120) 252
Income Tax Provision
(Benefit) 2,630 1,367 1,760 (2,535) (2,576)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $1,876 $629 $667 $(5,585) $2,828
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average
Common Shares
Outstanding 13,620 13,620 13,620 13,620 13,620
====================================================================================================================================
Basic and Diluted
Earnings per Share(d) $0.14 $0.05 $0.05 $(0.41) $0.05
====================================================================================================================================
Stock Options and
Warrants 1,469
Diluted Common Shares
Outstanding 13,710 13,620 13,620 13,620 13,621
Cash Dividends(e) -- -- -- -- --
Balance Sheet Data:
Total Assets $105,285 $110,482 $107,880 $113,878 $125,867
Working Capital
(deficiency) (2,392) 4,470 3,944 (491) 9,691
Long-Term Debt and
Capitalized Lease
Obligations 33,260 40,635 36,548 39,386 46,170
Subordinated Notes
Payable to Stockholders 10,132 9,915 10,060 10,996 8,417
Total Liabilities 64,606 71,876 69,236 75,901 82,305
Total Stockholders' Equity 40,679 38,606 38,644 37,977 43,562
Book Value per Share(d) $2.99 $2.84 $2.84 $2.79 $3.20
Common Shares Issued
and Outstanding 13,623 13,620 13,620 13,620 13,620
Other Data:
EBITDA(f) $15,934 $13,548 $17,897 $10,613 $12,501
Depreciation and
Amortization 8,069 7,979 10,445 11,297 8,432
Capital expenditures(g) 5,705 1,613 2,419 9,410 7,888
Ratio of earnings to fixed
charges(h) 1.99x 1.41x 1.36x -- 1.05x
<CAPTION>
Seven Months Ended July 31, Year Ended December 31,
1994 1993 1993 1992
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales $40,939 $54,898 $93,191 $69,134
Cost of Sales 28,998 38,329 63,862 46,553
Nonrecurring Charge -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit 11,941 16,569 29,329 22,581
Operating Expenses 11,075(c) 11,986 20,873 16,376
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations 866 4,583 8,456 6,205
Interest Expense (1,137) (565) (984) (284)
Other Income, Net 238 124 230 537
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
Income Taxes (33) 4,142 7,702 6,458
Income Tax Provision
(Benefit) 85 160 375 323
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $(118) $3,982 $7,327 $6,135
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average
Common Shares
Outstanding
====================================================================================================================================
Basic and Diluted
Earnings per Share(d)
====================================================================================================================================
Stock Options and
Warrants
Diluted Common Shares
Outstanding
Cash Dividends(e) -- -- -- --
Balance Sheet Data:
Total Assets $38,604 $49,849 $41,096 $31,810
Working Capital
(deficiency) 13,999 9,344 10,673 9,493
Long-Term Debt and
Capitalized Lease
Obligations 16,898 12,547 12,154 3,641
Subordinated Notes
Payable to Stockholders 14,000 -- -- --
Total Liabilities 38,136 32,827 23,468 17,291
Total Stockholders' Equity 468 17,022 17,628 14,519
Book Value per Share(d) -- -- -- --
Common Shares Issued
and Outstanding -- -- -- --
Other Data:
EBITDA(f) $4,389 $7,192 $13,208 $10,069
Depreciation and
amortization 2,785 2,485 4,522 3,317
Capital expenditures(g) 432 6,177 7,191 2,708
Ratio of earnings to fixed
charges(h) -- 4.87x 5.11x 8.72x
</TABLE>
Notes to Selected Financial Data
(a) On January 12, 1995, the Company acquired all of the outstanding common
stock of Allied Film Laboratory, Inc. ("AFL") and HMG Digital Technologies
Corp. ("HMG") in exchange for approximately 55% and 45% of the outstanding
common shares of the Company, respectively (the "Reorganization").
Subsequently, on March 10, 1995, the Company changed its fiscal year end
from December 31, to July 31. Consequently, the results of operation (i) for
the year ended July 31, 1996 (and thereafter) include the consolidated
operations of AFL and HMG for such period, (ii) for the year ended July 31,
1995 include the operations of AFL for the twelve months ended July 31, 1995
and the operations of HMG for the period January 12, 1995 through July 31,
1995, and (iii) for the seven months ended July 31, 1994 (and prior thereto)
represent the operations of AFL.
(b) For the year ended July 31, 1996, the results of operations were
adversely impacted by a $1.3 million nonrecurring charge associated
with a customer allowance and a restructuring charge of $3.1 million
included in operating expenses.
(c) For the seven months ended July 31, 1994, the results of operations
were adversely impacted by a $.5 million non-cash, nonrecurring
charge included in operating expenses for compensation associated
with the issuance of AFL common stock to certain employees in
contemplation of the Reorganization.
(d) Basic and diluted earnings per share and book value per share have
not been presented for periods prior to year ended July 31, 1995 due
to the recapitalization for AFL through the Company. For the year
ended July 31, 1995, basic and diluted earnings per share is based
on pro forma net earnings as if both the recapitalization and merger
of the Company, AFL and HMG had occurred as of August 1, 1994.
(e) Prior to the Reorganization, AFL had elected to be treated as an
S corporation under the Code. Historically, AFL has not paid cash
dividends other than distributions of approximately 45% to 55% of
its taxable income for each year. These distributions totaled
$666,878 for the year ended July 31, 1995, $18,083,822 and
$1,794,041 for the seven month periods ended July 31, 1994 and 1993,
and $4,532,030 and $4,473,969 for the years ended December 31, 1993
and 1992, respectively.
(f) EBITDA represents operating income and other income (expense),
before depreciation and amortization and excludes nonrecurring
charges of $1.3 million and $.5 million for the year ended July 31,
1996 and for the seven months ended July 31, 1994, respectively.
While EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles or as a measure
of liquidity, it is included herein to provide additional
information with respect to the ability of the Company to meet
future debt service, capital expenditures and working capital
requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations". For the year ended July 31,
1996, EBITDA reflects, and accordingly is net of, a restructuring
charge of $3.1 million.
(g) Capital expenditures include the acquisition of property and
equipment and capitalized leased equipment.
(h) For the purpose of calculating the ratio of earnings to fixed
charges, earnings represent income before income taxes and fixed
charges. Fixed charges consist of the total of (i) interest, whether
expensed or capitalized, (ii) amortization of debt expense, whether
expensed or capitalized and (iii) that portion of rental expense
considered to represent interest cost. For the year ended July 31,
1996 and for the seven months ended July 31, 1994, earnings were
insufficient to cover fixed charges by $8.1 million and $32
thousand, respectively.
32
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
SELECTED PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA
The following table sets forth selected pro forma unaudited condensed financial
data for the Company, as adjusted to give effect to the Transactions (as defined
herein), which have been derived from, and should be read in conjunction with,
the Pro Forma Unaudited Condensed Financial Data, including the notes thereto,
appearing elsewhere in this Proxy Statement. The selected pro forma unaudited
condensed financial data are presented for illustrative purposes only and are
not necessarily indicative of the operating results or financial position that
would have occurred if the Transactions have been consummated on the dates
indicated, nor are they necessarily indicative of future operating results or
financial position.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS DATA
(in thousands)
<TABLE>
<CAPTION>
Nine Month Period Ended Year Ended
April 30, 1998 July 31, 1997
------------------------ -------------
<S> <C> <C>
Net sales $127,110 $159,148
Cost of sales 99,868 127,034
-------- --------
Gross profit 27,242 32,114
Operating expenses 19,539 24,830
-------- --------
Income from operations 7,703 7,284
Interest expense (8,820) (12,195)
Other, net 162 168
-------- --------
Loss before income taxes (955) (4,743)
Provision (benefit) for income taxes 446 (1,108)
-------- --------
Net loss (1,401) (3,635)
Preferred stock dividends (1,485) (1,980)
-------- --------
Net loss available to common stockholders $ (2,886) $(5,615)
======== =========
Other Data:
Ratio of earnings to fixed charges(a) -- --
</TABLE>
(a) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes and fixed charges. Fixed
charges consist of the total of (i) interest, whether expensed or
capitalized, (ii) amortization of debt expense, whether expensed or
capitalized and (iii) that portion of rental expense considered to
represent interest cost. On a pro forma basis, for the nine months ended
April 30, 1998 and for the twelve months ended July 31, 1997, giving effect
to the Recapitalization as if it occurred on August 1, 1997 and August 1,
1996, respectively, earnings were insufficient to cover fixed charges by
$955,000 and $4,743,000, respectively.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
As of
April 30, 1998
----------------
<S> <C>
Total assets $109,662
Long term debt and capitalized lease
obligations (including current maturities) 102,106
Redeemable preferred stock 16,500
Stockholders' deficit (29,323)
</TABLE>
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or at such later time as
may be specified in the certificate of merger (the "Effective Time"). The date
and time of effectiveness of the Merger is referred to generally in this Proxy
Statement as the "Effective Time." The Effective Time is currently expected to
occur as soon as practicable after the Special Meeting, subject to approval of
the principal terms of the Merger Agreement at the Special Meeting and
satisfaction or waiver of the terms and conditions set forth in the Merger
Agreement.
33
<PAGE>
ACCOUNTING TREATMENT
The Merger is intended to qualify as a recapitalization for accounting
purposes. Accordingly, the Merger will have no impact on the historical basis
of Allied's assets and liabilities.
APPRAISAL RIGHTS
If the Merger is consummated, holders of shares of Allied Common Stock are
entitled to appraisal rights under Section 262 of the DGCL ("Section 262"),
provided that they comply with the conditions established by Section 262.
Section 262 is reprinted in its entirety as Annex C to this Proxy Statement.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Annex C.
This discussion and Annex C should be reviewed carefully by any holder who
wishes to exercise statutory appraisal rights or who wishes to preserve the
right to do so, as failure to comply with the procedures set forth herein or
therein will result in the loss of appraisal rights.
A record holder of shares of Allied Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the effective time of the Merger (the "Effective
Time"), who otherwise complies with the statutory requirements of Section 262
and who neither votes in favor of the Merger nor consents thereto in writing
will be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his or her shares of Allied Common
Stock. All references in this summary of appraisal rights to a "stockholder"
or "holders of shares of Allied Common Stock" are to the record holder or
holders of shares of Allied Common Stock. Except as set forth herein,
stockholders of Allied will not be entitled to appraisal rights in connection
with the Merger.
Under Section 262, where a merger is to be submitted for approval at a meeting
of stockholders, such as the Special Meeting, not less than 20 days prior to
the meeting a constituent corporation must notify each of the holders of its
stock for whom appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262. This Proxy
Statement will constitute such notice to the record holders of Allied Common
Stock. Holders of shares of Allied Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger and must deliver a
separate written demand for appraisal to Allied prior to the vote by the
stockholders of Allied on the Merger. A demand for appraisal must be executed
by or on behalf of the stockholder of record and must reasonably inform Allied
of the identity of the stockholder of record and that such stockholder intends
thereby to demand appraisal of Allied Common Stock. A proxy or vote against
the Merger will not by itself constitute such a demand. Within ten days after
the Effective Time, Allied must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
A stockholder who elects to exercise appraisal rights should mail or deliver
his or her written demand to: Corporate Secretary c/o Allied Digital
Technologies Corp., 140 Fell Court, Hauppauge, New York 11788.
A person having a beneficial interest in shares of Allied Common Stock that
are held of record in the name of another person, such as a broker, fiduciary,
depositary or other nominee, must act promptly to cause the record holder to
follow the steps summarized herein properly, and in a timely manner, to
perfect appraisal rights. If the shares of Allied Common Stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian), depositary or other
nominee, such demand must be executed by or for the record owner. If the
shares of Allied Common Stock are owned of record by more than one person, as
in a joint tenancy or tenancy in common, such demand must be executed by or
for all joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, such person is acting as
agent for the record owner. If a stockholder holds shares of Allied Common
Stock through a broker who in turn holds the shares through a central
securities depository nominee, such as Cede & Co., a demand for appraisal of
such shares must be made by or on behalf of the depository nominee and must
identify the depository nominee as record holder.
A record holder, such as a broker, fiduciary, depositary or other nominee, who
holds shares of Allied Common Stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares in not expressly stated, the demand
will be presumed to cover all shares of Allied Common Stock outstanding in the
name of such record owner.
Within 120 days after the Effective Time, either Allied or any stockholder who
has complied with the required conditions of Section 262 may file a petition
in the Delaware Court, with a copy served on Allied in the case of a petition
filed by a
34
<PAGE>
stockholder, demanding a determination of the fair value of the shares of all
dissenting stockholders. There is no present intent on the part of Allied to
file an appraisal petition and stockholders seeking to exercise appraisal
rights should not assume that Allied will file such a petition or that Allied
will initiate any negotiations with respect to the fair value of such shares.
Accordingly, holders of Allied Common Stock who desire to have their shares
appraised should initiate petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from Allied a statement setting
forth the aggregate number of shares of Allied Common Stock not voting in
favor of the Merger and with respect to which demands for appraisal were
received by Allied and the number of holders of such shares. Such statement
must be mailed within 10 days after the written request therefor has been
received by Allied.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such stockholder. Where proceedings are not
dismissed, the Delaware Court will appraise the shares of Allied Common Stock
owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value.
Although Allied believes that the merger consideration is fair, no
representation is made as to the outcome of the appraisal of fair value as
determined by the Delaware Court and stockholders should recognize that such
an appraisal could result in a determination of a value higher or lower than,
or the same as, the merger consideration. Moreover, Allied does not anticipate
offering more than the merger consideration to any stockholder exercising
appraisal rights and reserves the right to assert, in any appraisal
proceeding, that, for purposes of Section 262, the "fair value" of share of
Allied Common Stock is less than the Merger Consideration. In determining
"fair value", the Delaware Court is required to take into account all relevant
factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the
factors that could be considered in determining fair value in an appraisal
proceeding, stating that "proof of value by any techniques or methods which
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered and that "[f]air price obviously
requires consideration of all relevant factors involving the value of a
company." The Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other
facts which could be ascertained as of the date of the merger which throw any
light on future prospects of the merged corporation. Section 262 provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the Merger." In Cede & Co. v. Technicolor,
Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does
not encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the Merger and not the product
of speculation, may be considered." In addition, Delaware courts have decided
that the statutory appraisal remedy, depending on the factual circumstances,
may or may not be a stockholder's exclusive remedy in connection with
transactions such as the Merger.
Holders of shares of Allied Common Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262
could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Allied, the Delaware Court may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
Any holder of shares of Allied Common Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment
of dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any stockholder will have
the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only
35
<PAGE>
with the consent of Allied. If no petition for appraisal is filed with the
Delaware Court within 120 days after the Effective Time, stockholders' rights
to appraisal will cease, and all holders of shares of Allied Common Stock will
be entitled to receive the consideration offered pursuant to the Merger
Agreement. Inasmuch as Allied has no obligation to file such a petition, and
Allied has no present intention to do so, any holder of shares of Allied Common
Stock who desires such a petition to be filed is advised to file it on a timely
basis. Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to Allied a written withdrawal of his or her demand for appraisal and
acceptance of the merger consideration, except (i) that any such attempt to
withdraw made more than 60 days after the Effective Time will require written
approval of Allied and (ii) that no appraisal proceeding in the Delaware Court
will be dismissed as to any stockholder without the approval of the Delaware
Court, and such approval may be conditioned upon such terms as the Delaware
Court deems just.
36
<PAGE>
DEBT FINANCING
399, directly or indirectly, expects to make an equity contribution of
$13,124,450 (the "Equity Investment") in AAC (which will be converted in the
Merger into equity of the Surviving Corporation) which amount will be used to
partially fund the payment of the cash consideration and expenses incurred in
connection with the Merger. The Company anticipates that approximately $100
million will be arranged through a public or private offering of senior
subordinated notes which will be used to provide the balance of the funds
required to consummate the transactions contemplated by the Merger Agreement
and fees and expenses incurred in connection with the Merger (the "Debt
Financing"). At the Effective Time, the Company expects to enter into a $25
million [secured [ ] year] revolving credit facility, subject to certain
borrowing base limitations (the "Revolving Credit Facility") with [ ]. On [ ],
1998 [the Company] received an executed commitment letter from [ ] to provide
up to $25 million under the Revolving Credit Facility. On April 21, 1998, JP
Morgan delivered the Highly Confident Letter to CVC and on May 3, 1998, 399
delivered the Highly Confident Letter to the Company.
It is anticipated that all indebtedness under each of the following loan
agreements will be fully satisfied prior to closing: (a) Amended and Restated
Loan and Security Agreement, dated as of October 30, 1996, as amended; between
ADI and American National Bank & Trust Company of Chicago ; (b) Series B
Subordinated Notes, dated January 11,1995, issued by HMG in favor of 399,
Brian Wilson, George N. Fishman, Charles Kavanagh, Donald Olesen, Seymour Leslie
and two individuals who are not affiliated with the Company; (c) Subordinated
Promissory Notes, dated October 30, 1996, issued by HMG in favor of William H.
Smith, as trustee of William H. Smith Trust, George N. Fishman and Donald L.
Olesen; (d) Notes, dated October 30, 1996, issued by ADI in favor of William H.
Smith, as trustee of the William H. Smith Trust and William H. Smith; (e) Note,
dated March 31, 1993, issued by AFL in favor of UTC, Inc.; and (f) New York
State Development Corporation Note dated May 14, 1996, issued by NYSDC in favor
of Town of Islip Industrial Development Agency.
EXPENSES OF THE TRANSACTION
As a result of the proposed Merger and the Debt Financing, the Company will
incur various costs, currently estimated at $8.3 million, in connection with
consummating the Merger transaction. These costs consist of $5.5 million of
professional fees, $150,000 printing costs and filing fees and $2.65 million of
other expenses. The exact timing, nature and amount of these costs are subject
to change.
See "Special Factors -- Fairness Opinion" for a description of the fees to be
paid to Furman Selz in connection with its engagement.
For a description of Allied's obligation to pay or reimburse Mr. Percival for
expenses incurred by him in connection with the Merger, see "The Merger
Agreement -- Expenses."
THE MERGER AGREEMENT
The following is a brief summary of all material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is attached to this
Proxy Statement as Annex B and is incorporated herein by reference.
THE MERGER
The Merger Agreement contemplates that as soon as practicable after satisfaction
or waiver of all conditions to the Merger, Allied and AAC will file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the DGCL in connection with
the Merger. The Merger will become effective at such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such later time as is specified in the certificate of merger (the "Effective
Time"). At the Effective Time, AAC will be merged with and into Allied, with
Allied being the surviving corporation (the "Surviving Corporation"). From and
after the Effective Time, the Surviving Corporation will possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of Allied and AAC, except as provided under the DGCL.
THE SURVIVING CORPORATION
At the Effective Time, the Certificate of Incorporation of the Surviving
Corporation will be amended to read in its entirety as set forth in Annex D-1
attached hereto if the Merger receives an affirmative vote of at least a
majority of the shares entitled to vote thereon but less than 66 2/3% of the
shares entitled to vote thereon, or Annex D-2 attached hereto if the Merger
receives the affirmative vote of at least 66 2/3% of the shares entitled to vote
thereon, in each case until thereafter amended as provided by law or such
Certificate of Incorporation. However, because 68.51% of the shares of Allied
Common Stock are
37
<PAGE>
subject to Stockholder Voting Agreements or are owned by 399, the Certificate
of Incorporation attached hereto as Annex D-2 will in all likelihood be
adopted. For a further discussion, see "Certificate of Incorporation." At the
Effective Time, the By-laws of the Surviving Corporation will be amended to
read as set forth in Exhibit C to the Merger Agreement until thereafter
amended as provided by law and such By-laws. From and after the Effective Time,
all directors of Allied designated by AAC, except Mr. Donald. L. Olesen, will
resign from the Board. Other than for the retirement of Messrs. Fishman and
Smith, neither Allied nor AAC has any present intention to change management
of Allied. See "-- Board of Directors of Allied Following the Merger."
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Allied Common Stock, each share of Allied
Common Stock issued and outstanding immediately prior to the Merger, except
for shares held by Allied or any of its subsidiaries as treasury shares
("Treasury Shares"), shares held by 399, shares held by certain members of
management and any Dissenting Shares (as defined below), will be canceled and
will be converted automatically into the right to receive an amount equal to
$5.00 in cash, payable, without interest, to the holder of a share of Allied
Common Stock upon surrender of the certificate evidencing the share of Allied
Common Stock. At the Effective Time, all Treasury Shares and all shares of
Allied Common Stock owned by AAC, if any, immediately prior to the Effective
Time will be canceled, and no payment will be made with respect thereto. All
of (A) the issued and outstanding shares of common stock, par value $.01 per
share, of AAC, (B) the issued and outstanding shares of preferred stock, par
value $.01 per share, of AAC, and (C) 1,100,110 shares of Allied Common Stock
held by and registered in the name of 399 will be converted into 74,000 shares
of Class A Common Stock of the Surviving Corporation ("Class A Common Stock"),
351,000 shares of Class B Common Stock of the Surviving Corporation and
165,000 shares of Series A Preferred Stock (the "Preferred Stock"), par value
$.01 per share, of the Surviving Corporation. Certain members of management
have elected to retain an aggregate of 74,998 shares of Allied Common Stock
which shall be converted into shares of Class A Common Stock of the Surviving
Corporation (the "Rollover Shares").
Except as otherwise provided in the Rollover Agreements, each option to purchase
Allied Common Stock, except for "Substitute Options" (as defined in the Option
Plan) or the Anchor Bay Option (as defined in the Merger Agreement), outstanding
immediately prior to the Effective Time (whether or not the option is vested or
exercisable) will be canceled and in exchange therefor, each holder of an option
to purchase Allied Common Stock will receive a cash payment equal to the product
of (a) the excess of the cash consideration in the Merger over the exercise
price of the option multiplied by (b) the number of shares subject to the
option, less any applicable withholding taxes.
The Class A warrants issued by Allied with an exercise price of $6.75 per
share of Allied Common Stock, Class B warrants issued by Allied with an
exercise price of $7.50 per share of Allied Common Stock and Class C warrants
issued by Allied with an exercise price of $9.00 per share of Allied Common
Stock (collectively, the "Warrants"), the Substitute Options, and the Anchor
Bay Option will have been adjusted in accordance with their terms, unless any
such Warrants have expired in accordance with their terms, such that, upon
exercise and payment of the exercise price, any holder thereof will have the
right to receive only $5.00 per share, and in no event will such holder have the
right to receive any shares of capital stock of Allied or the Surviving
Corporation.
At the Effective Time, except as described above, all shares of Allied Common
Stock outstanding immediately prior to the Effective Time will no longer be
outstanding and will automatically be canceled and retired and each holder of
a stock certificate representing shares of Allied Common Stock outstanding
immediately prior to the Effective Time will cease to have any rights with
respect thereto, except the right to receive the cash consideration in the
Merger, upon surrender of such certificates in accordance with the terms of
the Merger Agreement.
38
<PAGE>
No conversion will be made in respect of any shares of Allied Common Stock as
to which an Allied stockholder has elected to exercise appraisal rights until
such time, if any, as such stockholder will have effectively lost appraisal
rights.
Shares which are issued and outstanding immediately prior to the Effective
Time and which are held by a holder who has not voted such shares in favor of
the Merger, who will have delivered a written demand for appraisal of such
shares in the manner provided by the DGCL and who, as of the Effective Time,
will not have effectively withdrawn or lost such right to appraisal will not
be converted into a right to receive the cash consideration in the Merger
("Dissenting Shares"). The holders of Dissenting Shares will be entitled only
to such rights as are granted by Section 262 of the DGCL. Each holder of
Dissenting Shares who becomes entitled to payment for such shares pursuant to
Section 262 of the DGCL will receive payment therefor from Allied in
accordance with the DGCL; provided, however, that (i) if any such holder of
Dissenting Shares will have failed to establish his entitlement to appraisal
rights as provided in Section 262 of the DGCL, (ii) if any such holder of
Dissenting Shares will have effectively withdrawn his demand for appraisal of
such shares or lost his right to appraisal and payment for his shares under
Section 262 of the DGCL, or (iii) if neither any holder of Dissenting Shares
nor Allied will have filed a petition demanding a determination of the value
of all appraisal shares within the time provided in Section 262 of the DGCL,
such holder will forfeit the right to appraisal of such shares and each such
share will be treated as if it had not elected appraisal rights and had been
converted, as of the Effective Time, into a right to receive the cash
consideration in the Merger, without interest thereon, from the Surviving
Corporation. Allied will give AAC prompt notice of any demands received by
Allied for appraisal of shares, and AAC will have the right to participate in
all negotiations and proceedings with respect to such demands. Allied will
not, except with the prior written consent of Allied, make any payment with
respect to, or settle or offer to settle, any such demands. See also
"Appraisal Rights."
SURRENDER AND PAYMENT FOR SHARES
American Stock Transfer & Trust Company has been designated to act as agent
(the "Paying Agent") for the benefit of the holders of shares of Allied Common
Stock in connection with the Merger to receive the $5.00 cash consideration to
which holders of shares will become entitled, and will deposit with the Paying
Agent the proceeds of the Debt Financing required in order to consummate the
Merger. Such funds will be invested by the Paying Agent as directed by the
Surviving Corporation. Promptly after the Effective Time, the Surviving
Corporation will send, or will cause the Paying Agent to send, to each holder
of shares of Allied Common Stock outstanding immediately prior to the
Effective Time a letter of transmittal (the "Letter of Transmittal") for use
in effecting the surrender of certificates. The Letter of Transmittal will
specify that the delivery will be effected, and risk of loss and title will
pass, only upon proper delivery of the certificates representing shares of
Allied Common Stock to the Paying Agent.
Each holder of Allied Common Stock that has been converted into the right to
receive the cash consideration in the Merger, upon surrender to the Paying
Agent of a certificate or certificates representing such shares, together with
a properly completed Letter of Transmittal covering such shares, will be
entitled to receive the cash consideration payable in respect of such Shares.
Until so surrendered, each such certificate will, after the Effective Time,
represent for all purposes, only the right to receive such cash consideration.
No interest will be paid or will accrue on any cash payable as cash
consideration in the Merger.
If any portion of the cash consideration is to be paid to a person other than
the registered holder of the shares of Allied Common Stock represented by the
certificate or certificates surrendered in exchange therefor, it will be a
condition to such payment that the certificate or certificates so surrendered
will be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such payment will pay to the Paying Agent any transfer
or other taxes required as a result of such payment to a person other than the
registered holder of such shares or establish to the satisfaction of the
Paying Agent that such tax has been paid or is not payable.
At any time following the sixth month after the Effective Time, the Surviving
Corporation will be entitled to require the Paying Agent to deliver to it any
funds which had been made available to the Paying Agent and not disbursed to
holders of Allied
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Common Stock, and thereafter such holders will be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other
similar laws) only as general creditors thereof with respect to any cash
consideration that may be payable upon due surrender of the certificates held
by them to the fullest extent permitted by law. Notwithstanding the foregoing,
to the fullest extent permitted by law, neither the Surviving Corporation nor
the Paying Agent will be liable to any holder of a share for any Merger
consideration delivered in respect of such share to a public official pursuant
to any abandoned property, escheat or other similar law.
Any portion of the cash consideration made available to the Paying Agent to
pay for shares of Allied Common Stock for which appraisal rights have been
perfected will be returned to Allied, upon demand.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
Allied relating, with respect to Allied and its subsidiaries, to, among other
things: (a) organization, standing and similar corporate matters; (b) Allied's
capital structure; (c) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement; (d) the need to obtain any third party
consents; (e) documents filed by Allied with the SEC and the accuracy of
information contained therein; (f) Allied's financial statements; (g) material
adverse changes with respect to Allied; (h) the absence of material
undisclosed liabilities; (i) brokers' fees and expenses; (j) the absence of
certain changes or events since July 31, 1997; (k) pending or threatened
material litigation; (l) filing of tax returns and payment of taxes; (m)
compliance with applicable laws; (n) possession of required permits; (o)
material contracts; (p) ownership of or rights to use Allied intellectual
property; (q) the approval by the board of the Merger and the receipt of the
opinion of Furman Selz as to the fairness of the transaction to Allied
stockholders from a financial point of view; (r) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974, as
amended, and employment matters; (s) certain labor matters; (t) matters
relating to leased real property; (u) Allied's material compliance with all
environmental laws; (v) Allied's interest in any corporation, partnership,
joint venture, business, trust or entity; (w) certain business practices; (x)
Allied's maintenance of insurance on its assets; (y) the accuracy of
information supplied by Allied in connection with this Proxy Statement; and
(z) the receipt of notice by Allied of any customer cancellations.
The Merger Agreement also contains customary representations and warranties of
AAC relating to, among other things: (a) organization, standing and similar
corporate matters; (b) the ability of AAC to provide adequate financing in
connection with the Merger; (c) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters;
(d) the need to obtain any third party consents; (e) brokers' fees and
expenses; (f) pending or threatened material litigation; and (g) the accuracy
of information supplied by AAC in connection with this Proxy Statement.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, Allied and AAC have agreed that prior to the
Effective Time:
(a) Allied and its subsidiaries will use their reasonable best
efforts to obtain any required third party consents that AAC
reasonably may request; (b) AAC and Allied will use their respective
reasonable best efforts to obtain any necessary authorizations,
consents and approvals of any governmental or regulatory body; (c)
Allied will prepare and file with the SEC preliminary proxy materials
("Preliminary Proxy Materials") and a Schedule 13E-3 under the
Exchange Act relating to the Merger, and will use its best efforts to
respond to the comments of the SEC thereon; (d) Allied and AAC will
each use its reasonable best efforts to take, or cause to be taken,
all actions necessary, proper or advisable by such party with respect
to the prompt preparation and filing of the Schedule 13E-3 and
definitive proxy materials ("Joint Disclosure Documents"); (e) Allied
will call the Special Meeting as soon as reasonably practicable in
order that Allied stockholders may consider and vote upon the
adoption of the Merger Agreement and the approval of the Merger in
accordance with the DGCL, and
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mail the Joint Disclosure Documents to Allied stockholders as soon as
reasonably practicable, which Joint Disclosure Documents will contain
the affirmative recommendation of the Board of Directors of Allied in
favor of the adoption of the Merger Agreement and the approval of the
Merger; provided, however, that Allied will not have any obligation
to call the Special Meeting of Allied stockholders or mail the Joint
Disclosure Documents to Allied stockholders if such action would
require any director or officer of Allied either to violate any
requirement imposed by law or violate such director's or officer's
fiduciary duty; (f) each of Allied and AAC will cooperate with the
other Party hereto in connection with the recording of the Merger as
a recapitalization for financial reporting purposes, including,
without limitation, providing appropriate disclosure with regard to
such recording in all filings with the SEC; (g) Allied will not
engage in any practice, take any action or enter into any transaction
outside the ordinary course of business, including, without
limitation, those actions relating to effecting a change to its
Certificate of Incorporation or By-laws, granting any rights to
purchase capital stock, paying any dividends, incurring indebtedness
or encumbering assets (except as provided in the Merger Agreement),
making material changes in the employment terms of any officer or
director, making any capital or other investments, adopting any
employee benefit plan, revaluing any significant portion of assets,
paying any material liabilities, making any tax election and taking
actions with respect to accounting policies; (h) subject to the terms
and conditions of the Confidentiality Agreement (as defined in the
Merger Agreement), Allied and its subsidiaries will permit
representatives of AAC and its affiliates to have full access at all
reasonable times, and in a manner so as not to interfere with the
normal business operations of Allied and its subsidiaries, to all
premises, properties, personnel, books, records (including tax
records), contracts and documents of or pertaining to each of Allied
and its subsidiaries; (i) each of Allied and AAC will give prompt
written notice to the other of any event which could reasonably be
expected to have a material adverse effect on the financial condition
or the business operations of Allied or could reasonably be expected
to cause a breach of any of its respective representations,
warranties or covenants contained in the Merger Agreement; (j) Allied
will cause the Joint Disclosure Documents to comply with the
Securities Exchange Act in all material respects and each of Allied
and AAC will cause the Joint Disclosure Documents to not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light
of the circumstances under which they will be made, not misleading,
with respect to information provided by or on behalf of Allied and
AAC, respectively; (k) Allied will deliver to AAC on or before the
date the Joint Disclosure Documents are mailed to Allied Stockholders
a letter from its accountants, Grant Thornton, stating its
conclusions as to the accuracy of certain information derived from
the financial records from Allied and its subsidiaries and contained
in the Joint Disclosure Documents; and (l) Prior to the Effective
Time, Allied will take such action as may be necessary to terminate
Allied's Option Plan.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither Allied nor any of its subsidiaries
will (whether directly or indirectly through advisors, agents or other
intermediaries) authorize or knowingly permit any of its or their officers,
directors, agents, representatives, advisors or subsidiaries to solicit,
initiate or knowingly encourage the submission of inquiries, proposals or
offers from any third party relating to (A) any acquisition of 5% or more of
the consolidated assets of Allied and its subsidiaries or of over 5% of any
class of equity securities of Allied or any of its subsidiaries, (B) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any third party beneficially owning 5% or more of
any class of equity securities of Allied or any of its subsidiaries, (C) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Allied or any of its subsidiaries
whose assets, individually or in the aggregate, constitute more than 5% of the
consolidated assets of Allied, other than the acquisition of Allied by AAC and
the transactions contemplated by the Merger Agreement (the "Transactions") or
(D) any
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other transaction, the consummation of which would, or could reasonably be
expected to, impede, interfere with, prevent or materially delay the Merger or
which would, or could reasonably be expected to, materially dilute the
benefits to AAC of the Transactions (collectively, the "Acquisition Proposals"
and which, if consummated, will be an "Acquisition Transaction"), or enter
into or participate in any discussions (except as may be necessary to inform a
third party of the no solicitation provisions of the Merger Agreement or
negotiations regarding any of the foregoing) or furnish to any third party any
information with respect to the business, properties or assets of Allied in
connection with the foregoing, or otherwise cooperate in any way with, or
knowingly assist or participate in, facilitate or encourage, any effort or
attempt by any third party to do or seek any of the foregoing.
The non-solicitation provisions contained in the Merger Agreement will not
limit or prohibit Allied from (x) engaging in discussions or negotiations with
such a third party who has made an Acquisition Proposal that the Board of
Directors determines, in good faith, and after consultation with and advice
from its financial advisors, is reasonably likely to be subject to completion
and would, if consummated, result in a transaction more favorable, from a
financial point of view, to the Allied stockholders than the Transactions
contemplated by the Merger Agreement (a "Superior Acquisition Proposal"), but
only if the Board of Directors of Allied, after consultation with and advice
from its outside counsel, determines in good faith that, in the exercise of
its fiduciary responsibilities, such discussions or negotiations should be
commenced or such information should be furnished; (y) furnishing information
pursuant to an appropriate and customary confidentiality letter concerning
Allied or any subsidiary thereof and its businesses, properties or assets to a
third party who has made a Superior Acquisition Proposal as to which a prior
determination of the Board of Directors of Allied as contemplated under clause
(x) above has been made; provided, further, that (1) the Board of Directors of
Allied will not take any of the foregoing actions until notice to AAC of
Allied's intent to take such action will have been given; and (2) if
the Board of Directors of Allied receives a Superior Acquisition Proposal, to
the extent it may do so without breaching its fiduciary duties as determined
in good faith after consultation with its outside counsel, and without
violating any of the conditions of such Superior Acquisition Proposal, Allied
will promptly inform AAC of the material terms and conditions of such proposal
and the identity of the third party making it; or (z) taking a position on a
tender offer by a third party, as required by Rule 14e-2 under the Exchange
Act (provided no such position will constitute a recommendation of such
transaction if it does not constitute a Superior Acquisition Proposal) or
complying with its duties of disclosure under applicable state law.
DIRECTORS AND OFFICERS OF ALLIED FOLLOWING THE MERGER
The officers of Allied immediately prior to the Effective Time will be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified. As a
condition to AAC's obligation to consummate the Merger, Allied shall have
received and accepted the resignations of all directors of Allied designated
by AAC.
See "The Merger -- Certain Effects of the Merger".
INDEMNIFICATION
Pursuant to the terms of the Merger Agreement, for a period of six years after
the Effective Time, and subject to any limitation imposed from time to time
under applicable law, the Surviving Corporation will indemnify and hold harmless
the present and former officers and directors of Allied and its subsidiaries in
respect of acts or omissions occurring prior to the Effective Time to the
maximum extent provided under Allied's Certificate of Incorporation and By-laws,
or any of its subsidiary's Certificate of Incorporation or By-laws, in either
case, as in effect on the date of the execution of the Merger Agreement.
For a period of six years after the Effective Time, the Surviving Corporation
will provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such person
currently covered by Allied's or any of its subsidiary's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date hereof,
provided, that, in satisfying its obligation to
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provide liability insurance, the Surviving Corporation will not be obligated
under the Merger Agreement, to pay premiums in excess of 150% of the amount
per annum Allied paid in its last full fiscal year.
FINANCING
Pursuant to the terms of the Merger Agreement, AAC has agreed to use its
reasonable best efforts to assist Allied in obtaining the Debt Financing or
other alternative financing on substantially comparable or more favorable
terms, and Allied has agreed to use its reasonable best efforts to obtain a
revolving credit facility commitment from a lending institution designated by
AAC in the amount of approximately $25 million. See "The Merger - Debt
Financing."
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement, and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective reasonable best efforts to take all action
and to do all things necessary, proper or advisable in order to consummate and
make effective the Transactions contemplated by the Merger Agreement.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Allied and AAC to consummate the Merger are
subject to the satisfaction or waiver of the following conditions: (i) the
representations and warranties made by each party contained in the Merger
Agreement will be true and correct in all respects at and as of the Effective
Time, except for those representations and warranties which address matters
only as of a particular date (which will have been true and correct as of such
date); and (ii) the Merger Agreement will have been adopted by the
stockholders of Allied and AAC in accordance with the DGCL; (iii) each of
Allied and AAC will have performed and complied with all of its respective
covenants under the Merger Agreement in all material respects; (iv) there will
not be any judgment, order, decree, stipulation, injunction or charge in
effect preventing consummation of the Transactions; (v) Allied and AAC will
have each delivered to the other a certificate to the effect that each of the
conditions specified required to be satisfied by it has been satisfied in all
respects; and (vi) all applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated and the
parties shall have received all other authorizations, consents and approvals
of governmental or regulatory bodies in connection with the execution,
delivery and performance of the Merger Agreement.
In addition, the obligations of AAC to consummate the Merger are further
subject to the satisfaction or waiver by Allied of the following conditions:
i) the holders of not more than 10% of the outstanding shares of Allied
Common Stock shall have demanded appraisal of such shares in
accordance with the DGCL;
ii) Allied shall have delivered to AAC written consents to the
Transactions from persons who are parties to contracts set forth in
the schedules to the Merger Agreement;
iii) AAC shall be reasonably satisfied that the Merger will be recorded
as a recapitalization for financial reporting purposes;
iv) total debt of the Allied and its subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles in the U.S. consistently applied as of the Effective Time
will not exceed $45 million;
v) Allied shall have received the proceeds of the Debt Financing and
the amount to be drawn under the Revolving Credit Facility or other
proceeds on terms and conditions which are substantially equivalent
thereto;
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vi) Allied shall have received and accepted the resignations of all
directors of Allied designated by AAC;
vii) each of the Stockholder Voting Agreements and the Rollover
Agreements shall be in full force and effect;
viii) there will not be instituted or pending any action or proceeding by
any governmental or regulatory body, or any action or proceeding by
any other person, that has a reasonable likelihood of success before
any governmental or regulatory body, (A) challenging or seeking to
make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the consummation of the Merger or
seeking to obtain material damages or otherwise directly or
indirectly relating to the transaction, (B) seeking to restrain or
prohibit the ownership or operation by AAC of all or any material
portion of the business or assets of Allied and its subsidiaries,
taken as a whole, (C) seeking to impose or confirm material
limitations on the ability of AAC to effectively control the
business or operations of Allied and its subsidiaries, taken as a
whole, or effectively to exercise full rights of ownership of the
shares of Allied Common Stock, or (D) requiring divestiture by AAC
of any shares of Allied Common Stock, and no governmental or
regulatory body will have issued any judgment, order, decree or
injunction, and there will not be any statute, rule or regulation,
that, in the reasonable judgment of AAC is likely, directly or
indirectly, to result in any of the consequences referred to in the
preceding clauses (A) through (D);
ix) the Warrants will have been adjusted in accordance with the terms of
such Warrants, except for such Warrants that have expired in
accordance with their terms; and
x) AAC will have received an opinion of Warshaw Burstein Cohen
Schlesinger & Kuh, LLP, counsel to Allied, in the form of Exhibit E
attached to the Merger Agreement.
The obligation of Allied to consummate the Merger is further subject to the
satisfaction of the following additional conditions:
i) there will not be instituted or pending any action or proceeding by
any governmental or regulatory body, or any action or proceeding by
any other person, that has a reasonable likelihood of success before
any governmental or regulatory body, (A) challenging or seeking to
make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the consummation of the Merger or
seeking to obtain material damages or otherwise directly or
indirectly relating to the transaction, or (B) seeking to impose
liability on any officer or director of Allied for any actions taken
in connection with the Merger, and no governmental or regulatory
body will have issued any judgment, order, decree or injunction, and
there will not be any statute, rule or regulation, that, in the
reasonable judgement of Allied is likely, directly or indirectly, to
result in any of the consequences referred to in the preceding
clauses (A) or (B);
ii) Allied will have received an opinion of Furman Selz as to the
fairness to the Allied stockholders of the cash merger
consideration; and
iii) Allied will have received an opinion of Houlihan Lokey Howard &
Zukin to the effect that consummation of the transactions
contemplated hereby will not render Allied (a) insolvent, (b) unable
to pay its debts as they mature or (c) left with an unreasonably
small capital.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective Time
(notwithstanding any approval of the Merger Agreement by the stockholders of
Allied):
(a) by mutual written consent of Allied and AAC; (b) any time after the
Special Meeting, by either Allied or AAC, in the event that the Merger fails
to receive requisite stockholder approval; (c) by either Allied or AAC, if the
other party at any time prior
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to the Effective Time (i) has breached any material representation, warranty
or covenant contained in the Merger Agreement when made or at any time prior
to the consummation of the Merger in any material respect, the non-breaching
party has given notice to the breaching party, and the breach remains uncured
for 30 days after notice has been given, or (ii) if the consummation of the
Merger will not have occurred on or before September 30, 1998, by reason of
the failure of any condition precedent under the applicable provisions of the
Merger Agreement (unless the failure results from a breach by the other party
of any of its representations, warranties or covenants); (d) by either Allied
or AAC, if there will be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgement, injunction, order
or decree enjoining Allied or AAC from consummating the Merger is entered and
such judgment, injunction, order or decree will become final and nonappealable;
(e) by AAC, if (i) the Board of Directors of Allied will have withdrawn or
modified or amended, in a manner adverse to AAC, either its approval or
recommendation of the Merger Agreement or its recommendation that the Allied
stockholders adopt and approve the transactions contemplated by the Merger
Agreement, (ii) the Board of Directors of Allied will have approved,
recommended or endorsed any Superior Acquisition Proposal, or (iii) if Allied
has failed to duly call the Special Meeting of Allied stockholders; or (f) by
Allied, if a person has made a Superior Acquisition Proposal.
The party desiring to terminate the Merger Agreement will give written notice
of such termination to the other party in accordance with the terms thereof.
If either party terminates the Merger Agreement for any of the reasons set
forth above, all rights and obligations set forth in the Merger Agreement will
terminate; provided however, certain provisions relating to termination of
this Merger Agreement, AAC's right to obtain access to Allied's books and
records, Allied's solicitation of proposals from third parties, AAC's
obligation to pay the Debt Financing expenses, third party beneficiaries,
assignment, amendments and waivers, expenses and limited recourse will survive
any such termination and no such termination will release any party from
liability for any breach thereof.
TERMINATION FEES
In accordance with the terms of the Merger Agreement, Allied must pay AAC
$3,375,000, and reimburse AAC for its reasonable out-of-pocket expenses up to
a maximum of $1,000,000 if the Merger Agreement is terminated for any of the
following reasons:
i) Allied's Board of Directors notifies AAC that it has determined, in
good faith and after consultation with and advice from its financial
advisors, that a Superior Acquisition Proposal exists;
ii) Allied's Board of Directors approves, recommends or endorses a
Superior Acquisition Proposal;
iii) Allied breaches any material representation, warranty, covenant,
agreement or other obligation under the Merger Agreement and the
breach continues without cure for 30 days after notice by AAC,
another Acquisition Proposal has been made and within 12 months
after termination by AAC, Allied enters into a definitive agreement
or consummates an agreement with respect to any other Acquisition
Proposal;
iv) the Merger has not occurred before September 30, 1998, another
acquisition proposal has been made and within 12 months after
termination by AAC, Allied enters into a definitive agreement or
consummates an agreement with respect to any other Acquisition
Proposal;
v) Allied's Board of Directors withdraws or modifies its approval of
the Merger in a manner adverse to AAC, another acquisition proposal
has been made and within 12 months after termination by AAC, Allied
enters into a definitive agreement or consummates an agreement with
respect to any other Acquisition Proposal; or
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vi) Allied fails to call a Special Meeting of its stockholders to
consider and vote upon the Merger, another acquisition proposal has
been made and within 12 months after termination, Allied enters into
a definitive agreement or consummates an agreement with respect to
any other Acquisition Proposal.
AMENDMENT AND WAIVER
The Merger Agreement may be amended or its conditions precedent to closing
waived if, and only if, such amendment or waiver is in writing and signed by
both Allied and AAC. Once Allied's stockholders approve the Merger, however,
applicable law may require that subsequent amendments be approved by Allied
stockholders. In addition, either Allied or AAC may waive circumstances, that
under the Merger Agreement, would allow them to withdraw from the Merger.
EXPENSES
Except as otherwise described in "-- Termination Fees" and "-- Surrender and
Payment of Shares" above, costs and expenses incurred in connection with the
Merger will be paid by the party incurring such cost or expense, provided,
however, that in the event the Merger is not consummated, subject to any right
or reimbursement contained in Merger Agreement, 399 and AAC, will jointly and
severally be responsible for the payment of any expenses incurred by or fees
due to any lender in connection with the Debt Financing. See "The Merger --
Debt Financing."
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation attached hereto as Annex D-1 will be the
Certificate of Incorporation of the Surviving Corporation if a majority of the
outstanding shares of Allied Common Stock entitled to vote thereon, but less
than 66 2/3%, entitled to vote thereon, are voted in favor of the Merger. The
Certificate of Incorporation attached hereto as Annex D-2 will be the
Certificate of Incorporation of the Surviving Corporation if at least 66 2/3%
of the outstanding shares of Allied Common Stock are voted in favor of the
Merger.
There is only one material difference between the two amended and restated
certificates of incorporation. The Existing Certificate of Incorporation
provides for a classified Board of Directors, with the entire Board of
Directors being divided into three classes with each director being elected to
serve for a term ending on the date of the third annual meeting following the
annual meeting at which such director was elected. Any amendment to this
provision requires an affirmative vote of the stockholders of not less than
two-thirds (66 2/3%) of the total number of votes eligible to be cast by the
holders of all outstanding shares of capital stock.
Under the Amended and Restated Certificate of Incorporation attached as Annex
D-2, the classified Board of Directors is eliminated and the entire Board of
Directors will stand for election at any given annual meeting of stockholders.
Furthermore, subsequent changes with respect to classification of the
Surviving Corporation Board could be made by an affirmative vote of greater
than fifty (50%) percent of the total number of votes then eligible to be cast
by the holders of all outstanding shares of Surviving Corporation Common
Stock. The Amended and Restated Certificate of Incorporation attached as Annex
D-1 will continue to have the existence of a classified Board of Directors
immediately after the Merger.
Because 68.51% of the outstanding shares of Allied Common Stock are either
owned by 399 or are subject to Stockholder Voting Agreements, the Amended and
Restated Certificate of Incorporation attached hereto as Annex D-2 in all
likelihood will be adopted.
All other provisions of the proposed Amended and Restated Certificates of
Incorporation attached as Annex D-1 and D-2 are substantially the same.
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DESIGNATIONS
Preferred Stock. The Amended and Restated Certificate of Incorporation of the
Surviving Corporation will be amended in the Merger to provide that the
Surviving Corporation may issue 500,000 shares of Preferred Stock. The Amended
and Restated Certificate of Incorporation will also be amended in the Merger
to create a series of Preferred Stock designated as Series A Preferred Stock
consisting of 250,000 authorized shares (the "Series A Preferred Stock"). The
Series A Preferred Stock will have a stated value of $100 per share and will
be entitled to semi-annual dividends when, as and if declared, which dividends
will be cumulative, whether or not earned or declared, and will accrue at a
rate of 12%, compounding daily. The vote of holders of a majority of the
outstanding shares of the Series A Preferred Stock, voting as a separate class,
will be required to (i) amend the Surviving Corporation's Certificate of
Incorporation or By-Laws or alter the powers, rights, privileges or
preferences of the Series A Preferred Stock, if such amendment or alteration
would adversely affect the relative rights and preferences of the holders of
the Series A Preferred Stock, and (ii) authorize the issuance of any class of
Preferred Stock which ranks senior to or pari passu with the Series A
Preferred Stock with respect to dividends upon liquidation, dissolution or
winding up of the Surviving Corporation, (iii) increase the number of shares
of Series A Preferred Stock authorized for issuance or (iv) issue after the
Effective Time any shares of Series A Preferred Stock (with certain
exclusions, except for any issuance of shares of Series A Preferred Stock
which have been redeemed or otherwise acquired. Except as described in the
immediately preceding sentence or as otherwise required by law, the Series A
Preferred Stock will not be entitled to vote. The Surviving Corporation may
not pay any dividend upon (except for a dividend payable in Junior Stock, as
defined below), or redeem or otherwise acquire shares of, capital stock junior
to the Series A Preferred Stock (including the Surviving Corporation Common
Stock) ("Junior Stock") unless all cumulative dividends on the Series A
Preferred Stock have been paid in full. Upon liquidation, dissolution or
winding up of the Surviving Corporation, holders of Series A Preferred Stock
will be entitled to receive out of the legally available assets of the
Surviving Corporation, before any amount shall be paid to holders of Junior
Stock, an amount equal to $100 per share of Preferred Stock, plus all accrued
and unpaid dividends to the date of final distribution. If such available
assets are insufficient to pay the holders of the outstanding shares of Series
A Preferred Stock in full, such assets, or the proceeds thereof, will be
distributed ratably among such holders. The Series A Preferred Stock will not
be mandatorily redeemable prior to the earlier of the eleventh anniversary of
the Closing and the date upon which a Sale of the Surviving Corporation or a
Qualifying Offering (as such terms are defined in the Amended and Restated
Certificate of Incorporation) occurs.
Common Stock. The Amended and Restated Certificate of Incorporation will
provide that the Surviving Corporation may issue 750,000 shares of Common
Stock, divided into two classes consisting of 500,000 shares of Class A Stock
and 250,000 shares of Class B Stock. The holders of the Class A Stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the stockholders of the Surviving Corporation. Except as required by
law, the holders of Class B Stock will have no voting rights. Under the
Amended and Restated Certificate of Incorporation, a holder of either class of
Common Stock may convert any or all of his shares into an equal number of
shares of the other class of Common Stock.
The form of each proposed Amended and Restated Certificate of Incorporation is
attached to this Proxy Statement as Annex D-1 and D-2, respectively.
STOCKHOLDER VOTING AGREEMENTS
In connection with the Merger, each of George Fishman, William H. Smith and
various parties related to and affiliated trusts of William H. Smith and
Donald L. Olesen (and various parties related to Donald L. Olesen) (each, a
"Significant Stockholder") has entered into the Stockholder Voting Agreement
with AAC, dated as of May 5, 1998, representing in the aggregate 8,233,641
shares of Allied Common Stock, which together with the 1,100,110 shares of
Allied Common Stock currently owned by 399 represents approximately 68.51% of
the shares of Allied Common Stock issued and outstanding.
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During the period (the "Agreement Period") beginning on May 5, 1998 and ending
on the Termination Date (as defined in the Merger Agreement), each of the
Significant Stockholders has agreed not to directly or indirectly (i) except
pursuant to the terms of the Merger Agreement or the Stockholder Voting
Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, enforce or permit the execution of the provisions of any
redemption agreement with Allied or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition
of, or exercise any discretionary powers to distribute, any or all of such
Significant Stockholder's shares of Allied Common Stock or any interest
therein, including any trust income or principal, except in each case to a
permitted transferee (a "Permitted Transferee"), who is or agrees to become
bound by the Stockholder Voting Agreement; (ii) except as contemplated by the
Stockholder Voting Agreement, grant any proxies or powers of attorney with
respect to any shares of Allied Common Stock, deposit any shares of Allied
Common Stock into a voting trust or enter into a voting agreement with respect
to any shares of Allied Common Stock; or (iii) take any action that would make
any representation or warranty of such Significant Stockholder contained in
the Stockholder Voting Agreement untrue or incorrect or have the effect of
preventing or disabling such Significant Stockholder from performing such
Stockholder's obligations under the Stockholder Voting Agreement.
Each Significant Stockholder has waived any rights of appraisal or rights to
dissent from the Merger that such Significant Stockholder may have. The
Stockholders have represented that no beneficiary who is a beneficial owner of
shares of Allied Common Stock under any trust has any right of appraisal or
right to dissent from the Merger which has not been so waived.
Each Significant Stockholder has agreed that, until the Termination Date, such
Significant Stockholder shall vote (or cause to be voted) the shares of Allied
Common Stock held of record or beneficially by such Significant Stockholder
(i) in favor of the Merger, the execution and delivery by Allied of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and the Stockholder Voting Agreement and
any actions required in furtherance of the Stockholder Voting Agreement; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Allied
under the Merger Agreement or the Stockholder Voting Agreement; and (iii)
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement or any such actions identified in writing
by AAC in advance): (A) any extraordinary corporate transaction, including,
without limitation, a merger, consolidation or other business combination
involving Allied or its Subsidiaries; (B) a sale, lease or transfer of a
material amount of assets of Allied or its Subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of Allied or its Subsidiaries;
(C) any change in the majority of the board of directors of Allied; (D) any
material change in the present capitalization of Allied or any amendment of
Allied's Certificate of Incorporation or By-Laws; (E) any other material
change in Allied's corporate structure or business; or (F) any other action
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the Merger or the
transactions contemplated by the Merger Agreement or the Stockholder Voting
Agreement.
Each Significant Stockholder has appointed AAC and any designee of AAC, each
of them individually, such Stockholder's irrevocable (until the Termination
Date) proxy and attorney-in-fact (with full power of substitution) to vote
such Stockholder's shares of Allied Common Stock as described above. The proxy
is irrevocable (until the Termination Date) and coupled with an interest. Each
Significant Stockholder has agreed to take such further action and execute
such other instruments as may be necessary to effectuate the intent of the
proxy and has revoked any proxy previously granted by such Significant
Stockholder with respect to such Stockholder's shares of Allied Common Stock.
The Stockholder Voting Agreement will terminate upon the expiration of the
Agreement Period.
A form of Stockholder Voting Agreement is attached to the Proxy Statement as
Annex E.
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ROLLOVER AGREEMENTS
Subject to the terms and provisions of the Merger Agreement, in connection
with the Merger, each of Charles A. Mantione, John K. Mangini, John J.
Mangini, Emily M. Hill, Steven Granat, Edward Simek, David R. Conrad, Brian
Wilson and Donald L. Olesen (and various parties related to Donald L. Olesen)
(the "Rollover Stockholders") has entered into a Rollover Agreement with AAC,
dated as of May 5, 1998, whereby they have agreed to retain an aggregate of
74,998 shares of Allied Common Stock of Surviving Corporation Common Stock
upon conversion of, and with respect to, 74,998 shares of Allied Common Stock
owned by the Rollover Stockholders immediately prior to the Effective Time
unless otherwise agreed with AAC.
Unless the shares of Allied Common Stock held by any trust which are presently
subject to the terms of the Rollover Agreement are transferred to one or more
Rollover Stockholders (and remain subject in all respects to the terms of the
Rollover Agreement) or other Permitted Transferees who upon receipt of such
shares of Allied Common Stock become signatories to the Rollover Agreement,
the Rollover Stockholders who are trustees shall not take any action to
terminate, close or liquidate any such trust and shall take all steps
necessary to maintain the existence thereof at least until the Termination
Date.
Each Rollover Stockholder has waived any rights of appraisal or rights to
dissent from the Merger that such Stockholder may have. The Rollover
Stockholders have represented that no beneficiary who is a beneficial owner of
shares of Allied Common Stock under any trust has any right of appraisal or
right to dissent from the Merger which has not been so waived.
A form of Rollover Agreement is attached to this Proxy Statement as Annex F.
BUSINESS AND OPERATIONS OF ALLIED
GENERAL
Allied is engaged primarily in the duplication and replication of multimedia
software products. Through its subsidiary, Allied Digital, Inc. (formerly
known as Hauppauge Records Manufacturing Ltd.), a New York corporation
("ADI"), the Company duplicates and replicates film and video products for the
corporate communications, educational, religious and special interest video
markets, as well as analog audiocassettes for the recorded music and spoken
word industries and compact discs with a primary focus on the recorded music
industry. Allied's principal executive office is located at 140 Fell Court,
Hauppauge, New York 11788 and its telephone number is (516) 232-2323.
CORPORATE ORGANIZATION
Allied was incorporated in 1994 to acquire Allied Film Laboratory, Inc., a
Michigan corporation engaged in the duplication of multimedia software products
since 1960 ("AFL"), and HMG, a Delaware corporation of which ADI is a
wholly-owned subsidiary. See "-The Reorganization." As of November 1, 1996, AFL
was merged with and into ADI (the "Allied Merger") and, commencing as of that
date, all operations of Allied are conducted through ADI. References in this
Proxy Statement to Allied as of any date refer to Allied and its subsidiaries on
a consolidated basis.
The portion of Allied's business previously conducted by AFL consists of
duplication of various film and video products for the corporate
communications and educational, religious and special interest (e.g.,
children's, exercise, travel) video markets. The portion of Allied's business
conducted by ADI prior to and following the Allied Merger consists of the
duplication and replication of analog audiocassettes, videocassettes and
compact discs, with a primary focus on the recorded music industry. As part of
its business, the Company also provides various related services, such
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as dealer and consumer order fulfillment, film-to-tape and tape-to-film
transfers, video editing and videocassette duplication in all popular formats.
The Reorganization. On January 12, 1995, Allied acquired all of the
outstanding capital stock of each of AFL and HMG. As a result, each of HMG,
HRM Holdings Corp., a wholly-owned subsidiary of HMG, ADI and AFL became a
direct or indirect wholly-owned subsidiary of Allied (the "Reorganization").
The Allied Merger. Pursuant to the Allied Merger, which was consummated on
November 1, 1996, AFL merged with and into ADI and each issued share of AFL
was converted into one share of ADI. In connection with the Allied Merger, the
credit facility between AFL and its senior lender, American National Bank &
Trust Company of Chicago ("ANB"), was terminated and the credit facility
between ADI and ANB was restructured in numerous material respects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement regarding matters that
are not historical facts, such as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities, Allied's sales and marketing program and similar matters, may be
deemed to be "forward-looking" statements under the Private Securities
Litigation Reform Act of 1995, which provides a safe harbor for making such
statements. In order to comply with the terms of the safe harbor, Allied notes
that a variety of factors could cause Allied's actual results and experience
to differ materially from the anticipated results or other expectations
expressed in Allied's forward-looking statements. The risks and uncertainties
that may affect the operations, performance, development and results of
Allied's business include competition, technological change, dependence on
significant customers and the recorded music industry, future capital
requirements, reliance on key personnel and competitive pricing pressures.
MULTIMEDIA SOFTWARE INDUSTRY
General. The multimedia software industry is fragmented and seasonal. Although
the types and sizes of the businesses in the industry vary greatly, the
industry is generally categorized into specific sub-markets, including
theatrical (i.e., primarily movies), prerecorded music, spoken word, foreign
language, corporate communications, premium promotional, religious,
educational, instructional "How To" and special interest.
DEMAND FOR PRIMARY PRODUCTS AND SERVICES
Compact Discs - Audio. Consumer demand for audio compact discs ("CDs") has
been increasing steadily since their introduction to the marketplace in the
mid-1980's. Industry analysts estimate that the current U.S. installed
CD-audio player base is approximately 75%, up from approximately 71% last
year. Based on information supplied by the Recording Industry Association of
America ("RIAA"), total shipments in the United States net of returns
("Shipments") of CDs remained flat from 1996 to 1997 at approximately 821
million units.
CD-ROM. CD-ROM drives were introduced to the marketplace in 1991. Industry
analysts estimate that in 1993, the year that CDs surpassed audiocassettes in
unit volume, U.S. household penetration of CD-ROM drives was approximately 2.5
million or 8% of the 29 million home computers in the United States. By the
end of 1997, industry experts expect the number of CD-ROM drives to have grown
to 64 million.
Various industry sources estimate that Shipments of CD-ROM software products
were approximately 461 million units in 1997, up from approximately 338
million units in 1996. These products were concentrated in three major
categories: educational, entertainment and games.
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Audiocassettes. Audiocassettes were the music market's most popular audio
medium until 1993 when they were surpassed in unit volume by CDs. Industry
analysts predict that because of the high existing penetration of the
audiocassette player in United States households and automobiles, Shipments of
audiocassettes in 1998 will remain stable as compared with 1997 with only a
mild decline over the next several years, despite the increasing demand for
CDs. According to the RIAA, aggregate Shipments of pre-recorded music
cassettes declined by 23% in 1997 versus 1996. This decline was due in large
part to the transition to the CD-audio configuration as well as an overall
slowing of growth in the pre-recorded music industry. This decline has been
offset in part by the dramatic growth in the spoken word audiocassette
business.
Videocassettes. Veronis, Suhler and Associates, a market analyst firm
specializing in media ("VS&A"), estimates that over 83% of households in the
United States own at least one videocassette recorder ("VCR"), with many
households owning multiple VCRs. According to VS&A and the RIAA, although
theatrical video software comprises over 40% of video software sales, there is
significant growth being demonstrated in the corporate communications,
premium/promotional and special interest sub-markets.
There are two primary videocassette formats: standard play and extended play.
Standard play is used for virtually all movies, music videos and certain other
specialty applications. Extended play is used for many applications in
non-theatrical and non-music sub-markets where the superior playback quality
of standard play is not required. In these non-critical applications, the
extended play format is desirable because it uses one third of the tape
required for standard play and can utilize high speed duplication technology.
These characteristics make extended play less costly to produce than standard
play.
SALES AND MARKETING
Allied markets its products and services nationally through the use of its own
internal staff of approximately 55 sales and marketing employees located
throughout the United States in key markets. In March 1997, Allied opened a
national sales office in Los Angeles, California to coordinate national sales
efforts in the western region of the United States. This office is staffed
with sales personnel specializing in the theatrical home video, music and
CD-ROM markets and complements the national sales and marketing office in New
York City. Allied also operates sales facilities in Landover (MD), Orlando,
Elk Grove (IL), Detroit, Dallas, Houston, Nashville and San Francisco. Remote
sales coverage exists in Philadelphia, Atlanta, Miami, Austin, Seattle,
Boston, Charlotte, Copley (OH) and Tampa.
Approximately 60% of Allied's business is repeat business resulting from
ongoing relationships with its customers. The remainder of Allied's business
comes from new customers, one time orders and occasional orders from other
industry duplicators and replicators.
Allied's manufacturing facilities are geographically distributed throughout the
United States. See "Manufacturing." Allied believes that this geographic
distribution of manufacturing facilities enhances its sales and marketing
efforts by giving Allied a regional and local presence, which facilitates direct
contact with customers.
Due to the highly competitive nature of Allied's core duplication/replication
business, Allied has developed additional "value-added" services in an effort
to gain a competitive advantage over its competitors. These services include
graphic design and special packaging, component security and inventory
management, retail order distribution and direct-to-customer fulfillment.
In addition to the core duplication/replication and value-added services
described above, Allied also offers motion picture film processing,
film-to-tape transfer, video post-production services and recordable laser
video disc services.
The following sets forth Allied's market share and sales performance for each
of its primary product categories:
CD and CD-ROM. Allied replicates CDs and CD-ROMs (collectively, "CD Products")
for which its most significant customers are the domestic music
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recording companies. For the fiscal year ended July 31, 1997 ("Fiscal 1997"),
Allied produced approximately 41,800,000 units of CD Products which generated
revenues of approximately $31,905,000, or approximately 20.0% of Allied's
sales revenues.
These units consisted of approximately 10,500,000 CD-ROM units and
approximately 31,300,000 CD units, which generated revenues of approximately
$7,240,000 and $24,665,000, respectively. Based upon these results and
externally generated market data, Allied estimates that, on a consolidated
basis, it currently holds a 3% market share of all domestic production of CDs.
Allied believes that there is significant growth opportunity in CD Products,
especially as CD-ROM drive penetration into American households increases and
new applications such as DVD (Digital Versatile Disc), a new high-density
compact disc format which allows for significantly greater data storage than
existing disc formats, are introduced to the marketplace.
Audiocassettes. Allied duplicates audiocassettes, for which its most
significant customers are the domestic music recording companies. In Fiscal
1997, Allied produced approximately 56,000,000 audiocassette units (consisting
of approximately 43,000,000 music audiocassette units and 13,000,000 spoken
word audiocassette units), which generated revenues of approximately
$27,520,000, or approximately 17.3% of Allied's aggregate revenues. Based on
internal sales statistics and externally-generated market data, Allied
believes it has a music audiocassette market share of approximately 12%, the
largest of any independent replicator. Allied believes that despite the
long-term trend toward replacing audiocassettes with CDs, there remain
opportunities for growth in this market, especially in the non-music and
special interest sectors.
In Fiscal 1997, Allied's spoken word audiocassettes production included
books-on-tape and corporate communications, as well as products for the
foreign language and religious submarkets. Allied's most significant spoken
word audiocassette customers in Fiscal 1997 were domestic publishing
companies.
Reliable external market data is not readily available for the spoken word
audiocassette submarket. Consequently, Allied's market share is difficult to
estimate. Allied believes there is significant growth opportunity in spoken
word audiocassettes because of the deep penetration of the audiocassette
player and the relatively low cost of duplicating audiocassettes.
Videocassettes. Based on a combination of industry data and data generated by
its own management, Allied believes it is one of the two largest duplicators
of music videos in the United States, with an estimated current market share
of approximately 25%, and is the largest independent duplicator of
videocassettes for non-theatrical, non-music video applications, which include
corporate communications, premium/promotional, educational, instructional
"How-To", special interest and religious applications. In total, Allied
believes its current share of the overall videocassette duplication market in
the United States is approximately 7%. This belief is based upon the fact that
in Fiscal 1997, Allied's domestic sales of videocassettes were approximately
56 million units compared to approximately 800 million total domestic unit
sales reported by the entire industry for calendar 1996. In Fiscal 1997,
Allied had total sales of videocassettes of approximately $97,080,000, which
represented approximately 61.0% of Allied's total revenues. Allied believes
that there is significant growth opportunity in videocassettes because of the
deep penetration of the videocassette player into American households and the
extensive use of videocassettes for entertainment and information software.
Other Services. Motion picture film processing, film-to-tape transfer, video
pre and post-production and recordable laser disc services represented
approximately 1.7% of Allied's sales revenues during Fiscal 1997.
Marketing Strategy. Allied has allocated sufficient monies in the coming year
to support an aggressive and diversified series of marketing initiatives
designed to broaden and add depth to Allied's customer base. Allied's sales and
marketing program consists of targeting the counter-seasonal consumption
patterns typical of premium/promotional videos and spoken word audiocassettes as
well as increasing its penetration into the special interest video and CD-ROM
markets. The purpose of this strategy is to build counter-seasonal flow in
Allied's manufacturing facilities, and to take advantage of the increase in
demand by many industries and businesses for multimedia products for all types
of corporate applications, including internal communications, training,
marketing and sales. The initiatives include mailings to companies in specific
industry segments identified by a variety of standard industry codes (SICs)
within which Allied's business has been historically successful, and promoting
the use of video and CD-ROM applications for direct-mail marketing.
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Although Allied will continue to focus on the entertainment industry, Allied
believes that the pre-recorded music industry may offer diminishing returns to
Allied in the future as the industry matures due to (i) new technologies
developing for delivery of pre-recorded music media to consumers and (ii)
proprietary manufacturing capabilities of the major recording companies. For
this reason, many of Allied's new sales and marketing plans involve the
non-entertainment sector, where Allied believes there are many opportunities
to develop new, profitable and continuing relationships. There has been a
growing use of CD-ROM drives by the corporate community due to the transition
of many consumers from video media to CD-ROM. CD-ROM offers consumers a
cheaper and faster way to communicate with employees, shareholders and outside
consumers. Allied believes that the development of the corporate CD-ROM market
will provide many opportunities to develop new business relationships.
Allied has installed new sophisticated sales lead management software, which
has significantly improved tracking and management of sales leads and has made
possible the distribution of such leads for prompt review and follow-up to the
appropriate sales facility.
Allied has expended resources and capital of approximately $75,000 during
fiscal 1996, and approximately $100,000 during fiscal 1997, for development of
a prototype technology to be marketed under the name "CD Online." The product
is designed to link the multimedia capability and capacity of a CD-Rom disc
with real-time communications capability of network dial-up services to yield
a versatile and interactive medium for consumer products companies, corporate
communications and other commercial applications. Allied has determined to
suspend its development of "CD Online."
Significant Customers. For the nine-month period ended April 30, 1998,
Allied's top four customers accounted for 38% of its total sales. Allied has
more than 3,000 accounts in its current customer base. Approximately 50% of
Allied's sales come from approximately 40 customers. During the nine-month
period ended April 30, 1998, PolyGram Group Distribution, Inc. ("PGD") and
Bertelsmann Music Group, Inc. ("BMG") each accounted for more than 10% of
Allied's net sales.
Most of Allied's customers operate without contractual obligations except for
commitments to purchase a certain percentage of their needs from Allied. The
commitments typically last one year or less. However, there are no adverse
consequences to customers with this type of commitment who do not ultimately
place orders with Allied or whose orders do not reach the committed
percentage.
In June 1995, Allied entered into a five year agreement with Anchor Bay
Entertainment ("Anchor Bay") to provide videocassette duplication and order
fulfillment services. Under this agreement, as modified in September 1997,
Allied is Anchor Bay's exclusive videocassette duplicator. While it is not
assured, it is expected that this contract will provide significant annual
revenues for Allied over its term without material impact on liquidity or
capital expenditures.
In September 1997, Allied entered into a three year agreement with Sofsource,
Inc. ("Sofsource") to provide CD replication and order fulfillment services.
Under this agreement, Allied is Sofsource's exclusive duplicator. While it is
not assured, it is expected that this contract will provide significant annual
revenues for Allied over its term without material impact on liquidity or
capital expenditures.
Seasonality. Although demand for Allied's products exists throughout the year,
there is an increase in demand from August through November due to the extra
requirements of customers for the holiday selling season, particularly sales of
theatrical videocassettes and pre-recorded musical CDs and audiocassettes.
Backlog. As of July 31, 1997 and 1996, Allied had open orders on a consolidated
basis of approximately $3.3 million and $1.9 million, respectively. As of April
30, 1998, Allied had open orders on a consolidated basis of approximately $4.1
million. Allied expects that the open orders as of April 30, 1998 will be filled
within a 60-day period.
Typically, Allied's customers demand turnaround times (the time from which a
duplicating/replicating order is received until that order is shipped) of
seven days or less. Because of this characteristic of the industry, Allied
does not believe that the size of the backlog at any given time in and of
itself is an effective indication of its ongoing revenues going forward.
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MANUFACTURING
General. Allied's manufacturing facilities are geographically distributed
throughout the United States so that high-volume manufacturing can be
accomplished in four facilities: Hauppauge (NY) (videocassettes,
audiocassettes and CDs), Clinton (TN) (videocassettes), Elk Grove (IL)
(videocassettes) and Denver (videocassettes). Allied has seven other
facilities for smaller volume video manufacturing: Landover (MD), Orlando,
Detroit, Los Angeles and San Francisco, as well as Dallas and Houston where
film, in addition to video, is duplicated.
CD Products. Allied's production of CD Products begins with pre-mastering and
mastering in controlled "clean room" environments that are designed to
eliminate airborne particles from the manufacturing process. Using lasers and
computer-based photo resist technology, Allied creates exact digital replicas
of the customer's original disc. These glass replicas, or "masters," are used
in the replication process to manufacture duplicates through an injection
molding process using high grade, optical quality polycarbonate. The
polycarbonate is pressed against a metal stamper to create a replica of the CD
Master at a rate of approximately one every four seconds. The clear
polycarbonate disc containing all of the data is then covered with a metallic
coating to provide for reflection of the reading laser beam in the CD player.
A thin layer of lacquer is applied over the metal to protect it and to serve
as a base for printing on the disc. The finished CD Products are then checked
to ensure they conform to strict standards established by Allied and the
industry. The finished CD Products are then released to the packaging
department where they are inserted into sleeves or boxes and processed through
high speed shrink-wrapping machines for distribution to Allied's customers.
As a result of the recent expansion of Allied's Hauppauge, New York facility
and the installation at such facility of production and multi-media packaging
equipment, Allied has increased its maximum annual capacity of CD Products to
approximately 62 million units in Fiscal 1997 from 54 million units per year
capacity in Fiscal 1996.
Audiocassettes. The manufacturing process for audiocassettes utilizes machines
that duplicate a tape 80 times faster than normal listening speed. Master
transports are used to download master recordings through the use of
electronic signals to duplicating machines, which allow multiple copies of the
same recording to be duplicated simultaneously. At various points in the
manufacturing process, the tape goes through both a statistical quality
control procedure, to ensure that it meets the technical standards established
by RIAA, and Allied's quality control procedure, which includes a random
sampling of audio levels, physical characteristics, program content, signals
and other characteristics of the tape. The finished audiocassette products are
then released to the packaging department where they are inserted into sleeves
or boxes and processed through high speed shrink-wrapping machines for
distribution to Allied's customers. Allied's audiocassette plant production
capacity is between 250,000 and 275,000 audio tapes per 24 hour day, depending
upon the length of the tapes. The expansion of Allied's Hauppauge, New York
manufacturing facility in 1995 provided Allied with the capability for
multimedia packaging for audiobook and other spoken word audiocassettes. When
necessary, Allied is able to deliver finished product to its customers
approximately 48 to 72 hours after receipt of the sales order.
Videocassettes. The manufacturing process for videocassettes generally
utilizes duplicating machines that copy from a master in "real time" speed,
i.e., the regular speed of the videocassette being duplicated. In this
process, high speed tape winders are used to wind blank tape loaded to
specific program lengths into video shells. The video shells are then loaded
into the duplicating machines which receive the program being copied from a
master transport. In addition, Allied utilizes high speed machines, which
allow it to duplicate a master 150 times faster than in "real time" speed.
Real time duplicating machines are used to duplicate videocassettes in
standard play mode. High speed duplicating machines are capable of duplicating
videocassettes in either the extended play mode or the standard play mode. The
extended play format utilizes less tape than regular speed machines require
for the same program content.
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The entire video duplicating and winding process takes place in an environment
that is designed to eliminate airborne particles from the duplicating process.
These areas are air conditioned and pressurized to filter out such particles.
Allied believes that its use of these areas prolongs the head life on
videocassette recorders and results in a higher quality product.
Once a videocassette is loaded with tape and duplicated, the finished product
is checked to ensure that it conforms to strict audio and visual standards
established by Allied and the industry. The videocassettes are then released
to the packaging department where they are labeled, inserted into sleeves or
boxes and processed through high speed shrink-wrapping machines for
distribution to Allied's customers.
In Fiscal 1997, Allied increased the production capacity of its facilities in
Clinton, Tennessee and Hauppauge, New York by a combined nine million annual
videocassette unit capacity. Allied's total videocassette capacity is the
equivalent of approximately 67 million 90-minute programs annually. When
necessary, Allied is able to deliver finished product to its customers
approximately 24 to 48 hours after receipt of the sales order.
Raw Materials; Supplies. Although Allied's practice is to seek cost savings
and enhanced quality by purchasing from a limited number of suppliers, all raw
materials and components necessary to manufacture CD Products are readily
available from several sources of supply at competitive prices.
Blank audiocassettes, videocassettes, cartridges, magnetic tape and other
component parts utilized by Allied in the duplication/replication process
generally are readily available in the marketplace at prices that are
generally stable. Allied purchases its components from a variety of
manufacturers, most of which are located in China, South Korea, Mexico and the
United States. Allied does not believe the loss of any one of its current
suppliers would have a material adverse effect on its business because
alternative sources of supply are generally readily available at competitive
prices. However, a significant change in Allied's ability to obtain components
at comparable prices from suppliers located in China, South Korea, Mexico and
the United States, whether through the imposition of tariffs or other trade
barriers or from any foreign or U.S. supplier for any other reason, could have
a material adverse effect on Allied. Allied does not have long term contracts
with any such suppliers. Allied's customers generally supply the printed
components used in the packaging of the videocassettes.
LICENSES
CD Products. Allied, like most other CD Product manufacturers, uses patented
technology primarily under nonexclusive licenses from the holders of patents
which generally provide for the payment of royalties based upon the number of
CD Products sold. For Fiscal 1997, fees for these licenses of approximately
$2,261,000 were charged against earnings, related primarily to the licenses
with U.S. Philips Corporation and Discovision Associates.
Audiocassettes. Allied does not require any licenses for the duplication of
audiocassettes.
Videocassettes. The industry does not have established quality standards for
the duplication of videocassettes, although the Victor Company of Japan, Ltd.
("JVC"), which owns the "VHS" logo, has established standards for the physical
characteristics of the videocassette. Compliance with the JVC standards
ensures that the videocassette will be compatible with any VHS machine.
Duplicators whose product conforms to the JVC standards are permitted to apply
the "VHS" logo to such product and pay JVC a license fee for such privilege.
Allied ensures that all of its video product conforms to the JVC standards and
pays JVC a license fee for the privilege of applying the "VHS" logo to its
video product. For Fiscal 1997, fees for this license of approximately
$523,000 were charged against earnings.
Since 1986, Allied has had a license with Macrovision Corporation to encode
videocassettes with anti-piracy protection. The license is for a one-year term,
renewable annually by agreement of both parties. Allied pays a license fee to
Macrovision Corporation equal to a portion
55
<PAGE>
of the sublicense fees received by Allied from its customers. For Fiscal 1997,
the license fees paid by Allied to Macrovision under this arrangement were
approximately $240,000, all of which was billed to Allied's customers.
COMPETITION
Allied's core business of replication/duplication is highly competitive.
Although Allied believes that it is one of the two largest independent
manufacturers in North America of pre-recorded multi-media
products-audiocassettes, videocassettes, audio CDs and CD ROMs, it is in
competition with approximately 50 audiocassette duplicators, approximately 100
videocassette duplicators and approximately seven compact disc replicators.
Allied believes it is one of only three companies in the domestic
replication/duplication industry in North America that manufactures
audiocassette, videocassette and CD Products for the prerecorded music industry.
Allied believes that the principal competitive factors in the
replication/duplication business are: price, terms of sale, quality of
service, range of pre- and post-production services, scope of graphics and
packaging capabilities, order turnaround time, large order capability, order
fulfillment capability, ability to customize small orders to customer
specifications, and certain other value-added service offerings.
Virtually all raw materials, machinery and equipment are readily available on
the open market, and no industry competitor holds proprietary rights or
positions with respect to these factors. Although this fact results in low
barriers to entry, Allied believes that the relatively low margins offered by
the core business and the number of competitors (including Allied) who offer
an array of value-added services, serve as deterrents to entry by most
potential competitors.
Allied also believes that the goodwill and loyalty of many of its established
relationships combined with the excellent reputation which the Company
believes it has in the marketplace give Allied a significant competitive
advantage. Allied further believes that its geographic diversity, fulfillment
capabilities, and national/regional/market-specific sales and marketing and
its geographically dispersed manufacturing and fulfillment capabilities add to
its competitive advantage.
In its budget planning process, Allied takes into account expected price
erosion, which occurs as competition for market share increases and
competitors lower prices to gain that market share. Allied attempts to limit
margin erosion by lowering its material costs and by achieving unit volume
sales increases. While there can be no assurance that such a margin protection
strategy will be successful in the future, Allied's efforts to reduce
operating costs and its new series of marketing and sales initiatives are
intended to forestall and curtail such erosion of margins.
Allied believes that its principal competitors in each of its product
offerings are as follows:
CD Products. In music CD replication, Allied's competitors are major
independent replicators such as Cinram and Nimbus, and the in-house capacity
of five of the six major domestic pre-recorded music companies: SONY Music
Entertainment, PGD, Warner-Elektra-Atlantic, BMG, and EMI, each of which has
CD manufacturing capacity to meet all its production needs except in times of
unusually high output. Additionally, there are approximately 70 small to
medium-sized (i.e., having an annual capacity of approximately five million to
75 million units, as compared to an average annual capacity of 100-200 million
units for the major domestic pre-recorded music companies) CD Products
manufacturers in the marketplace. Allied believes it is among the larger of
the medium-sized companies in the CD Products replication industry segment.
Audiocassettes. In audiocassettes, Allied believes that it is the largest
independent duplicator of pre-recorded audiocassette products in the United
States. Principal competitors are Cinram, Ltd., a publicly-traded Canadian-based
company with operations in the United States, and Sonopress Audio, a division
of BMG.
56
<PAGE>
Videocassettes. Allied believes it is the largest independent duplicator of
videocassettes for the non-theatrical market, which includes corporate
communications, premium/promotional, educational instructional "How-To," and
other special interest applications. Allied's principal competitors in this
market are Premier Video and Vaughn Communication.
EMPLOYEES
At May 24, 1998, Allied had approximately 1,242 full-time employees of whom
approximately 362 (representing those employees employed at the Hauppauge
location) are covered by a collective bargaining agreement between Allied and
Local 810, Steel, Metals, Alloys and Hardware Fabricators and Warehousemen
affiliated with the International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America. This agreement was renewed in January
1997 and expires in January 2000. Management, supervisors and clerical workers
are not covered by the collective bargaining agreement. Allied has never
experienced a strike and believes its relationship with its employees is
satisfactory. Allied provides paid vacations, sick leave, group life,
disability, hospitalization and medical insurance for its employees. During
Fiscal 1997, eligible employees were able to participate in Allied's
401(k)/profit-sharing plan.
PROPERTIES
Allied's headquarters are located at 140 Fell Court, Hauppauge, New York,
where Allied leases approximately 7,165 square feet of office space from
Shivom Enterprises LLC for a term expiring October 31, 2001 at an annual rate
of approximately $109,000 in 1998.
Allied's Long Island CD products replication and audiocassette and
videocassette duplication operations are conducted at two locations. The first
location is at 15 Gilpin Avenue, Hauppauge, New York, where Allied leases
approximately 144,000 square feet of manufacturing, warehouse and office space
from Keelson Associates, a general partnership of which George N. Fishman,
Co-Chairman of Allied, is a partner, at an annual rental rate of approximately
$1,058,000 for a term expiring November 1, 2015. Future cumulative rentals
under this agreement as of August 1, 1997 are approximately $19,789,000. The
second location is at 30 Gilpin Avenue, Hauppauge, New York, where Allied
leases approximately 78,000 square feet of manufacturing, warehouse and office
space from Lee Halpern for a term expiring January 31, 2008, at an annual
rental rate of approximately $489,000 in 1998.
Allied leases various facilities from Greenfield Land Company, a Michigan
co-partnership ("Greenfield Land") of which William H. Smith (Co-chairman of
the Board and a principal stockholder of Allied), members of his family and
Werner H. Jean (a Director of Allied) are partners. The office and warehouse
space for all locations leased from Greenfield Land aggregates approximately
214,000 square feet. The 1997 annual rental payments from Allied to Greenfield
Land were approximately $1,548,000. Future cumulative rentals due under existing
leases with Greenfield Land for 1998 and thereafter are approximately
$8,871,000. The existing leases are for properties located at: 7375 Woodward
Avenue (office, warehouse, and manufacturing), Detroit, Michigan; 7411 and
7371 Woodward Avenue (parking lots), Detroit, Michigan; 35 W. Bethune (parking
lot), Detroit, Michigan; 4364 35th Street (office, warehouse and manufacturing
facility), Orlando, Florida; 370 JD Yarnell Industrial Parkway (office,
warehouse, and manufacturing facility), Clinton, Tennessee . In addition,
Allied's leases with Greenfield Land of 7375 Woodward Avenue (formerly an
office, warehouse and manufacturing facility), Detroit, Michigan; 7411 and
7371 Woodward Avenue (formerly parking lots), Detroit, Michigan; and 35 W.
Bethune (formerly a parking lot), Detroit, Michigan were terminated without
penalty by mutual agreement on March 31, 1998.
Allied subleases approximately 22,160 square feet of manufacturing, warehouse
and office space located at 480 Valley Drive, Brisbane, California, from Frase
Enterprises Inc. for a term expiring June 30, 2008 at an annual rental rate of
approximately $166,200.
Allied also leases manufacturing, warehouse and office space from Dallas
Communications Complex at 6301 and 6305 N. O'Connor Road, Irving, Texas,
representing 18,712 square feet (manufacturing and office facilities), 11,936
square feet
57
<PAGE>
(warehouse facility) and 18,900 square feet (manufacturing and
office facilities), respectively. The aggregate annual rent payable under
these leases in 1997 is approximately $380,000. The current leases expire
December 31, 1999, January 1, 2000, and December 31, 1999, respectively.
Allied leases approximately 70,000 square feet of property located at 7375
Woodward Avenue (office, warehouse, and manufacturing), Detroit, Michigan;
7411 and 7371 Woodward Avenue (parking lots), Detroit, Michigan; and 35 W.
Bethune (parking lot), Detroit, Michigan; from Woodlo, LLC for a term
expiring September 30, 1998 at an annual rental rate of approximately $45,000
in 1998.
Allied leases approximately 17,614 square feet of manufacturing and office
space located at 819 Brightseat Road, Landover, Maryland, from Centre Pointe
Business Park, L.P. for a term expiring October 24, 2001 at an
annual rental rate of approximately $100,000 in 1997.
On a month-to-month basis, Allied leases approximately 25,000 square feet of
warehouse space located at Highway 25 West, Clinton, Tennessee, from HomeCrest
Corporation for $5,000 per month.
On a month-to-month basis, Allied leases approximately 10,000 square feet of
warehouse space located at 101 Charles Seivers Boulevard, Clinton, Tennessee
from Clinch River Properties for $2,500 per month.
Allied leases approximately 51,000 square feet of warehouse space located at
108 Centre Stage Business Park, Clinton, Tennessee from Joseph A.
Hollingsworth, Jr. for a term expiring July 2, 2000 at a rental rate of
$13,750 per month.
Allied leases approximately 3,600 square feet of manufacturing, warehouse and
office space located at 4140B Directors Row, Houston, Texas, from Weingarten
Realty Investors for a term expiring December 31, 1999 at an annual rate of
approximately $22,000 in 1998.
Allied leases 97,888 square feet of manufacturing, warehouse and office space
located at Elk Grove Industrial Park #33, Elk Grove Village, DePage, Illinois,
from Elk Grove Village Industrial Park Ltd. for a term expiring May 31, 1999
at an annual rental rate of approximately $682,000 in 1998.
Effective December 17, 1997, Allied leases 39,700 square feet of
manufacturing, warehouse and office space located at 65 Inverness Drive,
Englewood, Colorado, from Guitte Holdings L.L.C. for a term expiring December
16, 2002 at an annual rate of approximately $185,000 in 1998.
Allied leases approximately 4,637 square feet of office space at 11835 West
Olympic Blvd., Suite 705, West Los Angeles, California from Westside
Associates for a term expiring January 1, 2003 at an annual rental rate of
approximately $106,000 per year.
Allied leases approximately 950 square feet of office space at 1207 17th
Avenue, Nashville, Tennessee from The Vanderbilt University for a term
expiring July 29, 1999 at an annual rental rate of approximately $14,000 per
year.
Allied leases approximately 590 square feet of office space at the Massala
Building, 310 Alabama Street, Indianapolis, Indiana from E&C Properties for a
term expiring June 30, 2000 at an annual rental rate of approximately $5,880
per year.
58
<PAGE>
Allied leases office space at 5825 Glenridge Drive, Atlanta, Georgia from
Premier Business Centers for a term expiring June 30, 1998 at an annual rental
rate of $5,150 for 1998.
Allied subleases approximately 4,832 square feet of office space at 1301
Avenue of the Americas, New York, New York from The Bibb Company for a term
expiring December 30, 2000 at an annual rental rate of approximately $149,000
per year.
In addition, from time to time, Allied leases temporary warehouse space on a
month-to-month basis for storage of customer components and finished goods.
LEGAL PROCEEDINGS
Allied is involved in various legal proceedings which are incidental to the
conduct of its business. Allied does not believe that the outcome of these
matters, even if unfavorable to Allied, will have a material adverse effect on
its financial condition or results of operations. In addition to the foregoing,
Allied and each of its directors have been named as defendants in a complaint
relating to the Merger. See "THE MERGER--Litigation."
59
<PAGE>
PRO FORMA UNAUDITED CONDENSED FINANCIAL DATA
Pursuant to the Merger Agreement between the Company and AAC, AAC will merge
with and into the Company, with the Company as the surviving corporation. Each
issued and outstanding share (or fraction thereof) of Common Stock of the
Company immediately prior to the effective date of the Merger will be canceled
and converted into the right to receive $5.00 in cash other than (i) 74,998
shares of Common Stock held by certain members of the Company's management,
which will remain outstanding and be converted into one share of Class A Common
Stock of the Company, representing, in the aggregate, approximately 51% of the
Class A Common Stock; (ii) 1,100,110 shares of Common Stock owned by 399, which
will be converted into 73,999 shares of Class A Common Stock, 351,000 shares
Class B Common Stock of the Company and 33,375.55 shares of Series A Preferred
Stock; and (iii) shares of stockholders who are entitled to, and who have
perfected, their appraisal rights. In addition, (i) each share of common stock
of AAC outstanding immediately prior to the effective date of the Merger will be
canceled and converted into one share of Class A Common Stock and (ii) each
share of preferred stock, par value $.01 share, of AAC outstanding prior to the
Effective Date will be canceled and converted into one share of Series A
Preferred Stock of the Company. As a result of the cancellation and conversion
of the shares of AAC and the conversion of 1,100,110 shares of Common Stock
owned by 399 described above, 399 will own 165,000 shares of Series A Preferred
Stock, 74,000 shares of Class A Common Stock and 351,000 shares of Class B
Common Stock. Members of management will own 75,000 shares of Class A Common
Stock (representing 69,998 shares acquired through the exercise of stock
options, 1,522 shares purchased at a price of $5.00 per share and 3,480 shares
to be rolled over).
The following Pro Forma Unaudited Condensed Financial Data is based upon the
historical audited consolidated financial statements of Allied for the year
ended July 31, 1997 and unaudited condensed consolidated financial statements as
of and for the nine months ended April 30, 1998 included elsewhere in this Proxy
Statement, adjusted to give effect to (i) the issuance of $100 million aggregate
principal amount of Notes, (ii) borrowings of $1.196 million from the $25
million senior revolving credit facility, (iii) the issuance of $16.5 million
aggregate stated value of redeemable preferred stock, (iv) the receipt of
$167,000 from exercise of stock options and purchase of common stock by certain
members of management, (v) the payment of (a) $62.599 million for the purchase
of Company common stock from the public and management and (b) $1.526 million
for the settlement of unexercised stock options, (vi) the repayment of existing
debt aggregating $42.482 million, plus the payment of a related termination
charge and the write-off of deferred financing costs, (vii) the payment of
expenses relating to the Transactions and (viii) the tax effects of certain of
the Transactions. In addition, the information entitled "Additional Adjustments"
gives pro forma effect to the estimated cost savings in operating expenses for
changes, subject to execution, contemplated in conjunction with consummating
the Transactions consisting of (i) the resignations of the Co-Chairmen and
related support personnel, (ii) the elimination of compensatory directorships
and (iii) the reduction in investor relations and public filing expenses. The
Pro Forma Unaudited Condensed Consolidated Statements of Earnings gives effect
to such Transactions as if they had occurred as of August 1, 1996 exclusive of
non-recurring charges directly attributable thereto, and the Pro Forma
Unaudited Condensed
60
<PAGE>
Consolidated Balance Sheet gives effect to such Transactions as if they had
occurred as of April 30, 1998.
The Transactions and the related adjustments are described in the accompanying
notes. The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable. The Pro Forma
Unaudited Condensed Financial Data does not purport to represent what Allied's
results of operations or financial position would actually have been had such
Transactions in fact occurred on such dates or to project Allied's results of
operations or financial position for any future period or date. The Pro Forma
Unaudited Condensed Financial Data should be read in conjunction with the
historical audited Consolidated Financial Statements, the Unaudited Condensed
Interim Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Proxy Statement.
The Pro Forma Unaudited Condensed Consolidated Statements of Earnings exclude
the following non-recurring charges which will be reflected in Allied's
statements of earnings in connection with the Transactions in the period in
which the Transactions close: (i) $1.026 million relating to the cash settlement
of unexercised stock options granted to employees, (ii) an extraordinary charge
of $1.132 million relating to a termination charge and write-off of deferred
financing costs relating to the repayment of borrowings under Allied's existing
credit agreement and (iii) related tax effects.
The Merger will be accounted for as a leveraged recapitalization as there will
be a significant continuation of stockholder ownership. Further, AAC, formed
solely for the purpose of effectuating the Transactions, will merge with and
into the Company. Accordingly, the Transactions will have no impact on the
historical basis of Allied's assets and liabilities.
61
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
Pro Forma Unaudited Condensed Consolidated Statements of Earnings
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended July 31, 1997
--------------------------------------------------------------------------
Additional Pro forma
Actual Adjustments Pro forma Adjustments Adjusted
-------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net Sales $159,148 $159,148 $159,148
Cost of Sales 127,034 127,034 127,034
-------- -------- --------
Gross Profit 32,114 32,114 32,114
-------- -------- --------
Operating Expenses
Selling, general and administrative 22,246 22,246 $683 (e) 21,563
Amortization of excess of cost over fair
value of net assets acquired 2,584 2,584 2,584
-------- -------- ---- --------
Total operating expenses 24,830 24,830 683 24,147
-------- -------- ---- --------
Income from operations 7,284 7,284 683 7,967
Other income (expense)
Interest expense (5,025) $4,918 (a) (12,195) (12,195)
(12,088)(b)
Other, net 168 168 168
-------- ------- -------- ---- --------
Income (loss) before income taxes 2,427 (7,170) (4,743) 683 (4,060)
Provision (benefit) for income taxes 1,760 (2,868)(c) (1,108) 273 (f) (835)
-------- ------- -------- ---- --------
Net Income (Loss) 667 (4,302) (3,635) 410 (3,225)
Preferred stock dividends (1,980)(d) (1,980) (1,980)
-------- ------- -------- ---- --------
Net income (loss) available to common stockholders $667 ($6,282) ($5,615) $410 ($5,205)
======== ======= ======== ==== ========
<CAPTION>
Nine-Month Period Ended
April 30, 1998
--------------------------------------------------------------------------
Additional Pro forma
Actual Adjustments Pro forma Adjustments Adjusted
-------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net Sales $127,110 $127,110 $127,110
Cost of Sales 99,868 99,868 99,868
-------- -------- -------
Gross profit 27,242 27,242 27,242
-------- -------- -------
Operating Expenses
Selling, general and administrative 17,584 17,584 $531 (e) 17,053
Amortization of excess of cost over fair
value of net assets acquired 1,955 1,955 1,955
-------- -------- ---- --------
Total operating expenses 19,539 19,539 531 19,008
-------- -------- ---- --------
Income from operations 7,703 7,703 531 8,234
Other income (expense)
Interest expense (3,359) $3,284 (a) (8,820) (8,820)
(8,745)(b)
Other, net 162 162 162
-------- ------- -------- ---- --------
Income (loss) before income taxes 4,506 (5,461) (955) 531 (424)
Provision (benefit) for income taxes 2,630 (2,184)(c) 446 212 (f) 658
-------- ------- -------- ---- --------
Net Income (Loss) 1,876 (3,277) (1,401) 319 (1,082)
Preferred stock dividends (1,485)(d) (1,485) (1,485)
-------- ------- -------- ---- --------
Net income (loss) available to common stockholders $1,876 ($4,762) ($2,886) $319 ($2,567)
======== ======= ======== ==== ========
</TABLE>
See Notes to Pro Forma Unaudited Condensed Consolidated Statements of Earnings.
62
<PAGE>
ALLIED DIGITAL TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Pro Forma Unaudited Condensed
Consolidated Statements of Earnings
(Dollars in thousands)
(a) To reflect the elimination of historical interest expense for
amounts of existing debt being retired as a result of the
Transactions. The repayment of the Company's existing long-term debt
is indirectly attributable to the Transactions as the existing debt
precludes the Company from incurring additional indebtedness.
Accordingly, the new debt will in part be used to repay the existing
debt holders. The debt being retired as a result of the Transactions
and the associated interest rates are as follows:
Balance as
Interest of April 30,
Description of Existing Debt Rate 1998
---------------------------------- -------- ------------
Loan and Security Agreement
Term loan 1.5% over $11,850,000
the Bank's
base rate
Revolving loan 1.25% 18,214,000
over the
Bank's
base rate
Capital expenditure loan 1.5% over 1,280,000
the Bank's
base rate
Subordinated notes payable
to stockholders 10% 7,251,000
Additional subordinated notes
payable to stockholders 10% 2,000,000
Subordinated Series B notes
payable to stockholders 11% 881,000
Notes payable to VCA 12% 926,000
Other Various 80,000
-----------
$42,482,000
-----------
-----------
63
<PAGE>
(b) To reflect the pro forma adjustments to interest expense for new
borrowings contemplated in conjunction with consummating the
Transactions as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
July 31, 1997 April 30, 1998
------------- --------------
<S> <C> <C>
Interest expense resulting from
borrowings under the $25 million
senior revolving credit facility at an
assumed rate of prime plus .5% per
annum (9.0%) $798 $277
Interest expense on Notes, at an
assumed rate of 10.75% per annum 10,750 8,063
Amortization of the estimated debt
issuance costs related to the Offering 540 405
------- ------
$12,088 $8,745
======= ======
</TABLE>
A 0.125% change in the interest rate payable on borrowings under the new $25
million senior revolving credit facility and the $100 million senior
subordinated notes would change pro forma interest expense and pro forma net
loss as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
July 31, 1997 April 30, 1998
------------- -----------------
<S> <C> <C>
$25 million senior revolving credit facility $10 $3
$100 million Senior Subordinated Notes 125 94
--- ---
Effect on interest expense 135 97
Income tax effect (40%) (54) (39)
--- ---
Effect on net loss $81 $58
=== ===
</TABLE>
Further, the estimated debt issuance costs related to the Offering will be
amortized over the 10 year term of the notes on a straight-line basis.
(c) To reflect the estimated income tax benefit of the pro forma adjustments
to interest expense at an effective rate of 40%.
(d) Represents dividends on the Redeemable Preferred Stock at 12% per annum.
64
<PAGE>
(e) To reflect the estimated cost savings in operating expenses for
changes, subject to execution, contemplated in conjunction with
consummating the Transactions consisting of (i) the resignations
of the Co-Chairmen and related support personnel, (ii) the
elimination of compensatory directorships and (iii) the reduction
in investor relations and public filing expenses.
(f) To reflect the estimated income tax effect on the pro forma additional
adjustments at an effective rate of 40%.
65
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
Pro Forma Unaudited Condensed Consolidated Balance Sheet
(Dollars in Thousands)
<TABLE>
<CAPTION>
April 30, 1998
------------------------------------------------
Actual Adjustments Pro Forma
------ ----------- ---------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $596 $94,600 (a) $0
1,196 (b)
13,125 (c)
167 (d)
(64,999) (e)
(1,526) (f)
(43,159) (g)
Accounts receivable 25,078 25,078
Inventories 4,714 4,714
Prepaid expenses 872 28 (h) 900
Deferred income taxes 2,068 2,068
------------------------ --------
Total current assets 33,328 (568) 32,760
Property and Equipment, net 26,940 26,940
Other Assets
Excess of cost over fair value of net assets
acquired 42,053 42,053
Deferred charges and other 2,964 5,400 (a) 7,909
(455) (g)
------------------------ --------
Total Assets $105,285 $4,377 $109,662
======================== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt and
capitalized lease obligations $12,737 $1,196 (b) $1,529
(12,404) (g)
Current maturities of subordinated notes
payable to stockholders 2,881 (2,881) (g) 0
Accounts payable 13,558 13,558
Accrued liabilities 5,709 5,709
Income taxes payable 835 (835) (h) 0
------------------------ --------
Total current liabilities 35,720 (14,924) 20,796
Long-Term Debt and Capitalized Lease
Obligations, less current maturities 20,523 100,000 (a) 100,577
(19,946) (g)
Subordinated Notes Payable to
stockholders, less current maturities 7,251 (7,251) (g) 0
Deferred Income Taxes 1,112 1,112
Redeemable 12% Cumulative Preferred Stock 0 16,500 (c) 16,500
Stockholders' Equity (Deficit)
Preferred Stock 0 0
Common Stock 136 (7) (c) 5
1 (d)
(125) (e)
Additional paid-in capital 44,901 (3,368) (c) 0
166 (d)
(41,699) (e)
Accumulated deficit (4,358) (23,175) (e) (29,328)
(1,526) (f)
(1,132) (g)
863 (h)
------------------------ --------
Total stockholders' equity (deficit) 40,679 (70,002) (29,323)
------------------------ --------
Total Liabilities and Stockholders' Equity (Deficit) $105,285 $4,377 $109,662
======================== ========
</TABLE>
See Notes to Pro Forma Unaudited Condensed Consolidated Balance Sheet.
66
<PAGE>
Allied Digital Technologies Corp.
And Subsidiaries
Notes to Pro Forma Unaudited Condensed Consolidated Balance Sheet
(In Thousands, Except Share Data)
(a) Reflects the issuance of $100,000 aggregate principal amount of Notes
and payment of estimated debt issuance costs of $5,400.
(b) Reflects borrowings of $1,196 under a new $25,000 senior revolving
credit facility. Such borrowings under this facility were used as a
source of funds in connection with satisfying the cash outlays of the
Transactions.
(c) Reflects the issuance of 165,000 shares of redeemable preferred stock
($100 stated value per-share) consisting of 131,244.45 shares issued
for cash and 33,755.55 shares issued in exchange for 675,111 shares
(from a total of 1,100,110 shares) of Company Common Stock owned by 399
having a value of $5.00 per-share.
(d) Reflects the exercise of stock options and the purchase of common stock
by certain members of management representing the Management Shares.
Certain members of management exercised a total of 69,998 stock options
at exercise prices ranging from $2.00 to $2.4375 per share and acquired
1,522 shares of common stock at a price of $5.00 per share; in total
aggregating $167 in proceeds.
(e) Reflects the purchase of 12,519,804 shares of Company Common Stock from
the public and management at a price of $5.00 per share aggregating
approximately $62,599 and the payment of related transaction costs of
$2,400.
(f) Reflects the cash payment made to settle unexercised stock options of
which $1,026 pertain to options granted to employees which will be
charged to expense in Allied's statement of earnings. The $500
cash payment made to a non-employee option holder will be treated as an
equity transaction. The cash payment has been determined based on the
difference between the exercise price of the stock options and the cash
price of $5.00 per share to be paid in the merger to the holders of
Allied's Common Stock.
(g) Reflects the payment of existing long term debt (except for capitalized
lease obligations) and subordinated notes payable to stockholders and
termination charge of $677 and the write-off of related deferred
charges of $455. An extraordinary pre-tax charge of $1,132 to
Allied's statement of earnings will be recognized relating to the
termination charge and write-off of the deferred charges resulting from
the early extinguishment of debt.
(h) Reflects the income tax benefit resulting from charges referred to in
items (f) and (g) above at an effective rate of 40%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Effective January 12, 1995, Allied acquired all of the outstanding common
stock of AFL and HMG in exchange for approximately 55% and 45% of the
outstanding common shares of Allied, respectively. Subsequently, on March 10,
1995, Allied changed its fiscal year end from December 31 to July 31.
Consequently, the results of operations (i) for the twelve months ended July
31, 1996 (and thereafter) include the consolidated operations of AFL and HMG
for such period, and (ii) for the twelve month period ended July 31, 1995
include the earnings of AFL for the twelve months ended July 31, 1995 and the
earnings of HMG for the period January 12, 1995 through July 31, 1995.
Therefore, the results of operations for the twelve month period ended July
31, 1995 are not necessarily indicative of the performance of AFL and HMG
expected for a full (12 month) year.
Results of Operations - Nine Month Period Ended April 30, 1998,
compared to Nine Month Period Ended April 30, 1997
Net sales for the nine month period ended April 30, 1998 were $127.1 million, an
increase of $7.7 million or 6.5% as compared to the nine month period ended
April 30, 1997. There were several factors contributing to this increase. As
Allied continues to penetrate its existing market, there also continues to be
additions of new customers to its expanding customer base. Allied has entered
into an exclusive CD manufacturing agreement with a new customer, and continues
to experience favorable growth trends in sales to Allied's CD Audio and CD ROM
customers. This favorable trend was partially offset by a decline in sales to
the Allied's audiocassette customers in the second and third quarters of fiscal
1998.
Gross profit for the nine month period ended April 30, 1998 increased $3.4
million to $27.2 million, or 21.4% of net sales, from $23.9 million or 20.0% of
net sales, for the nine month period ended April 30, 1997. Although the gross
profit dollar increase was primarily due to increased sales, the unpredictably
strong demand for audiocassettes and the demand for CDs exceeded Allied's
internal capacity in the first quarter of fiscal 1998, which caused Allied to
source additional capacity to outside contractors at lower margins. Despite the
negative impact of this outsourcing, the gross profit percentage increased
slightly primarily due to improvements in the manufacturing efficiencies as well
as fixed costs being spread over higher production volumes.
Operating expenses for the nine months ended April 30, 1998 were $19.5
million or 15.4% of net sales compared to $18.5 million or 15.5% of net
sales for the nine months ended April 30, 1997. The $1.0 million
increase was primarily the result of additional costs incurred for bad
debt and sales commissions and salaries.
Income from operations of $7.7 million for the nine months ended April
30, 1998 compares to $5.4 million for the nine months ended April 30,
1997. This increase of $2.3 million resulted from an increase in gross
profit partially offset by increased operating expenses described above.
Non-operating expenses decreased to $3.2 million for the nine months
ended April 30, 1998 from $3.4 million for the nine months ended April 30,
1997. This decrease was primarily a result of a reduction in interest
expense, attributable to a reduction in the principal amount of interest
bearing debt.
For the nine months ended April 30, 1998, Allied realized income before income
taxes of $4.5 million compared to income before income taxes of $2.0 million for
the nine months ended April 30, 1997 for the reasons noted above.
A provision for Federal, state and local income taxes of $2.6 million
was recognized for the nine months ended April 30, 1998, compared to a
tax provision of $1.4 million for the nine months ended April 30, 1997.
After recognition of applicable income taxes, Allied recognized net income for
the nine months ended April 30, 1998 of $1.9 million, compared to income of $0.6
million for the nine months ended April 30, 1997.
Results of Operations - Year Ended July 31, 1997 compared to Year Ended July
31, 1996
Net sales for the twelve month period ended July 31, 1997 ("Fiscal 1997") were
$159.1 million, a decrease of $1.8 million or 1% as compared to the twelve
month period ended July 31, 1996 ("Fiscal 1996"). Such decrease was
attributable to a large promotional video sale to one customer which was
recognized during Fiscal 1996, partially offset by sales to new customers in
Fiscal 1997. Allied believes that future sales growth will be generated
through continued penetration of its existing markets and the expanding market
of CDs, especially DVD ((Digital Versatile Disc) and CD-ROM products in the
corporate communications and premium/promotional market sectors.
Gross profit for Fiscal 1997 increased $4.7 million to $32.1 million or 20% of
net sales, from $27.4 million, or 17% of net sales for Fiscal 1996. The
increase in gross margin dollars and percentage, despite decreased sales, was
primarily attributable to the favorable (declining) trend in material costs, a
reduction in the direct labor force, and a $1.3 million non-recurring charge
in Fiscal 1996 resulting from a sales contract signing allowance with a large
customer and increased costs in Fiscal 1996 associated with the start-up
efforts in preparing to process orders for this large customer in Allied's
Tennessee manufacturing plant.
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Operating expenses for Fiscal 1997 were $24.8 million, or 16% of net sales,
compared to $30.0 million, or 19% of net sales for Fiscal 1996. The $5.2
million decrease was primarily a result of a $3.1 million restructuring charge
recorded in Fiscal 1996 in connection with Allied's June 1996 plan to
streamline and reduce resources utilized in the business, $1.3 million
decrease in administrative costs realized in Fiscal 1997 as a result of this
restructuring and a $0.5 million of capitalized employee work force
expenditures associated with the implementation phase of a computer software
system developed for internal use.
Allied's interest expense decreased to $5.0 for Fiscal 1997 from $6.2 million
for Fiscal 1996. This decrease was primarily a result of a reduction in
interest expense attributable to a rate reduction and a reduction in the
principal amount of interest bearing debt.
Other income net of other expenses for Fiscal 1997 was $0.2 million compared
to $0.7 million in Fiscal 1996. The decrease of $0.5 million was primarily
attributable to a reduction in finance charges collected from Allied's
customers on past due invoices and a reduction in scrap material sales.
For Fiscal 1997, Allied reported a pre-tax profit of $2.4 million, compared to
a pre-tax loss of $8.1 million for Fiscal 1996. The increase in income of
$10.5 million occurred for the reasons noted above.
A provision for income taxes of $1.8 million was recognized for Fiscal 1997
compared to a net tax credit of $2.5 million for Fiscal 1996. Allied's
effective tax rate of 72.5% for Fiscal 1997 is attributable to the
non-deductibility for tax purposes of a significant portion of the
amortization of excess of costs over fair value of net assets acquired.
Allied's effective tax rate will vary from year to year, in part,
given the relationship the annual recurring amortitization of the excess
of cost over fair value of assets acquired ($2.6 million) has to
reported pre-tax income.
Allied has state investment tax credit carryforwards at July 31, 1997 and 1996
of $2,035,000 and $1,590,000, respectively. The valuation allowance at July 31,
1997 and 1996 of $890,000 and $732,000, respectively, is attributable to
Allied's ability to utilize investment tax credit carryovers prior to their
expiration. Changes in the deferred tax asset valuation is based on projections
of future taxable income.
After recognition of applicable income taxes, Allied reported net income in
Fiscal 1997 of $0.7 million as compared to a net loss of $5.6 million in
Fiscal 1996 for the reasons noted above.
Results of Operations - Year Ended July 31, 1996 compared to Year Ended July
31, 1995
Net sales for Fiscal 1996 were $160.9 million, an increase of $44.3 million
compared to the twelve month period ended July 31, 1995 ("Fiscal 1995"). Such
increase was attributable primarily to the full year inclusion of HMG's
operations in the Fiscal 1996 results ($36.2 million) and increased sales volume
in Fiscal 1996 resulting primarily from the commencement of videocassette
duplication and order fulfillment services under a five-year sales contract
entered into with a customer in June 1995 partially offset by unit price
reductions and sales mix changes. Net sales for fiscal 1996 of $160.9 as
compared to pro forma net sales for fiscal 1995 of $158.1 million (as though HMG
had been acquired at the beginning of fiscal 1995) increased by $2.8 million.
The $2.8 million pro forma sales increase in fiscal 1996 is attributable to
approximately $19.6 million in volume increases and offset in part by
approximately $16.6 million in unit price reductions and a change in sales mix.
Gross profit for Fiscal 1996 increased $0.3 million to $27.4 million, or 17%
of net sales, from $27.1 million, or 23% of net sales for Fiscal 1995. The
increase in gross margin dollars was primarily due to the full year inclusion
of HMG margin of $12.0 million in the Fiscal 1996 results as compared to a
margin contribution in Fiscal 1995 by HMG of $8.7 million for the period
January 12, 1995 through July 31, 1995. This net $3.3 million gross margin
increase was partially offset by a $1.3 million non-recurring charge in Fiscal
1996 resulting from a sales contract signing allowance with a large customer.
The sales contract signing allowance was issued to the customer in June
1995 in connection with consummating a five year production and
fulfillment contract. The amount was to be amortized over the term of
the contract. Based on the fiscal 1996 financial results relating to the
sales contract and an assessment made in the fiscal 1996 fourth quarter
of anticipated future results of performing thereunder, Allied
determined that the unamortized balance of the deferred charge was not
recoverable. The gross margin was further reduced by the start-up efforts
commencing in June 1995 in preparing to process orders for this large customer
in Allied's Tennessee manufacturing plant. Moreover, declining unit prices to
customers due to continuing price pressures and a change in Allied's sales mix
which includes the adverse impact on average margins caused by a production and
fulfillment sales contract with a large customer further contributed to the 6%
gross margin decline in Fiscal 1996.
Operating expenses for Fiscal 1996 were $30.0 million, or 18% of net sales,
compared to $23.8 million, or 20% of net sales for Fiscal 1995. Of the $6.2
million increase, $3.1 million resulted from a current year restructuring charge
in connection with Allied's June 1996 plan to streamline and reduce resources
utilized in the business. The restructuring charge comprised of work force
related expenses of $1,126,385, idle plant lease costs of $863,000, abandoned
asset write-off of $837,935 and other related costs of $250,000. The plan
encompassed (i) the merger and integration of the Company's two operating
subsidiaries, (ii) the closure of the Company's Detroit manufacturing
facility and (iii) the consolidation of the Company's corporate and
administrative offices from Detroit to New York. Further, the full year
inclusion of HMG operations in Fiscal 1996 resulted in an incremental increase
of approximately $2.3 million in operating expenses over Fiscal 1995 of which
$1.0 million results from the full year inclusion of the amortization of the
excess cost over fair value of the net assets acquired associated with the
Reorganization. Operating expenses for Fiscal 1996 also included a $0.4 million
increase in bad debt expense over the prior year.
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Allied's non-operating expenses increased to $5.5 million for Fiscal 1996 from
$3.1 million for Fiscal 1995. This $2.4 million increase was due to increased
interest expense primarily associated with the full-year inclusion of HMG in
Fiscal 1996 results together with increased average borrowings for Allied
related to the additional debt required to finance capital expenditures.
For Fiscal 1996, Allied reported a pre-tax loss of $8.1 million, compared to
pre-tax earnings of $0.3 million for Fiscal 1995. The decrease in income of
$8.4 million occurred for the reasons noted above.
A net credit for Federal, state and local income taxes of $2.5 million was
recognized for Fiscal 1996 compared to a net credit for federal, state and
local income taxes of $2.6 million for Fiscal 1995. This $2.5 million net
credit relates primarily to a net operating loss, restructuring costs and a
non-recurring charge which will be deductible in future periods, as well as
state investment tax credits realized during this period. The effective tax
rate was approximately 31%. Non-deductible expenses related to the
amortization of excess of cost over fair value of net assets acquired arising
from the Reorganization were offset in part during the period by state income
tax benefits and investment tax credits resulting from purchase of equipment
in the State of New York. The effective tax rate is expected to be higher in
future periods due to the non deductible amortization of costs in excess of
net assets acquired, net of non-recurring benefits from investment tax
credits. Allied's effective tax rate will vary from year to year, in part,
given the relationship the annual recurring amortization of the excess of cost
over fair value of assets acquired ($2.6 million) has to reported pre-tax
income.
Allied has state investment tax credit carryforwards at July 31, 1996 and 1995
of $1,590,000 and $937,000, respectively. The valuation allowance at July 31,
1996 and 1995 of $732,000 and $519,000, respectively, is attributable to
Allied's ability to utilize investment tax credit carryovers prior to their
expiration. Changes in the deferred tax asset valuation is based on projections
of future taxable income.
After recognition of applicable income taxes, Allied reported a net loss in
Fiscal 1996 of $5.6 million as compared to net income of $2.8 million in
Fiscal 1995 for the reasons noted above.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended April 30,
1998 was $8.8 million as compared to $1.6 million for the nine months ended
April 30, 1997. The increase was primarily attributable to a $1.2 million
increase in the net income and a $4.4 million decrease in working capital.
Net cash provided by operating activities for the year ended July 31, 1997 was
$8.5 million as compared to $14.3 million for the year ended July 31, 1996. The
decrease was primarily attributable to a $14.6 million increase in working
capital offset by a $6.3 million increase in net income and a $4.2 million
increase from income taxes.
Net cash provided by operating activities for the year ended July 31, 1996 was
$14.3 million as compared to $9.1 million for the year ended July 31, 1995. The
increase was primarily attributable to reductions in accounts receivable of $5.1
million and reductions in inventories of $4.0 million. In addition, the 1996
period reflects a higher depreciation and amortization expense as compared with
the 1995 period, which was principally a result of the HMG merger.
Cash used in investing activities for the nine months ended April 30, 1998 and
1997 and for the years ended July 31, 1997, 1996 and 1995 was $5.5 million, $.5
million, $2.6 million, $9.3 million and $9.1 million, respectively. The use of
cash for all periods was primarily for the purchase of property and equipment.
Cash used for financing activities for the nine months ended April 1998 and 1997
and for the years ended July 31, 1997, 1996 and 1995 was $3.9 million, $1.4
million, $5.5 million, $4.8 million and $.2 million, respectively, and consisted
primarily of repayment of long term debt offset principally, in part, by
borrowings from a bank under long term credit facilities and from stockholders
of the Company under subordinated note agreements.
Cash Requirements. Allied's current cash requirements, including working
capital and capital expenditure requirements, are funded from the operations
and the proceeds of borrowings by Allied under the ANB Loan Agreement.
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As of April 30, 1998, Allied had a net working capital deficiency of $2.4
million and $3.8 million unused and available under the ANB Revolving Loan. Net
cash provided by operating activities during the nine months ended April 30,
1998 was $8.8 million. Net cash used in investing activities totaled $5.5
million, of which substantially all was used for the purchase of replication
equipment and leasehold improvements. The net working capital deficiency is
primarily a result of the current classification of the ANB term loan $5,000,000
prepayment due on October 31, 1998. One source of eliminating such deficit is
the use of the $3.8 million available under the ANB Revolving Loan.
Allied currently expects that capital expenditures will be divided primarily
between maintenance capital expenditures and capital projects. Maintenance
capital expenditures include those required to maintain production
performance, while capital projects relate primarily to extending the life of
existing equipment, increasing capacity, and decreasing production costs.
Allied incurs approximately $1.5 million per year in cost of sales for
maintenance and repairs.
Allied has not paid any dividends on Allied's Common Stock since its
inception. The payment of dividends, if any, will be contingent upon Allied's
revenues and earnings, if any, capital requirements and general financial
condition. It is the current policy of the Board of Allied, in view of
Allied's contemplated financial requirements, to retain all earnings, if any,
for use in Allied's business operation.
Allied is a legal entity separate and distinct from its subsidiaries. As a
holding company with no significant operations of its own, the principal
sources of its funds will be dividends and other distributions from its
operating subsidiary, borrowings and sales of equity. Restrictions contained
in the ANB Loan Agreement impose limitations on the amount of distributions
that Allied may make to Allied and prohibit Allied from using any such
distributions to pay dividends to its stockholders.
The year 2000 data management issue, which has received widespread publicity,
is not expected to have a material impact on Allied.
OWNERSHIP OF COMMON STOCK
The following table sets forth, as of May 27, 1998, information with respect
to the beneficial ownership of Allied Common Stock by (i) each person known by
Allied to be the beneficial owner of more than 5% of the outstanding shares of
Allied Common Stock, (ii) each director of Allied, (iii) each executive
officer of Allied named in the Summary Compensation Table and (iv) all
directors and current executive officers of Allied as a group (11 persons):
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<TABLE>
<CAPTION>
Percentage of
Beneficial
Name and Address(1) Number of Shares Ownership
- ------------------- ---------------- -------------
<S> <C> <C>
William H. Smith(2)(14)................................................... 3,627,958 25.6%
7375 Woodward Avenue
Detroit, Michigan 48202
Patricia M. Smith(3)...................................................... 1,256,749 9.1%
7375 Woodward Avenue
Detroit, Michigan 48202
399 Venture Partners, Inc.(4)............................................. 1,100,110 8.1%
399 Park Avenue
6th Floor, Zone 11
New York, New York 10043
Donald L. Olesen(5)(14)................................................... 887,400 6.5%
1301 Avenue of the Americas
New York, New York 11109
George N. Fishman(6)(14).................................................. 894,022 6.6%
140 Fell Court
Hauppauge, New York 11788
Seymour Leslie(7)......................................................... 352,327 2.6%
1370 Avenue of the Americas
New York, New York 10019
Charles P. Kavanagh(8).................................................... 160,275 1.2%
140 Fell Court
Hauppauge, New York 11788
H. Sean Mathis(9)......................................................... 91,400 *
1301 Avenue of the Americas
New York, New York 10019
* Less than 1%.
</TABLE>
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<TABLE>
<CAPTION>
Percentage of
Beneficial
Name and Address(1) Number of Shares Ownership
- ------------------- ---------------- -------------
<S> <C> <C>
Eugene A. Gargaro, Jr. (10)............................................... 30,000 *
21001 Van Born Road
Taylor, Michigan 48180
John K. Mangini(11)....................................................... 12,500 *
140 Fell Court
New York, New York 11788
Werner H. Jean(12)........................................................ 190,720 *
16288 Barryknoll Way
Granger, Indiana 46530
John A. Morgan............................................................ 0 -
767 Fifth Avenue
New York, New York 10153
All directors and executive
officers as a group (13).................................................. 6,246,602 43.7%
</TABLE>
(1) Unless otherwise noted, Allied believes that all persons named in the
table have (i) sole voting and investment power with respect to all shares of
Allied Common Stock owned by them, except to the extent that authority is
shared by spouses under applicable law, and (ii) record and beneficial
ownership of such shares. All information in the table is based upon reports
filed by such persons with the Securities and Exchange Commission and Allied
and upon questionnaires submitted by such persons to Allied in connection with
the preparation of this Proxy Statement.
(2) Consists of (i) 2,067,723 shares of Allied Common Stock owned by the
William H. Smith Trust, of which Mr. Smith is the trustee, (ii) 550,235 shares
of Allied Common Stock issuable upon exercise of the Class C Warrants owned by
the William H. Smith Trust, (iii) 10,000 shares of Allied Common Stock owned
jointly with his wife, Patricia M. Smith, and (iv) 1,000,000 shares owned by
the William H. Smith and Patricia M. Smith Foundation, of which Mr. Smith is
the President. Prior to March 31, 1998, shares of Allied Common Stock owned by
Mrs. Smith and Mr. Smith's children were voted as directed by Mr. Smith in
accordance with a certain ten year shareholder voting agreement, dated as of
January 11, 1995, among Allied and each of the above persons and trusts (the
"Smith Family Shareholders Agreement"). The 2,067,723 shares of Allied Common
Stock owned by the William H. Smith Trust, the 10,000 shares jointly owned by
Mr. and Mrs. Smith and the 550,235 shares of Allied Common Stock issuable upon
exercise of the Class C Warrants owned by the William H. Smith Trust are
subject to the Allied Digital Shareholders Agreement. See "Allied Digital
Shareholders Agreement." On March 31, 1998, the Smith Family Shareholders
Agreement was terminated.
(3) Consists of (i) 1,044,161 shares of Allied Common Stock owned by the
Patricia M. Smith Trust, of which Mrs. Smith is the trustee, and (ii) 212,588
shares of Allied Common Stock issuable upon exercise of the Class C Warrants
owned by the Patricia M. Smith Trust. In addition, Mrs. Smith owns 10,000
shares of Allied Common Stock jointly with Mr. Smith (see note 2 above). All
such shares are subject to the Allied Digital Shareholders Agreement. See
"Allied Digital Shareholders Agreement." Mrs. Smith is the spouse of William H.
Smith.
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<PAGE>
(4) All of the shares of Allied Common Stock owned by Venture Partners are
subject to the Allied Digital Shareholders Agreement. See "Certain
Relationships and Related Transactions - Allied Digital Shareholders
Agreement."
(5) Consists of (i) 872,400 shares of Allied Common Stock owned by Mr. Olesen
and (ii) 15,000 shares of Allied Common Stock which are the subject of
incentive options granted to Mr. Olesen which are currently exercisable or are
exercisable within 60 days after the Record Date. See "Executive Compensation
- -- Stock Options." All of the shares owned by Mr. Olesen are subject to the
Allied Digital Shareholders Agreement. See "Allied Digital Shareholders
Agreement."
(6) All of the shares of Allied Common Stock owned by Mr. Fishman are subject
to the Allied Digital Shareholders Agreement. See "Certain Relationships and
Related Transactions - Allied Digital Shareholders Agreement."
(7) Consists of (i) 327,327 shares of Allied Common Stock owned by
Leslie/Linton Entertainment Inc., a company of which Seymour Leslie is
Co-Chairman and a minority shareholder and (ii) 25,000 shares of Allied Common
Stock issuable upon the exercise of Substituted Options granted to Mr. Leslie
under the Incentive Plan. See "Executive Compensation - Stock Options." The
shares of Allied Common Stock owned by Leslie/Linton Entertainment Inc. are
subject to the Allied Digital Shareholders Agreement. See "Allied Digital
Shareholders Agreement." Number of shares does not include shares of Allied
Common Stock owned by Mr. Leslie's children, as to all of which he disclaims
beneficial ownership.
(8) Consists of (i) 150,275 shares of Allied Common Stock owned by Mr.
Kavanagh and (ii) 10,000 shares of Allied Common Stock which are the subject
of incentive options granted to Mr. Kavanagh which are currently exercisable
or are exercisable within 60 days after the Record Date. See "Executive
Compensation - Stock Options."
(9) Consists of (i) 41,400 shares of Allied Common Stock owned by Mr. Mathis
and (ii) 50,000 shares of Allied Common Stock issuable upon the exercise of
presently exercisable options granted to Mr. Mathis under the Incentive Plan.
See "Executive Compensation - Stock Options."
(10) Consists of (i) 15,000 shares of Allied Common Stock owned by Mr. Gargaro
and (ii) 15,000 shares of Common Stock owned by the Eugene A. Gargaro, Jr.
Trust, of which Mr. Gargaro is the trustee.
(11) Consists of 12,500 shares of Allied Common Stock which are the subject of
incentive options granted to Mr. Mangini which are currently exercisable or
are exercisable within 60 days after the Record Date. See "Executive
Compensation - Stock Options".
(12) Consists of (i) 4,000 shares of Allied Common Stock owned by the Werner
H. Jean Trust, of which Mr. Jean is the trustee and (ii) 186,720 shares of
Allied Common Stock in the aggregate owned by certain trusts for the benefit
of other individuals, of which Mr. Jean is the trustee.
(13) Consists of the shares of Allied Common Stock referred to in notes (2)
and (5)-(12) above.
(14)Indicates party to voting agreement with AAC to vote all shares of Allied
owned by such person in favor of the Merger subject to there not occurring
certain events. See "Stockholder Voting Agreements".
Allied Digital Shareholders Agreement
In connection with the acquisition by Allied of all of the outstanding capital
stock of AFL and HMG on January 12, 1995 (the "Reorganization"), Allied, Mr.
Smith, Mrs. Smith, certain trusts of which Mr. Smith or Mrs. Smith act as
trustees (the "AFL Shareholders"), Mr. Fishman, Mr. Olesen, The Donald L.
Olesen Annuity Trust, Leslie/Linton Entertainment, Inc., and Venture Partners
(the "HMG Shareholders" and, together with the AFL Shareholders, the
"Shareholder Parties"), entered into the Allied Digital Shareholders Agreement
dated as of January 11, 1995 (the "Shareholders Agreement").
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<PAGE>
Pursuant to the Shareholders Agreement, among other things, (i) the number of
directors of Allied was initially fixed at nine members, divided into three
classes of three members each, and Mr. Smith, James A. Merkle (who resigned
effective November 6, 1995), Mr. Jean, Jerry E. Stone (who requested that
Allied not nominate him for re-election at the annual meeting of shareholders
held in 1997), and Mr. Gargaro (the "AFL Nominees"), and Mr. Fishman, Mr.
Leslie, Mr. Mathis and Mr. Olesen (the "HMG Nominees"), were elected to the
initial Board of Directors of Allied, (ii) Mr. Smith, Mr. Olesen and Mr.
Fishman were re-elected as directors of Allied for an additional three-year
term at the Annual Meeting held in 1996, (iii) the Shareholder Parties agreed
to vote all shares of Allied Common Stock owned by them against, and to use
their best efforts to cause the then directors of Allied, subject to such
directors' fiduciary duties, to vote against, any proposed change in the size
or rights or powers of the Board of Directors of Allied and (iv) the
Shareholder Parties agreed until at least the day preceding the 1998 Annual
Meeting to use their best efforts to secure the election of Mr. Fishman, Mr.
Smith and a person designated by the AFL Shareholders to the Executive
Committee of the Board of Directors of Allied and the boards of directors of
Allied's subsidiaries. The Shareholders Agreement was amended in November 1995
(the "1995 Amendment") to provide that Mr. Olesen would be appointed to fill
the vacancy in the Class I Directors resulting from Mr. Merkle's resignation
and that Mr. Olesen would be nominated for election at the Annual Meeting held
in 1996 and to appoint John A. Morgan to fill the vacancy in the Class II
directors resulting from Mr. Olesen's appointment as a Class I director. The
Shareholders Agreement was further amended as of January 15, 1997 (the "1997
Amendment"), among other things, (i) to reduce the number of directors from
nine to eight, (ii) to reduce the number of Class III directors from three to
two, (iii) to provide that at each annual meeting of shareholders to be held
through and including the annual meeting of shareholders to be held in 2000
(the "2000 Annual Meeting"), the Shareholder Parties must use their best
efforts to secure the nomination and vote their shares for the reelection of
such members of the Board of Directors of Allied whose terms expire at each
such meeting, (iv) to provide that until the day preceding the annual meeting
of shareholders of Allied to be held in 2003 (the "2003 Annual Meeting"), the
Shareholder Parties will use their best efforts to secure the election of Mr.
Fishman, Mr. Smith, Mr. Jean and Mr. Leslie (or, in the case of Mr. Jean,
another person designated by the AFL Shareholders who is reasonably acceptable
to the HMG Shareholders, and in the case of Mr. Leslie, another person
designated by the HMG Shareholders who is reasonably acceptable to the AFL
Shareholders) to the Executive Committee of the Board of Directors of Allied,
and (v) to provide that until the day preceding the 2003 Annual Meeting, the
Shareholder Parties will use their best efforts to cause its nominees to vote,
and Allied must vote its shares in any of its subsidiaries and cause any of
such subsidiaries to vote its shares in any such subsidiary, in favor of Mr.
Fishman and Mr. Smith as a director of each subsidiary so long as each is a
director of Allied. As a result of the amendment to the Allied Digital
Shareholders Agreement set forth in clauses (i) through (iii) above, the AFL
Shareholders, on the one hand, and the HMG Shareholders, on the other hand,
are each assured of having four seats on the Board of Directors of Allied
through the 2000 Annual Meeting, except to the extent that any of the AFL
Shareholders transfers its shares to an unaffiliated person, which
unaffiliated person would not be bound by the Allied Digital Shareholders
Agreement. All references below to the Shareholders Agreement shall refer to
the Shareholders Agreement as amended by the 1995 Amendment and the 1997
Amendment.
In connection with the 1997 Amendment, the Board of Directors of Allied voted
to amend the By-laws of Allied to require that any vacancy on the Board of
Directors of Allied be filled at a special meeting of directors called by the
Secretary of Allied to be held within ten days following the event that
created the vacancy.
Under the Shareholders Agreement, during the period commencing on the date of
the Shareholders Agreement (January 11, 1995) and ending on the day preceding
the 2003 Annual Meeting, if a seat on the Board of Directors of Allied or on
the Executive Committee of the Board of Directors held by any AFL Nominee or
HMG Nominee becomes vacant during such director's term for any reason
(including, without limitation, such director's death, resignation or
removal), then (i) with respect to a vacant seat previously held by an AFL
Nominee, the AFL Shareholders have the right to designate a nominee, who shall
be reasonably acceptable to the HMG Shareholders, to fill such vacancy until
the next annual meeting of shareholders of Allied at which such director's
term would expire and the HMG Shareholders shall use their best efforts to
cause the HMG Nominees on the Board of Directors of Allied, subject to such
nominees' fiduciary duties, to vote in favor of the election and continuation
in office of such nominee designated by the AFL Shareholders, and (ii) with
respect
74
<PAGE>
to a vacant seat previously held by an HMG Nominee, the HMG Shareholders have
the right to designate a nominee, who shall be reasonably acceptable to the
AFL Shareholders, to fill such vacancy until the next annual meeting of
shareholders of Allied at which such director's term would expire and the AFL
Shareholders shall use their best efforts to cause the AFL Nominees on the
Board of Directors of Allied, subject to such nominees' fiduciary duties, to
vote in favor of the election and continuation in office of such nominee
designated by the HMG Shareholders; provided, however, that the obligations
set forth in clauses (i) and (ii) above will terminate with respect to (x) a
Class III director at any time on or following the annual meeting of
shareholders of Allied to be held in 2001, (y) a Class I director at any time
on or following the annual meeting of shareholders of Allied to be held in
2002, or (z) a Class II director at any time on or following the 2003 Annual
Meeting.
The Shareholders Agreement also provides that until the day preceding the date
of the 2003 Annual Meeting, none of the AFL Shareholders may transfer any of
their shares of Common Stock among themselves, to family members, to trusts
for the benefit of themselves or their families or to affiliates of any of the
foregoing unless any such transferee becomes a party to the Shareholders
Agreement and agrees in writing to be bound by the terms thereof. The
Shareholders Agreement also provided that (i) except for transfers among
themselves, to family members, to trusts for the benefit of themselves or
their families or to affiliates, prior to July 11, 1997, none of the AFL
Shareholders were permitted to transfer any of their shares of Common Stock,
other than in compliance with the volume limitations contained in Rule 144
under the Securities Act of 1933, and (ii) except for transfers among
themselves, to family members, to trusts for the benefit of themselves or
their families or to affiliates, prior to January 11, 1998, none of the AFL
Shareholders was permitted to transfer any of their Class C Warrants.
In addition, under the terms of the Shareholders Agreement, prior to January
11, 1998, and subject to certain limited exceptions relating to transfers
among themselves, to family members, to trusts for the benefit of themselves
or their families and to affiliates, none of the AFL Shareholders was
permitted to transfer, in any single transaction or series of related
transactions to a single transferee or to a "group," any shares of Common
Stock then owned or thereafter acquired by them if such transfer would have
caused the number of shares of Common Stock transferred by all of the AFL
Shareholders, individually or in the aggregate, to such transferee or group to
equal or exceed 30% of the Common Stock outstanding as of the date of the
Shareholders Agreement unless, prior to any such transfer, the proposed
transferee (whether an individual or a group) of such shares of Common Stock
executed and delivered to Allied a written agreement to the effect that such
proposed transferee would not, for a period of 18 months from the closing of
such transfer, purchase or cause Allied, directly or indirectly, to purchase
Common Stock at a price which is less than the highest price paid by the
proposed transferee for such Common Stock from any AFL Shareholder, or for a
different form of consideration.
In the event Mr. Smith died or became incapacitated prior to January 11, 1998,
each of the AFL Shareholders (a) would have been required during the period
ending on such date to vote all shares of Common Stock beneficially owned as
directed by Mr. Jean (currently a director of Allied) or his successor, and
(b) would have been prohibited during the period ending on January 11, 1998
from transferring any such shares of Common Stock in a block (or series of
sales) of more than 500,000 shares to a single person or group other than (i)
a transfer among themselves, to family members, to trusts for the benefit of
themselves or their families or to affiliates, (ii) in connection with or to
fund the payment of federal and state estate and inheritance taxes and
administration and related expenses and otherwise for the orderly
administration of the estate of Mr. Smith or any trust for his benefit and/or
any member of his family, (iii) as any AFL Shareholder would have reasonably
determined to be necessary and ample for the support, maintenance and
education of the AFL Shareholders and family members, or (iv) with the consent
of Mr. Fishman (currently Co-Chairman of the Board) or his successor. The
Shareholders Agreement also prohibited the Shareholder Parties and Allied from
engaging in a "going private" transaction under Rule 13d-3 under the Exchange
Act prior to January 11, 1998 unless such transaction was approved by a
majority of the votes cast by shareholders who are neither parties to the
Shareholders Agreement nor affiliates or associates of such parties.
STOCKHOLDER PROPOSALS
75
<PAGE>
Pursuant to Rule 14a-8 of the Rules and Regulations promulgated under the
Securities Exchange Act of 1934, as amended, stockholders may present proper
proposals for inclusion in Allied's Proxy Statement and for consideration at
the next annual meeting of its stockholders by submitting such proposals to
Allied in a timely manner. The 1999 annual meeting will be held only if the
Merger is not consummated. In order to be included for the 1999 annual
meeting, stockholder proposals must be received by Allied no later than
November 28, 1998, and must otherwise have complied with all applicable legal
requirements.
WHERE YOU CAN FIND MORE INFORMATION
Allied files annual, quarterly and current reports, proxy statements and other
information with the Commission. You may read and copy any reports or other
reports, statements or other information that Allied files at the Commission's
public reference rooms which are located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Additionally, copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Copies of such material may also
be accessed through the Commission's Internet web site at http://www.sec.gov.
Allied Common Stock is listed on the American Stock Exchange. Such reports,
proxy statements and other information of Allied may also be inspected at the
offices of The American Stock Exchange, 86 Trinity Place, New York, New York
10006. Once the Merger is consummated, Allied will no longer be subject to the
reporting requirements of the Exchange Act.
A copy of Allied's Annual Report on Form 10-K for the fiscal year ended July
31, 1997 and Allied's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1998, accompany this Proxy Statement. These reports contain
financial statements, prepared in conformity with generally accepted
accounting principles, for the fiscal year ended July 31, 1997 and the fiscal
quarter ended January 31, 1998, respectively, and certain other information
and should be read in connection with this Proxy Statement.
You should rely only on the information contained or incorporated by reference
in this Proxy Statement to vote your shares at the Allied Special Meeting.
Neither Allied nor AAC has authorized anyone to provide you with information
that is different from what is contained in this Proxy Statement.
This Proxy Statement is dated July ___, 1998. You should not assume
that the information contained in this Proxy Statement is accurate as of any
date other than that date, and the mailing of this Proxy Statement to
stockholders will not create any implication to the contrary.
INDEPENDENT AUDITORS
The consolidated financial statements and schedule of Allied Digital
Technologies Corp. and subsidiaries as of and for the years ended July 31,
1997 and 1996 have been audited by Grant Thornton LLP, independent certified
public accountants ("Grant Thornton"), whose report appears elsewhere in this
Proxy Statement.
The consolidated financial statements and schedule of Allied Digital
Technologies Corp. and subsidiaries as of and for the year ended July 31, 1995
have been audited by Arthur Andersen LLP, independent certified public
accountants, whose report appears elsewhere in this Proxy Statement.
Representatives of Grant Thornton will have an opportunity to make a statement
at the Special Meeting and will be available at the Special Meeting to answer
any appropriate questions asked by stockholders.
76
<PAGE>
OTHER MATTERS
It is not intended that any business other than the proposals described above
will be presented at the Special Meeting. With respect to any other matters or
proposals that may properly come before the Special Meeting, however, it is
the intention of the persons named as proxies in any proxy solicited hereunder
to vote such proxy in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS OF
ALLIED DIGITAL TECHNOLOGIES CORP.
/s/ George N. Fishman
---------------------------------------
George N. Fishman
Co-Chairman and Chief Executive Officer
77
<PAGE>
OTHER MATTERS
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS OF
ALLIED DIGITAL TECHNOLOGIES CORP. AND SUBSIDIARIES
Page
----
Reports of Independent Certified Public Accountants.................. F-2
Consolidated Balance Sheets - July 31, 1997 and 1996................. F-4
Consolidated Statements of Earnings for the Years Ended
July 31, 1997, 1996 and 1995....................................... F-6
Consolidated Statement of Stockholders' Equity for the
Years Ended July 31, 1997, 1996 and 1995........................... F-7
Consolidated Statements of Cash Flows for the Years
Ended July 31, 1997, 1996 and 1995................................. F-8
Notes to Consolidated Financial Statements -- Years Ended
July 31, 1997, 1996 and 1995....................................... F-10
Condensed Consolidated Balance Sheets -- April 30, 1998 and 1997
(unaudited)........................................................ F-37
Condensed Consolidated Statements of Earnings -- Nine
Months Ended April 30, 1998 and 1997 (unaudited)................... F-39
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended April 30, 1998 and 1997 (unaudited)................... F-40
Notes to Condensed Consolidated Financial Statements --
Nine Months Ended April 30, 1998 and 1997 (unaudited).............. F-41
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Allied Digital Technologies Corp.
We have audited the accompanying consolidated balance sheets of Allied Digital
Technologies Corp. and subsidiaries (the "Company") as of July 31, 1997 and
1996, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the years then ended. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Allied Digital
Technologies Corp. and subsidiaries as of July 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Allied Digital Technologies Corp. and
subsidiaries as of and for the years ended July 31, 1997 and 1996. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York
October 24, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To Allied Digital Technologies Corp.
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of Allied Digital Technologies Corp. (a
Delaware corporation) and subsidiaries for the year ended July 31, 1995. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows
of Allied Digital Technologies Corp. and subsidiaries for the year ended July
31, 1995 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule, as of and for the year ended July 31,
1995 has been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan
November 9, 1995
F-3
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,192,827 $ 830,723
Accounts receivable, less allowance for doubtful
accounts of $1,650,000 and $1,515,000
at July 31, 1997 and 1996, respectively 25,516,385 23,906,859
Inventories 4,380,126 5,374,498
Prepaid expenses 785,737 756,009
Deferred income taxes 3,422,006 3,312,869
------------- -------------
Total current assets 35,297,081 34,180,958
PROPERTY AND EQUIPMENT, AT COST
Manufacturing equipment 63,182,825 62,266,718
Leasehold improvements 10,728,648 10,408,703
Furniture and fixtures 8,154,766 8,072,625
Capitalized leased equipment 4,000,922 2,900,312
Automobiles 197,499 197,499
------------- -------------
86,264,660 83,845,857
Less accumulated depreciation and amortization (59,481,974) (51,620,715)
------------- -------------
26,782,686 32,225,142
OTHER ASSETS
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$7,203,805 and $4,620,134 at July 31,
1997 and 1996, respectively 43,064,233 45,537,736
Deferred income taxes 708,173
Deferred charges and other 2,736,392 1,225,624
------------- -------------
45,800,625 47,471,533
------------- -------------
$ 107,880,392 $ 113,877,633
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
July 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt
and capitalized lease obligations $ 9,836,946 $ 9,153,641
Accounts payable 14,780,703 16,805,887
Accrued liabilities 6,735,393 8,712,456
------------- -------------
Total current liabilities 31,353,042 34,671,984
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS, less current portion above 26,711,260 30,232,409
SUBORDINATED NOTES PAYABLE TO
STOCKHOLDERS 10,060,366 10,996,386
DEFERRED INCOME TAXES 1,111,946 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 1,000 shares
authorized, no shares issued and outstanding - -
Common stock, $0.01 par value, 25,000,000
shares authorized, 13,619,644 shares issued
and outstanding 136,196 136,196
Additional paid-in capital 44,742,073 44,742,073
Accumulated deficit (6,234,491) (6,901,415)
------------- -------------
38,643,778 37,976,854
------------- -------------
$ 107,880,392 $ 113,877,633
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended July 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 159,147,638 $ 160,941,632 $ 116,564,144
Cost of sales 127,034,302 132,261,644 89,442,592
Nonrecurring charge 1,250,000
------------- ------------- -------------
Gross profit 32,113,336 27,429,988 27,121,552
------------- ------------- -------------
Operating expenses
Selling, general and administrative 22,246,164 24,371,797 22,254,730
Amortization of excess of cost over fair value
of net assets acquired 2,583,671 2,580,314 1,559,878
Restructuring charge 3,077,295
------------- ------------- -------------
Total operating expenses 24,829,835 30,029,406 23,814,608
------------- ------------- -------------
Income (loss) from operations 7,283,501 (2,599,418) 3,306,944
Other income (expense)
Interest expense (5,024,905) (6,186,049) (3,816,376)
Other, net 168,328 665,160 762,331
------------- ------------- -------------
Total other income (expense) (4,856,577) (5,520,889) (3,054,045)
------------- ------------- -------------
Income (loss) before income taxes 2,426,924 (8,120,307) 252,899
Provision (credit) for income taxes 1,760,000 (2,534,847) (2,575,618)
------------- ------------- -------------
NET INCOME (LOSS) 666,924 (5,585,460) 2,828,517
Pro forma data (unaudited)
AFL as a C Corporation subject to
Federal income tax (Note 8)
Adjustment to income tax credit 2,529,990
------------- ------------- -------------
Net income (loss) $ 666,924 $ (5,585,460) $ 298,527
============= ============= =============
Earnings (loss) per share reflecting
consolidated operations of AFL
and HMG (Notes 2 and 3)
Earnings (loss) per common share - basic and diluted $ .05 $ (.41) $ .05
============= ============= =============
Weighted average common shares outstanding
Basic 13,619,644 13,619,644 13,619,644
============= ============= =============
Diluted 13,619,644 13,619,644 13,621,113
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Allied Digital Technologies Corp.
---------------------------------------------------
Common Paid-in (Accumulated
stock capital deficit)
------------ ------------ ------------
<S> <C> <C> <C>
Balance as of August 1, 1994 $ 2 $ 1,998
Net income (loss) $ (1,315,955)
Distributions to stockholders
ADT organization costs (500,000)
Recapitalization and pooling of AFL
and ADT 74,907 3,867,739
Stock issued to purchase HMG 61,287 41,372,336
------------ ------------ ------------
Balance as of July 31, 1995 136,196 44,742,073 (1,315,955)
Net loss (5,585,460)
------------ ------------ ------------
Balance as of July 31, 1996 136,196 44,742,073 (6,901,415)
Net income 666,924
------------ ------------ ------------
Balance as of July 31, 1997 $ 136,196 $ 44,742,073 $ (6,234,491)
============ ============ ============
<CAPTION>
Allied Film Laboratory, Inc.
----------------------------------------------------
Retained
earnings
Common Paid-in (accumulated
stock capital deficit) Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance as of August 1, 1994 $ 23,715 $ 1,893,591 $ (1,452,254) $ 467,052
Net income (loss) 4,144,472 2,828,517
Distributions to stockholders (666,878) (666,878)
ADT organization costs (500,000)
Recapitalization and pooling of AFL
and ADT (23,715) (1,893,591) (2,025,340)
Stock issued to purchase HMG 41,433,623
------------ ------------ ------------ ------------
Balance as of July 31, 1995 - - - 43,562,314
Net loss (5,585,460)
------------ ------------ ------------ ------------
Balance as of July 31, 1996 - - - 37,976,854
Net income 666,924
------------ ------------ ------------ ------------
Balance as of July 31, 1997 $ - $ - $ $ 38,643,778
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 666,924 $ (5,585,460) $ 2,828,517
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Noncash accrued interest to stockholder 600,000 579,726
Write-off of capitalized software costs 837,935
Depreciation and amortization of property and
equipment 7,861,259 8,716,315 6,871,693
Amortization of excess of cost over fair value
of net assets acquired 2,583,671 2,580,314 1,559,878
Deferred income taxes 1,710,982 (2,534,847) (2,575,618)
Gain on sale of property and equipment (19,662) (35,502)
Provision for doubtful accounts 1,242,860 1,297,294 937,504
Changes in operating assets and liabilities, net
of effect of acquisitions and mergers
Accounts receivable (2,852,386) 5,048,617 (4,177,330)
Inventories 994,372 4,037,751 2,595,669
Prepaid expenses (29,728) (1,437) 41,009
Other assets (317,183) 1,403,582 (1,474,849)
Accounts payable and accrued liabilities (4,002,247) (2,042,770) 2,496,259
------------ ------------ ------------
Net cash provided by operating activities 8,458,524 14,317,358 9,067,230
------------ ------------ ------------
Cash flows from investing activities
Purchases of property and equipment (1,312,361) (9,304,407) (7,887,612)
Costs of HMG acquisition (1,520,856)
Proceeds from sale of property and equipment 42,443 150,792
Proceeds from cash surrender value of life insurance 754,648
Internally developed software (1,303,753) (643,723)
------------ ------------ ------------
Net cash used in investing activities (2,616,114) (9,261,964) (9,146,751)
------------ ------------ ------------
</TABLE>
F-8
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended July 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities
Net borrowings (payments) under revolving loan $ 3,922,348 $ (6,764,383) $ 6,023,372
ADT organization costs (500,000)
Repayment of long-term debt and subordinated notes payable (12,588,107) (7,335,188) (27,472,086)
Borrowing of long-term debt and subordinated notes
payable to stockholders 3,500,000 9,470,620 23,174,729
Principal payments under capitalized lease obligations (314,547) (155,131)
Payment of deferred financing fees (731,672)
Distributions to stockholders (666,878)
------------ ------------ ------------
Net cash used in financing activities (5,480,306) (4,784,082) (172,535)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 362,104 271,312 (252,056)
Cash at beginning of year 830,723 559,411 811,467
------------ ------------ ------------
Cash at end of year $ 1,192,827 $ 830,723 $ 559,411
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 4,421,026 $ 5,671,786 $ 4,459,248
============ ============ ============
Income taxes $ 117,836 $ 8,978 $ 1,144,500
============ ============ ============
Supplemental schedule of noncash financing
and investing activities:
Equipment under capitalized lease $ 1,106,442 $ 105,784
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997 and 1996
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements have been prepared by Allied
Digital Technologies Corp. ("Allied Digital"), including the accounts of
its wholly-owned subsidiaries, HMG Digital Technologies Corp. ("HMG") and
subsidiary, HRM Holdings Corp. ("Holdings") and its wholly-owned
subsidiary, Allied Digital, Inc. (formerly known as Hauppauge Record
Manufacturing, Ltd.) ("Allied"), and Allied Film Laboratories Inc.
("AFL"), hereinafter referred to collectively as the "Company." Allied
Digital is a holding company; all assets, liabilities and operating
activities are related to its wholly-owned subsidiaries. The consolidated
statements of earnings include the operations of Allied Digital and AFL
(entities under common control through January 12, 1995) for all periods
presented. The results of operations of HMG, Holdings and Allied have
been included in the consolidated results of operations since the date of
merger (Note 2). In conjunction with the Company's restructuring plan
(Note 10), AFL merged with and into Allied on November 1, 1996 as a
condition to the Company's debt refinancings described in Note 4 below.
The Company (i) provides video cassette duplication and fulfillment
services in addition to processing and duplicating commercial film and
offering post-production services, and (ii) replicates cassette tapes,
VHS video tapes and compact discs under production contracts with
companies primarily in the recorded music industry.
NOTE 2 - MERGERS AND ACQUISITIONS
HMG Merger
Effective January 12, 1995, Allied Digital acquired all of the
outstanding common stock of AFL and HMG in exchange for approximately 55%
and 45%, respectively, of the then outstanding common shares of Allied
Digital. In addition, AFL stockholders were issued Class C warrants to
purchase an additional 1,250,000 shares of Allied Digital common stock
(Note 7). Upon consummation of the merger, existing HMG warrants
totalling 3,067,500 shares, were converted into Allied Digital warrants
on similar terms. In addition, options to acquire up to 400,000 shares of
common stock were issued in substitution for outstanding options of HMG.
The acquisition of AFL stock was
F-10
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 2 (continued)
accounted for as a merger under the pooling of interests method of
accounting as the companies were under common control. The merger of HMG
was accounted for under the purchase method of accounting as a reverse
acquisition of HMG by AFL. Accordingly, the assets acquired and
liabilities assumed of HMG were recorded at their estimated fair values
of approximately $88,666,000 and $45,776,000, respectively. The excess of
fair value of HMG over the estimated fair value of the net assets
acquired was approximately $45,611,000. This asset has been recorded as
excess of cost over fair value of net assets acquired and is being
amortized on a straight-line basis over 20 years.
The unaudited consolidated results of operations on a pro forma basis for
the year ended July 31, 1995 as though HMG had been acquired as of August
1, 1994 are presented below. The pro forma information does not purport
to be indicative of what would have occurred had the acquisition been
made as of that date or of results which may occur in the future.
Year ended
July 31,
1995
------------
(unaudited)
Net sales $158,079,000
Income before extraordinary item 667,000
Net income 667,000
Earnings per common share before
extraordinary item .05
Net earnings per common share - basic and diluted .05
Weighted average common shares - basic 13,619,644
Weighted average common shares - diluted 13,621,113
In preparing the pro forma data, adjustments have been made for: (i) the
amortization of the excess of cost over fair value of net assets acquired
and stepped-up property and equipment; (ii) the interest expense related
to the borrowings to finance the shareholder distributions of previously
taxed income and the conversion of preferred stock into subordinated
debt; (iii) the elimination of intercompany sales; (iv) the elimination
of merger related costs and redundant general and administrative costs;
and (v) the related tax impacts including the revocation of the
Subchapter S election.
F-11
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 2 (continued)
The following is a reconciliation from reported net income for Allied
Digital to pro forma consolidated operations of HMG and AFL:
Year ended
July 31,
1995
-----------
(unaudited)
Net income as reported $ 2,829,000
HMG net earnings, pre-acquisition 768,000
Elimination of merger costs and redundancies 1,344,000
Amortization of cost in excess of fair value
of net assets acquired (1,013,000)
Interest expense (231,000)
Reversal of tax credit arising from
revoking S election (1,625,000)
Pro forma tax provision (1,193,000)
Depreciation of excess of fair value over
book for acquired assets (212,000)
-----------
$ 667,000
===========
AFL provided certain video replication services to HMG. For the period
from August 1, 1994 through January 11, 1995, sales to HMG amounted to
approximately $4,000,000.
VCA Acquisition
Effective January 12, 1993, the Company acquired certain assets and
assumed certain liabilities of VCA/Teletronics, Inc. ("VCA") for cash of
$1,000,000 and a long-term note payable of $1,570,315 (Note 4). Also,
under the purchase agreement, the Company is contingently liable to VCA
for certain royalty payments payable for each of the calendar years
ending December 31, 1996 through
F-12
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 2 (continued)
and including December 31, 2000 in an amount based on the number of
videotape duplication units sold during those years. As the amount of
videotape duplication units to be sold during those open years is not
reasonably estimable, a liability has not been reflected in the
accompanying financial statements. The purchase agreement also contained
a covenant not-to-compete for a period of three years.
The Company accounted for the acquisition as a purchase. The initial
excess of consideration paid over the estimated fair value of the net
assets acquired in the amount of $4,546,842 has been recorded as excess
of fair value over the cost of net assets acquired and is being amortized
on a straight-line basis over 15 years. Contingent purchase price
consideration paid during fiscal 1997 of approximately $119,000
pertaining to calendar year ended December 31, 1996 is being amortized on
a straight-line basis over the remaining amortization period.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Allied
Digital and its wholly-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
Inventories
Inventories utilized in the manufacturing and loading of videocassettes,
audiocassettes and manufacturing of compact discs are valued at the lower
of cost or market, using the first-in, first-out (FIFO) method. Elements
included in the determination of cost include direct materials, direct
labor and certain other manufacturing labor and overhead costs.
F-13
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 3 (continued)
Inventories consist of the following classifications:
July 31,
---------------------------
1997 1996
---------- ----------
Raw materials $3,415,970 $3,882,455
Work-in-process 674,125 827,142
Finished goods 290,031 664,901
---------- ----------
$4,380,126 $5,374,498
========== ==========
Property and Equipment
Property and equipment are stated at historical cost. Depreciation and
amortization are provided for over the estimated service lives of the
assets. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is
shorter. Straight-line and accelerated methods are used for reporting
purposes. Accelerated methods are used for income tax purposes.
Accumulated amortization on capitalized leased equipment amounted to
$3,006,637 and $2,685,744 as of July 31, 1997 and 1996, respectively.
Long-Lived Assets
Management reviews and evaluates its long-lived assets (including the
excess of cost over fair value of net assets acquired and property and
equipment) for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
As part of this review and evaluation, the Company considers the value of
anticipated undiscounted cash flow attributable to such long-lived assets
in assessing potential impairment.
Deferred Charges and Other
Deferred charges and other consist principally of customer allowances
under long-term contracts, internally developed software costs, and loan
origination fees associated with the Company's financing transactions.
Customer allowances are amortized over the term of the contract provided
recoverability is assured (Note 9). Internally developed software is
being amortized on a straight-line basis over a five-year expected useful
life; however, internally developed software costs incurred prior to
fiscal 1997 were written off in fiscal 1996 as an abandoned asset in
connection with the Company's restructuring plan (Note 10). Loan
origination fees are being amortized over the term of the underlying
credit agreement.
F-14
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 3 (continued)
Revenue Recognition
Revenue from substantially all production contracts is generally
recognized upon shipment of the finished goods. In addition, for certain
contracts, where risk and rewards of ownership have passed to the
customer, the Company recognizes revenue when production is complete.
Significant Customers
During the year ended July 31, 1997, sales to two customers accounted for
17% and 14% of net sales with corresponding accounts receivable from
these customers totaling 11% and 9% of accounts receivable as of July 31,
1997, respectively. During the year ended July 31, 1996, sales to two
customers accounted for 16% and 13% of net sales with corresponding
accounts receivable from these customers totaling 13% and 8% of accounts
receivable as of July 31, 1996, respectively. During the year ended July
31, 1995, sales to one customer accounted for 15% of net sales with
corresponding accounts receivable from this customer totaling 12% of
accounts receivable as of July 31, 1995.
Other Income
Other income, net includes interest income, recovery of accounts
receivable previously written off as uncollectible and scrap material
sales.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for stock-based compensation
awards. Accordingly, no compensation cost has been recognized for the
awards granted under the Plan.
Income Taxes
The Company follows the asset and liability method of accounting for
income taxes by applying statutory tax rates in effect at the balance
sheet date to differences among the book and tax bases of assets and
liabilities. The resulting deferred tax liabilities or assets are
adjusted to reflect changes in tax laws or rates by means of charges or
credits to income tax expense. A valuation allowance is recognized to the
extent a portion or all of a deferred tax asset may not be realizable.
F-15
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 3 (continued)
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings Per Share," which supersedes Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, earnings (loss) per
common share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock. Prior period amounts have been
restated, where appropriate, to conform to the requirements of SFAS No.
128.
Financial Instruments
The Company's principal financial instruments consist of accounts
receivable, accounts payable and debt. Because of their short maturity,
the carrying value of accounts receivable, accounts payable and
short-term debt approximates fair value. The fair value of long-term debt
is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities.
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Certain reclassifications have been made to the prior years' amounts to
conform with the current year's presentation.
F-16
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 4 - LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE AND
CAPITALIZED LEASE OBLIGATIONS
Long-term debt, subordinated notes payable and capitalized lease
obligations consist of the following:
<TABLE>
<CAPTION>
July 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Loan and Security Agreement
Term loan $ 18,782,232 $ 27,112,055
Revolving loan 14,480,840 10,558,492
Additional loan 1,020,000
Subordinated 10% Notes Payable to Stockholders 7,179,726 6,579,726
Additional Subordinated 10% Notes Payable to Stockholders 2,000,000
Subordinated 12% Series A Note Payable to Stockholder 3,500,000
Subordinated 11% Series B Notes Payable to Stockholders 880,640 916,660
Note Payable to VCA 1,170,514 1,389,186
Capitalized lease obligations 995,137 203,252
Other 99,483 123,065
------------ ------------
46,608,572 50,382,436
Less current portion (9,836,946) (9,153,641)
------------ ------------
$ 36,771,626 $ 41,228,795
============ ============
</TABLE>
Debt Refinancings
In conjunction with the Company's restructuring plan and merger of AFL
into Allied referred to in Note 1 above, (i) the separate senior loan
credit facilities previously maintained by AFL and Allied with a bank
were combined under an amended and restated loan and security agreement
between Allied and such bank dated as of October 30, 1996 and effectuated
as of November 1, 1996, (ii) the Subordinated 12% Series A Note Payable
to Stockholder was repaid in full on November 8, 1996 with funds of (a)
$1.5 million available as an additional loan under the October 30, 1996
amended and restated loan and security agreement and (b) $2 million
advanced by certain other stockholders in the form of additional
subordinated notes dated October 30, 1996 and (iii) the payment terms of
the Subordinated 10% Notes Payable to Stockholders having an original
principal sum of $6,000,000, plus unpaid interest thereon of $1,179,726
through July 31, 1997 ($579,726 as of July 31, 1996) were extended.
F-17
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 4 (continued)
Loan and Security Agreement
The October 30, 1996 loan and security agreement provided the Company
with borrowings of up to $48,910,169 under credit facilities consisting
of a (i) $25,410,169 term loan, (ii) $22,000,000 revolving loan facility
(combined with a $1,500,000 letter of credit facility) and (iii)
$1,500,000 additional loan. As of August 19, 1997, Allied entered into an
amendment to the October 30, 1996 loan and security agreement with the
bank which provides the Company with a $3,450,000 capital expenditure
credit facility.
The loan and security agreement (as amended) is collateralized by
substantially all of the assets of the Company. The agreement contains
covenants which, among other matters, (1) require the Company to (i)
maintain increasing levels of net worth, (ii) maintain a minimum debt
service ratio and (iii) limit its annual capital expenditures, and (2)
place limitations on (i) additional indebtedness, encumbrances and
guarantees, (ii) consolidations, mergers or acquisitions, (iii)
investments or loans, (iv) disposal of property, (v) compensation to
officers and others, (vi) dividends and stock redemptions, (vii) issuance
of stock, and (viii) transactions with affiliates, all as defined in the
agreement. As of July 31, 1997, there is no equity available for the
payment of dividends to stockholders. The agreement also contains
provisions for fees payable to the bank upon prepayment and an increased
rate of interest during periods of default.
The term of this agreement extends to November 30, 2000.
a. Term Loan
The $25,410,169 term loan dated October 30, 1996 ($27,112,055 at July
31, 1996) is payable in an initial scheduled installment aggregating
$1,695,462 on October 31, 1996 (of which $1,179,000 was paid on
November 8, 1996), 30 consecutive monthly installments of $548,054
thereafter through April 30, 1999 and a final installment on May 30,
1999 of $273,098, together with additional prepayments of principal
of $2,000,000 on October 31, 1997 and $5,000,000 on October 31, 1998.
No prepayment fees result from these scheduled prepayments. In
addition, interest is payable monthly at 1.5% over the bank's base
rate (10% at July 31, 1997). In the event the loan and security
agreement has not been terminated prior to October 31, 1997, a
$125,000 fee due on such date to the bank will not be required to be
paid by the Company if on and as of such date no default or event of
default has occurred and is continuing and the Company has made all
principal and interest payments required to be paid on the term loan
when due.
F-18
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 4 (continued)
b. Revolving Loan
Under the revolving loan facility combined with a $1,500,000 letter
of credit facility, the Company may borrow up to a maximum of
$22,000,000 based upon a percentage of accounts receivable and
inventory, as defined, less the sum of the undrawn face amount of any
letters of credit outstanding. Interest is payable monthly at 1.25%
over the bank's base rate. In addition, the Company is required to
pay, on a monthly basis, an unused facility fee of .5% per annum. At
July 31, 1997, the Company had approximately $7,270,000 unused and
available under the revolving loan facility.
c. Additional Term Loan
The $1,500,000 additional loan dated October 30, 1996 is payable in
25 consecutive monthly installments which commenced December 31, 1996
of $60,000 each plus interest at 1.5% over the bank's base rate (10%
at July 31, 1997). In the event the additional loan is paid in full
on or before December 31, 1997 and the loan and security agreement
has not been terminated on or before such date, the Company will not
be required to pay a $100,000 fee to the bank on December 31, 1998.
d. Capital Expenditure Credit Facility
The $3,450,000 capital expenditure credit facility provides the
Company with a credit line through July 31, 1998 to finance up to 80%
of the value of capital equipment purchases (as defined). Such loans
under the facility are payable based on a 36-month amortization
schedule with a final payment of the entire unpaid principal balance
on July 31, 2000. These loans bear interest at 1.5% over the bank's
base rate. In addition, the Company is required to pay a $103,500 fee
to the bank, payable at a rate of 3% of each advance with a final
payment for any unpaid amount of the fee payable on July 31, 1998. As
of October 24, 1997, no amounts were outstanding under this capital
expenditure credit facility.
F-19
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 4 (continued)
Subordinated 10% Notes Payable to Stockholders
The subordinated 10% notes payable to stockholders are uncollateralized
and payable in full on January 1, 2001. Interest accrues only on the
original principal sum of $6,000,000 and is payable quarterly at 10% per
annum (12% upon default); however, to date, interest is not permitted to
be paid pursuant to the terms of the amended and restated loan and
security agreement with the bank, and, accordingly, such accrued and
unpaid interest becomes payable on January 1, 2001.
Additional 10% Subordinated Notes Payable to Stockholders
The additional 10% subordinated notes payable to stockholders are
uncollateralized and payable in full on December 31, 1998 with interest
payable quarterly; however, payment of principal and interest may be
extended in full or in part to January 1, 2001 to the extent not
permitted to be paid pursuant to the terms of the amended and restated
loan and security agreement with the bank.
Subordinated 11% Series B Notes Payable to Stockholders
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
Note Payable to VCA
This uncollateralized note is payable in annual installments of $385,374
beginning January 1995 through January 2001, including interest at 12%.
Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. During fiscal 1997, the Company leased approximately
$1,100,000 of equipment which were accounted for as capital leases. The
obligations for the equipment require the Company to make monthly
payments through December 2002, with implicit interest rates from 5.27%
to 19.48%.
Interest Expense on Related Party Debt
Amounts charged to interest expense on all of the subordinated notes
payable to stockholders amounted to approximately $989,000, $1,101,000
and $1,182,000 for the years ended July 31, 1997, 1996 and 1995,
respectively.
F-20
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 4 (continued)
The following is a summary of the aggregate annual maturities of
long-term debt, subordinated notes payable and capitalized lease
obligations as of July 31, 1997:
Year ending July 31,
1998 $ 9,836,946
1999 13,955,946
2000 579,547
2001 22,231,494
2002 4,639
-----------
$46,608,572
===========
NOTE 5 - EMPLOYEE BENEFIT PLANS
401(k)/Profit-sharing Plan
The Company has a 401(k)/profit-sharing plan. Contributions to the plan
are discretionary and are determined annually by the Board of Directors.
No contributions were made for the years ended July 31, 1997, 1996 and
1995.
Retirement Plan
Allied participates in a defined benefit multi-employer pension plan
covering union employees. Contributions for the years ended July 31, 1997
and 1996, and for the period from January 12, 1995 to July 31, 1995
totaled $306,000, $308,000 and $153,000, respectively.
F-21
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Related Party and Other Leases
The Company leases certain of its processing and administrative
facilities from affiliated companies under noncancellable operating
leases which expire at various dates between 1997 and 2015. Rent expense
under these leases amounted to approximately $2,594,000, $2,369,000 and
$1,706,000 for the years ended July 31, 1997, 1996 and 1995,
respectively. The Company has guaranteed certain mortgage debt on these
facilities totalling approximately $527,000 and $1,514,000 for the years
ended July 31, 1997 and 1996, respectively.
The Company also leases other processing facilities from various
nonrelated parties under noncancellable operating leases which expire at
various dates between 1997 and 2008 and provide for renewals at various
rates and terms. Amounts charged to operations for these facilities
amounted to approximately $2,448,000, $2,237,000 and $2,547,000 for the
years ended July 31, 1997, 1996 and 1995, respectively.
The minimum annual rental commitments required under all facility leases
are as follows:
Related Nonrelated
parties parties Total
----------- ----------- -----------
Year ending July 31,
1998 $ 2,522,000 $ 1,993,000 $ 4,515,000
1999 2,422,000 2,007,000 4,429,000
2000 2,022,000 1,172,000 3,194,000
2001 2,022,000 800,000 2,822,000
2002 2,022,000 609,000 2,631,000
Thereafter 20,079,000 3,417,000 23,496,000
----------- ----------- -----------
$31,089,000 $ 9,998,000 $41,087,000
=========== =========== ===========
F-22
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 6 (continued)
Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through fiscal 2001. The minimum
rent commitments required under these leases are as follows:
Year ending July 31,
1998 $ 395,000
1999 356,000
2000 261,000
2001 164,000
----------
$1,176,000
==========
Employment Agreements
The Company maintains employment agreements with certain executive
officers. Salary continuation is provided for any executive who is
terminated without cause, as defined. Effective August 1, 1997, the
Company entered into an employment agreement with an executive officer
expiring July 31, 2000.
As of July 31, 1997, the aggregate minimum compensation obligation under
active employment agreements is as follows (taking into effect the August
1, 1997 agreement described above):
Year ending July 31,
1998 $ 614,000
1999 275,000
2000 275,000
----------
$1,164,000
==========
F-23
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 6 (continued)
Global Indemnification Agreement
On June 17, 1994, the Company entered into a Global Indemnification
Agreement with affiliates from whom it rents property. The Agreement
indemnifies the affiliates and holds them harmless for liabilities, if
any, related to environmental law and hazardous substance utilization on
the leased properties. This indemnification excludes any hazardous
substance that may be placed on the leased properties by someone other
than the Company, after the Company ceases to occupy the applicable
property. In exchange for indemnifying the affiliates, the Company
received $25,000 from the affiliates.
Consulting Agreement
A director of the Company provides strategic advisory services to the
Company pursuant to a five-year consulting agreement expiring in January
2000. The director received a fee of $96,000 payable in twenty-four
monthly installments which ended in December 1996.
Litigation Matters
The Company is involved in various routine litigation which arise through
the normal course of business. Management believes that the resolution of
these matters will not have a material adverse effect on the consolidated
financial position or results of operations.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company's issued and outstanding common stock warrants and options
are as follows:
Common Stock Warrants
The Company has 1,353,750 Class A redeemable warrants and 1,353,750 Class
B redeemable warrants outstanding as of July 31, 1997. Each Class A and
Class B redeemable warrant entitles the registered holder thereof to
purchase one share of common stock at a price of $6.75 and $7.50 per
share, respectively, subject to certain adjustment, until July 28, 1998
(originally July 28, 1997). The Company, at its own option, may redeem
the Class A redeemable warrants and the Class B
F-24
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 7 (continued)
redeemable warrants, in each case as a class and not in part, at a price
of $.05 per warrant provided the reported closing bid price of the common
stock equals or exceeds $8.50 per share for a length of time as specified
in the agreements. The warrant holders have exercise rights until the
close of business on the date fixed for redemption.
The Company had 120,000 units exercisable through July 28, 1997 at an
exercise price of $9.90 per unit. Each unit consisted of one share of
common stock, one Class A redeemable warrant and one Class B redeemable
warrant. The exercise price of the Class A and the Class B redeemable
warrants, in accordance with these units, was $9.79 and $10.88,
respectively. All of these units expired on July 28, 1997.
The Company also has 1,250,000 Class C warrants outstanding as of July
31, 1997. Each Class C warrant entitles the registered holder thereof to
purchase one share of common stock at a price of $9.00 per share,
beginning two years after the date of the HMG merger (January 12, 1997)
and expiring three years after becoming exercisable.
Stock Options
The Company established an Amended and Restated 1994 Long-Term Incentive
Plan (the "Plan") under which options to purchase shares of the Company's
common stock and other stock incentives may be granted to eligible
participants. The maximum number of shares available for awards under the
Plan is 2,400,000 shares, of which no more than half may be newly-issued
shares. Shares issued to holders of HMG common stock or AFL common stock
in the merger and subsequently reacquired by Allied Digital, as well as
any other shares acquired by Allied Digital after the merger, in the
public market or otherwise, would not be considered newly-issued shares
for this purpose. Options granted under the Plan may be either incentive
stock options or nonqualified stock options. Incentive stock options may
be granted only to employees of the Company. An incentive stock option
must expire within ten years from the date it is granted (five years in
the case of such options granted to a holder of more than 10% of the
outstanding common stock). Incentive stock options are first exercisable
not earlier than one year from the date of grant. The exercise price of
an incentive stock option must be at least equal to the fair market value
of the common stock on the date such incentive stock option is granted
(or 110% of the fair market value of the common stock in the case of such
options granted to a holder of more than 10% of the outstanding common
stock). To the
F-25
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 7 (continued)
extent that the aggregate fair market value of the common stock with
respect to which incentive stock options are exercisable for the first
time by an optionee during any calendar year exceeds $100,000, such
options will be treated as nonqualified stock options.
At July 31, 1997, the Company has 522,500 options outstanding (of which
423,750 are exercisable) at prices ranging from $2.875 to $8.63, vesting
at various dates through July 1999 and expiring at various dates between
November 1998 and September 2003.
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Stock Options
------------------------------ --------------------------- Weighted
Exercise Exercise average
price Quantity price Quantity exercise price
--------------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding as of
August 1, 1995 $5.5625 - $6.94 349,500 $6.66 - $8.63 275,000 $6.6185
Forfeited 5.5625 (77,000) - - 5.5625
------- -------
Outstanding as of
July 31, 1996 5.5625 - 6.94 272,500 6.66 - 8.63 275,000 6.7670
Granted 2.875 25,000 - - 2.875
Expired 5.5625 (12,500) - 5.5625
Forfeited 5.5625 (37,500) - - 5.5625
------- -------
Outstanding as of
July 31, 1997 $2.875 - $6.94 247,500 $6.66 - $8.63 275,000 $6.6140
================ ======= ============= ======= =======
Amounts exercisable as of
July 31, 1997 $5.5625 - $6.94 148,750 $6.66 - $8.63 275,000 $7.5541
================ ======= ============= ======= =======
</TABLE>
F-26
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 7 (continued)
The following table summarizes information regarding stock options at
July 31, 1997:
<TABLE>
<CAPTION>
Options exercisable Options outstanding
---------------------------------------- -----------------------------------------
Weighted- Weighted-
average Weighted- average Weighted-
remaining average remaining average
Range of exercise Number contractual exercise Number contractual exercise
prices exercisable life (months) price outstanding life (months) price
----------------- ----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$5.5625 - $6.94 298,750 37 months $6.34 397,500 37 months $6.15
$8.63 125,000 74 months $8.63 125,000 74 months $8.63
</TABLE>
The weighted-average option fair value on the grant date was $1.38 for
options issued during the year ended July 31, 1997.
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"); it applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for the Plan and does not recognize compensation expense
for such Plan. If the Company had elected to recognize compensation
expense based upon the fair value at the grant dates for awards under
these plans consistent with the methodology prescribed by SFAS No. 123,
the Company's reported net income and earnings per share would be reduced
to the pro forma amount indicated below for the year ended July 31, 1997:
Net income
As reported $666,924
Pro forma 658,299
Earnings per common share - basic and diluted
As reported .05
Pro forma .05
F-27
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 7 (continued)
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before fiscal 1996. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
the fiscal year ended July 31, 1997: expected volatility of 45%;
risk-free interest rate of 6.32% and expected term of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
In connection with a June 1995 sales contract (Note 9), the Company
granted to a customer 250,000 options to acquire shares of Company common
stock at an exercise price of $5.5625, equivalent to the quoted market
price on such date. In consideration for modifying certain provisions of
the June 1995 sales contract in September 1997, the Company repriced
these options to an exercise price of $3.00 per share (equivalent to the
quoted market price on such date) for which the Company expects to
recognize a noncash pretax charge to earnings of approximately $150,000
(representing the difference between the fair values of the modified and
original options utilizing the Black-Scholes option valuation model).
These options expire in June 2000.
F-28
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 7 (continued)
The following information summarizes the Company's stock options and
warrants at July 31, 1997:
<TABLE>
<CAPTION>
Range of
exercise
Description Authorized Issued Exercisable price
----------- ---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Class A warrants 1,353,750 1,353,750 1,353,750 $ 6.75
Class B warrants 1,353,750 1,353,750 1,353,750 7.50
Class C warrants 1,250,000 1,250,000 1,250,000 9.00
Incentive stock options/
nonqualified stock options 2,400,000 522,500 423,750 2.875 - 9.00
Options - other 250,000 250,000 250,000 5.562
--------- --------- --------- --------------
Balance as of July 31, 1997 6,607,500 4,730,000 4,631,250 $2.875 - $9.00
========= ========= ========= ==============
</TABLE>
In connection with the August 1, 1997 employment agreement described in
Note 6, the Company granted incentive stock options to an executive
officer to acquire 200,000 shares of common stock with an exercise price
of $2.00 representing the quoted market price on such date. These options
become exercisable over a four-year period commencing August 1, 2001 at a
rate of 25% each year with possible acceleration based upon the market
performance of the Company's common stock.
On October 21, 1997, the Company: (i) repriced all outstanding incentive
stock options to an exercise price of $2.4375, representing the quoted
market price on such date and (ii) granted 27,500 incentive stock options
to employees which become exercisable equally over five years with an
exercise price of $2.4375.
NOTE 8 - INCOME TAXES
Prior to January 12, 1995, the stockholders of AFL had elected, under the
provisions of Subchapter S of the Internal Revenue Code, to have the
income and related tax benefits of AFL included in the taxable income of
the individual stockholders. As a result, no provision for Federal income
taxes has been included in the historical statements of earnings prior to
January 12, 1995.
F-29
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 8 (continued)
On January 12, 1995, AFL became disqualified, under the provisions of
Subchapter S of the Internal Revenue Code, to have the income of the
Company included in the taxable income of the individual stockholders. In
connection with this disqualification, the Company established net
deferred tax assets of approximately $1,625,000. The effect of
establishing the deferred tax assets was included in income for the year
ended July 31, 1995. Subsequent to January 12, 1995, the Company has
provided Federal income taxes in the statements of earnings based on the
effective tax rate. The unaudited pro forma adjustment to income tax
provision and net income have been presented in the consolidated
statement of earnings for the year ended July 31, 1995 as if the
Subchapter S election had been terminated prior to August 1, 1994.
The provision (credit) for income taxes is as follows:
Year ended July 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
Federal
Current $ 40,000 $ - $ -
Deferred 1,578,500 (1,758,663) (1,556,409)
----------- ----------- -----------
1,618,500 (1,758,663) (1,556,409)
----------- ----------- -----------
State
Current 10,000
Deferred 131,500 (776,184) (1,019,209)
----------- ----------- -----------
141,500 (776,184) (1,019,209)
----------- ----------- -----------
$ 1,760,000 $(2,534,847) $(2,575,618)
=========== =========== ===========
F-30
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 8 (continued)
Deferred income tax assets (liabilities) resulting from differences
between accounting for financial statement purposes and tax purposes are as
follows:
July 31,
------------------------------
1997 1996
----------- -----------
Restructuring costs $ 501,000 $ 1,115,000
Nonrecurring charge 293,000 391,000
Accounts receivable 637,000 585,000
Inventory 121,000 144,000
Accrued salaries 304,000 378,000
Net operating loss carryover 2,500,000 2,365,000
State investment tax credits 1,572,000 1,239,000
----------- -----------
5,928,000 6,217,000
----------- -----------
Property and equipment (2,747,000) (1,332,000)
Other accrued expenses 19,000 (133,000)
----------- -----------
(2,728,000) (1,465,000)
----------- -----------
Valuation allowance (890,000) (732,000)
----------- -----------
Net deferred tax asset $ 2,310,000 $ 4,020,000
=========== ===========
The deferred tax valuation allowance at July 31, 1997 and 1996 is
attributable to the Company's ability to utilize investment tax credit
carryovers prior to expiration. Changes in the deferred tax asset
valuation are based on projections of future taxable income.
F-31
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 8 (continued)
The Company's effective income tax rate was 72.5% in 1997, 31.2% in 1996
and (1,018)% in 1995. The components of the reconciliation of the
Company's effective tax provision (credit) to the tax provision (credit)
pursuant to the U.S. statutory rate of 34% are as follows:
<TABLE>
<CAPTION>
Year ended July 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal tax provision (credit) computed at
statutory rate $ 825,154 $(2,760,904) $ 85,986
S Corporation earnings (880,464)
Amortization of costs in excess of net assets
acquired 637,989 625,949 427,582
Nondeductible entertainment expenses 45,468 47,775 32,884
State tax expense (benefit) net of Federal tax 425,738 (341,448) (202,370)
Recognition of investment tax credit (332,349) (319,219) (414,401)
Increase in valuation allowance 158,000 213,000 -
Reinstatement of deferred taxes - - (1,624,835)
----------- ----------- -----------
Actual tax provision (credit) $ 1,760,000 $(2,534,847) $(2,575,618)
=========== =========== ===========
</TABLE>
HMG is in the process of undergoing an IRS tax examination. In connection
with this examination, management does not anticipate any material
adverse effect on the Company's consolidated financial position and
results of operations upon its ultimate resolution.
The Company has an NOL carryforward as of July 31, 1997 for Federal
purposes of approximately $6,585,000 which expires during the fiscal
years ending 2010 through 2012.
The Company uses the flow-through method of accounting for investment tax
credits. The Company has state investment tax credit carryforwards at
July 31, 1997 approximating $2,035,000 which expire between fiscal 2003
and 2007.
NOTE 9 - NONRECURRING CHARGE
In June 1995, the Company, in connection with consummating a five-year
production and fulfillment sales contract, agreed to, among other things,
a customer signing allowance in the amount of $1,250,000 to be amortized
over the term of the contract. Based on the fiscal 1996 financial results
F-32
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 9 (continued)
relating thereto and an assessment made in the fiscal 1996 fourth quarter
of anticipated future results of performing thereunder, the Company
determined that the unamortized balance of the deferred charge was not
recoverable and, accordingly, charged to operations the remaining
unamortized balance.
NOTE 10 - RESTRUCTURING CHARGE
As a result of certain organizational changes which occurred during
mid-fiscal 1996, management of the Company developed in April 1996 the
framework of a restructuring plan. In June 1996, the Company adopted the
plan to streamline and reduce resources utilized in the business which
resulted in recording a restructuring charge of approximately $3.1
million in the fourth quarter of fiscal 1996. The restructuring charge
comprised of work force related expenses of $1,126,385, idle plant lease
costs of $863,000, abandoned asset write-off of $837,935 and other
related costs of $250,000.
The plan encompassed: (i) the merger and integration of the Company's two
operating subsidiaries, (ii) the closure of the Company's Detroit
manufacturing facility and (iii) the consolidation of the Company's
corporate and administrative offices from Detroit to New York.
The work force related expenses resulted in the termination of 25
corporate, administrative and operational employees receiving severance;
all of which were notified of termination in fiscal 1996 with final
payments made in fiscal 1997 with the exception of one former employee
receiving scheduled payments through December 1998.
The idle plant lease costs associated with the Detroit facility under a
noncancellable lease term expiring in 2010 is an estimate of the cost for
a two-year period such facility is expected to remain idle before the
Company is able to sublease the facility.
The merger and integration of the Company's two operating subsidiaries
encompassed the consolidation of their separate information systems and
credit facilities. In this regard, the Company decided to convert AFL's
information systems which resulted in the abandoned asset write-off
representing the remaining balance of the internally developed software
costs which had been capitalized.
F-33
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 10 (continued)
In addition, the Company's bank had to consent to amend the separate
credit facilities into one credit facility which was essential to the
execution of the Company's restructuring plan to allow the merger of AFL
into HMG and the commingling of assets. The bank charged restructuring
fees representing the "other related costs" with scheduled payments thereof
throughout fiscal 1998.
The status of the components of the restructuring charge is as follows:
<TABLE>
<CAPTION>
Balance at Balance at
July 31, Fiscal 1997 July 31,
1996 Activity 1997
----------- ----------- -----------
<S> <C> <C> <C>
Work force related expenses $ 1,126,000 $(1,022,000) $ 104,000
Idle plant lease costs 863,000 (452,500) 410,500
Other related costs 250,000 (62,500) 187,500
----------- ----------- -----------
$ 2,239,000 $(1,537,000) $ 702,000
=========== =========== ===========
</TABLE>
During fiscal 1997, the Company made payments for work force related
expenses, idle plant lease costs and other related costs of approximately
$1,022,000, $108,500 and $62,500, respectively. Idle plant costs were
reduced in fiscal 1997 by $344,000 to reflect a change in estimate of the
costs of closing the plant. The Company also incurred and paid in fiscal
1997 costs of approximately $344,000 related to the restructure that were
not contractually committed for in fiscal 1996. At July 31, 1997 the
Company considers the remaining accrual by component and in the aggregate
to be adequate.
NOTE 11 - QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in
thousands, except per share data):
<TABLE>
<CAPTION>
Earnings
(loss)
per common
Gross Net income share - basic
Revenue margin (loss) and diluted
------- ------ ---------- -------------
<S> <C> <C> <C> <C>
1997
First quarter $42,726 $8,599 $ 488 $ .04
Second quarter 38,132 7,594 43 -
Third quarter 38,509 7,676 98 -
Fourth quarter 39,781 8,244 38 -
1996
First quarter $46,335 $9,606 $ 851 $ .06
Second quarter 39,389 6,048 (1,465) (.11)
Third quarter 37,933 6,656 (1,012) (.07)
Fourth quarter 37,284 5,120 (3,959) (i) (.29)
</TABLE>
- ---------------
(i) The quarter's net loss reflects the after-tax effects of a nonrecurring
charge (Note 9) and a restructuring charge (Note 10).
F-34
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
July 31, 1997 and 1996
NOTE 12 - EARNINGS (LOSS) PER COMMON SHARE
The number of shares used in the Company's basic and diluted earnings
(loss) per common share at July 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average common shares outstanding
for basic earnings (loss) per share 13,619,644 13,619,644 13,619,644
Common stock equivalents for stock options
and warrants - - 1,469
---------- ---------- ----------
Weighted-average common shares outstanding
for diluted earnings (loss) per share 13,619,644 13,619,644 13,621,113
========== ========== ==========
</TABLE>
Options and warrants outstanding to purchase 4,730,000, 5,115,000 and
4,642,500 shares of common stock in fiscal 1997, 1996 and 1995,
respectively, were excluded in the computation of diluted earnings per
share as their effects were antidilutive.
NOTE 13 - SHAREHOLDERS AGREEMENT
On January 11, 1995, the Company and certain of its affiliated
stockholders entered into a shareholders agreement, as amended in
November 1995 and January 1997, whereby, among other things, such
shareholders established parameters for the number and class of Company
directors and agreed to use their best efforts to secure the election of
certain affiliated stockholders and/or other designated individuals to
the Executive Committee of the Board of Directors of the Company. The
agreement also placed limitations on the transfer during specified
periods of any shares of common stock held by certain of the affiliated
shareholders, including the Class C warrants, unless the transferee
becomes a party to such agreement. Until January 11, 1998, certain of
these affiliated shareholders may not transfer shares of common stock
which would cause the transferee to own 30% or more of the Company's
common stock outstanding unless the transferee agrees, for a period
of eighteen months from the closing of such transfer, not to purchase or
cause the Company, directly or indirectly, to purchase stock at a price
which is less than the highest price paid by the transferee for such
common stock from such affiliated stockholders. The agreement also
prohibits the affiliated stockholders and the Company from engaging in a
"going private" transaction, as defined, prior to January 11, 1998,
unless such transaction is approved by a majority of the stockholders who
are neither parties to the agreement nor affiliates or associates to
those subject to the conditions of the agreement.
F-35
<PAGE>
Allied Digital Technologies Corp. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------------
(1) (2)
Charged to
Balance at Charged to other Balance at
beginning costs and accounts - Deductions - end of
of period expenses describe describe period
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Description
-----------
Allowance for doubtful accounts
For the year ended July 31, 1997 $1,515,000 $1,242,860 $1,107,860 (a) $1,650,000
========== ========== ========== ==========
For the year ended July 31, 1996 $ 871,000 $1,297,294 $ 653,294 (a) $1,515,000
========== ========== ========== ==========
For the year ended July 31, 1995 $ 918,000 $ 937,504 $395,000 (b) $1,379,504 (a) $ 871,000
========== ========== ======== ========== ==========
</TABLE>
(a) Write-off of uncollectible accounts
(b) Attributable to HMG Merger
F-36
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
April 30, July 31,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 596,000 $ 1,193,000
Accounts receivable, net 25,078,000 25,516,000
Inventories 4,714,000 4,380,000
Prepaid expenses 872,000 786,000
Deferred income taxes 2,068,000 3,422,000
------------ ------------
Total current assets 33,328,000 35,297,000
PROPERTY AND EQUIPMENT, net 26,940,000 26,783,000
OTHER ASSETS
Excess of cost over fair value of net assets
acquired, net of accumulated amortization of
$9,159,000 and $7,204,000 at April 30, 1998
and July 31, 1997, respectively 42,053,000 43,064,000
Deferred charges and other 2,964,000 2,737,000
------------ ------------
45,017,000 45,801,000
------------ ------------
$105,285,000 $107,881,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(unaudited)
<TABLE>
<CAPTION>
April 30, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt and
capitalized lease obligations $ 12,737,000 $ 9,837,000
Current maturities of subordinated notes payable
to stockholders 2,881,000
Accounts payable 13,558,000 14,781,000
Accrued liabilities 5,709,000 6,735,000
Income taxes payable 835,000
------------- -------------
Total current liabilities 35,720,000 31,353,000
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS, less current maturities 20,523,000 26,711,000
SUBORDINATED NOTES PAYABLE TO
STOCKHOLDERS, less current maturities 7,251,000 10,061,000
DEFERRED INCOME TAXES 1,112,000 1,112,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000 shares
authorized; no shares issued and outstanding - -
Common stock, $0.01 par value; 25,000,000
shares authorized; 13,623,394 and 13,619,644
shares issued and outstanding at April 30, 1998
and July 31, 1997, respectively 136,000 136,000
Additional paid-in capital 44,901,000 44,742,000
Accumulated deficit (4,358,000) (6,234,000)
------------- -------------
40,679,000 38,644,000
------------- -------------
$ 105,285,000 $ 107,881,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three-month periods Nine-month periods
ended April 30, ended April 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 38,518,000 $ 38,509,000 $ 127,110,000 $ 119,367,000
Cost of sales 30,048,000 30,833,000 99,868,000 95,500,000
------------- ------------- ------------- -------------
Gross profit 8,470,000 7,676,000 27,242,000 23,867,000
------------- ------------- ------------- -------------
Operating expenses
Selling, general and administrative 6,110,000 5,629,000 17,584,000 16,575,000
Amortization of excess of cost over fair
value of net assets acquired 661,000 645,000 1,955,000 1,885,000
------------- ------------- ------------- -------------
Total operating expenses 6,771,000 6,274,000 19,539,000 18,460,000
------------- ------------- ------------- -------------
Income from operations 1,699,000 1,402,000 7,703,000 5,407,000
------------- ------------- ------------- -------------
Other income (expense)
Interest expense (798,000) (1,118,000) (3,359,000) (3,573,000)
Other, net 77,000 83,000 162,000 162,000
------------- ------------- ------------- -------------
Total other expense (721,000) (1,035,000) (3,197,000) (3,411,000)
------------- ------------- ------------- -------------
Income before income taxes 978,000 367,000 4,506,000 1,996,000
Provision for income taxes 680,000 269,000 2,630,000 1,367,000
------------- ------------- ------------- -------------
NET INCOME $ 298,000 $ 98,000 $ 1,876,000 $ 629,000
============= ============= ============= =============
Earnings per common share - basic
and diluted $ 0.02 $ - $ 0.14 $ 0.05
============= ============= ============= =============
Average common shares outstanding
Basic 13,621,394 13,619,644 13,620,227 13,619,644
============= ============= ============= =============
Diluted 13,785,073 13,619,644 13,709,852 13,619,644
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine-month periods ended April 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows provided by operating activities $ 8,771,000 $ 1,582,000
Cash flows used in investing activities
Purchases of and deposits on property and equipment (5,505,000) (507,000)
Cash flows from financing activities
Net borrowings under revolving loan 3,733,000 6,106,000
Borrowings of long-term debt 1,598,000 3,500,000
Repayment of long-term debt (9,194,000) (11,000,000)
------------ ------------
Net cash used in financing activities (3,863,000) (1,394,000)
------------ ------------
Net decrease in cash (597,000) (319,000)
Cash at beginning of period 1,193,000 831,000
------------ ------------
Cash at end of period $ 596,000 $ 512,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
April 30, 1998
(unaudited)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated balance sheet as of April 30, 1998 and the
related condensed consolidated statements of earnings for the three- and
nine-month periods ended April 30, 1998 and 1997 and the condensed
consolidated statements of cash flows for the nine-month periods ended
April 30, 1998 and 1997 have been prepared by Allied Digital Technologies
Corp. ("Allied Digital"), including the accounts of its wholly-owned
subsidiaries, HMG Digital Technologies Corp. ("HMG") and subsidiary, HRM
Holdings Corp. ("Holdings"), and its wholly-owned subsidiary, Allied
Digital, Inc. (formerly known as Hauppauge Record Manufacturing, Ltd.)
("Allied") (hereinafter referred to collectively as the "Company")
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position as of April 30, 1998 and for all
periods presented, consisting of normal recurring adjustments, have been
made. Results of operations for the nine-month period ended April 30,
1998 are not necessarily indicative of the operating results expected for
the full year.
The Company (i) provides videocassette duplication and fulfillment
services in addition to processing and duplicating commercial film and
offering post-production services, and (ii) replicates cassette tapes,
VHS videotapes and compact discs under production contracts with
companies primarily in the recorded music industry.
These statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in
conjunction with the annual audited consolidated financial statements and
the accompanying notes included in the Company's Form 10-K for the fiscal
year ended July 31, 1997.
F-41
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE B - INVENTORIES
Inventories consist of the following classifications:
April 30, July 31,
1998 1997
---------- ----------
Raw materials $3,790,000 $3,416,000
Work-in-process 618,000 674,000
Finished goods 306,000 290,000
---------- ----------
$4,714,000 $4,380,000
========== ==========
NOTE C - LONG-TERM DEBT, SUBORDINATED NOTES PAYABLE
AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt, subordinated notes payable and capitalized lease
obligations consist of the following:
<TABLE>
<CAPTION>
April 30, July 31,
1998 1997
------------ ------------
<S> <C> <C>
Loan and Security Agreement
Term loan $ 11,850,000 $ 18,782,000
Revolving loan 18,214,000 14,481,000
Additional term loan 1,020,000
Capital expenditure loan 1,280,000
Subordinated 10% Notes Payable to Stockholder 7,251,000 7,180,000
Additional Subordinated 10% Notes Payable to Stockholders 2,000,000 2,000,000
Subordinated 11% Series B Notes Payable to Stockholders 881,000 881,000
Note Payable to VCA 926,000 1,171,000
Capitalized lease obligations 910,000 995,000
Other 80,000 99,000
------------ ------------
43,392,000 46,609,000
Less current maturities (15,618,000) (9,837,000)
------------ ------------
$ 27,774,000 $ 36,772,000
============ ============
</TABLE>
F-42
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE C (continued)
Loan and Security Agreement
The October 30, 1996 loan and security agreement provided the Company
with borrowings of up to $48,910,169 under credit facilities consisting
of a (i) $25,410,169 term loan, (ii) $22,000,000 revolving loan facility
(combined with a $1,500,000 letter of credit facility) and (iii)
$1,500,000 additional loan. On August 19, 1997, the Company entered into
an amendment to the October 30, 1996 loan and security agreement with the
bank which provides the Company with a $3,450,000 capital expenditure
credit facility.
The loan and security agreement (as amended) is collateralized by
substantially all of the assets of the Company. The agreement contains
covenants which, among other matters, (1) require the Company to (i)
maintain increasing levels of net worth, (ii) maintain a minimum debt
service ratio and (iii) limit its annual capital expenditures, and (2)
place limitations on (i) additional indebtedness, encumbrances and
guarantees, (ii) consolidations, mergers or acquisitions, (iii)
investments or loans, (iv) disposal of property, (v) compensation to
officers and others, (vi) dividends and stock redemptions, (vii) issuance
of stock, and (viii) transactions with affiliates, all as defined in the
agreement. As of April 30, 1998, there is no equity available for the
payment of dividends to stockholders. The agreement also contains
provisions for fees payable to the bank upon prepayment and an increased
rate of interest during periods of default.
The term of this agreement extends to November 30, 2000.
a. Term Loan
The $25,410,169 term loan dated October 30, 1996 is payable in an
initial scheduled installment aggregating $1,695,462 on October 31,
1996 (of which $1,179,000 was repaid on November 8, 1996), 30
consecutive monthly installments of $548,054 thereafter through April
30, 1999 and a final installment on May 30, 1999 of $273,098 together
with additional prepayments of principal of $2,000,000 on October 31,
1997 and $5,000,000 on October 31, 1998. No prepayment fees result
from these scheduled prepayments. In addition, interest is payable
monthly at 1.5% over the bank's base rate (8.25% at April 30, 1998).
F-43
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE C (continued)
b. Revolving Loan
Under the revolving loan facility combined with a $1,500,000 letter
of credit facility, the Company may borrow up to a maximum of
$22,000,000 based upon a percentage of accounts receivable and
inventory, as defined, less the sum of the undrawn face amount of any
letters of credit outstanding. Interest is payable monthly at 1.25%
over the bank's base rate. In addition, the Company is required to
pay, on a monthly basis, an unused facility fee of 0.5% per annum. At
April 30, 1998, the Company had approximately $3,786,000 unused and
available under the revolving loan facility.
c. Additional Term Loan
The $1,500,000 additional loan dated October 30, 1996 was payable in
25 consecutive monthly installments commencing December 31, 1996 of
$60,000 each plus interest at 1.5% over the bank's base rate. In the
event the additional loan was repaid in full on or before December
31, 1997 and the loan and security agreement had not been terminated
on or before such date, the Company would not be required to pay a
$100,000 fee to the bank on December 31, 1998. On December 31, 1997,
the Company repaid in full the remaining outstanding balance of
$720,000 on this additional loan to the bank.
d. Capital Expenditure Credit Facility
The $3,450,000 capital expenditure credit facility provides the
Company with a credit line through July 31, 1998 to finance up to 80%
of the value of capital equipment purchases (as defined). Such loans
under the facility are payable based on a 36-month amortization
schedule with a final payment of the entire unpaid principal balance
on July 31, 2000. These loans bear interest at 1.5% over the bank's
base rate. In addition, the Company is required to pay a $103,500 fee
to the bank, payable at a rate of 3% of each advance with a final
payment for any unpaid amount of the fee payable on July 31, 1998.
Through April 30, 1998, the Company borrowed $1,589,000 from this
credit facility. As of April 30, 1998, $1,280,000 was outstanding
under this facility.
F-44
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE C (continued)
Subordinated 10% Notes Payable to Stockholder
The subordinated 10% notes payable to stockholder are uncollateralized
and payable in full on January 1, 2001. Interest accrues only on the
original principal sum of $6,000,000 and is payable quarterly at 10% per
annum (12% upon default); however, through April 30, 1998, certain
interest payments were postponed pursuant to the terms of the loan and
security agreement with the bank. Partial payment of such accrued and
unpaid interest becomes periodically payable to the stockholder and is
limited to a stipulated percentage as defined in the loan and security
agreement, provided no default or event of default has occurred. The
remaining portion of the unpaid interest subject to this payment
postponement becomes payable on January 1, 2001. In accordance with the
periodic interest payment limitation provisions of the loan and security
agreement, the Company paid in fiscal 1998 approximately $383,000 of the
accrued interest payable on these notes through April 30, 1998.
Additional Subordinated 10% Notes Payable to Stockholders
The additional subordinated 10% notes payable to stockholders are
uncollateralized and payable in full on December 31, 1998 with interest
payable quarterly; however, payment of principal and interest may be
extended in full or in part to January 1, 2001 to the extent not
permitted to be paid pursuant to the terms of the loan and security
agreement with the bank.
Subordinated 11% Series B Notes Payable to Stockholders
These uncollateralized notes mature on January 1, 1999 with interest
payable quarterly.
F-45
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE C (continued)
Note Payable to VCA
This uncollateralized note is payable in annual installments of $385,374
beginning January 1995 through January 2001, including interest at 12%.
Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to
make monthly payments through December 2001 with implicit interest rates
from 5.27% to 19.48%.
The following is a summary of the aggregate annual maturities of
long-term debt, subordinated notes payable and capitalized lease
obligations as of April 30, 1998:
Twelve months ending April 30,
1999 $15,618,000
2000 1,422,000
2001 26,334,000
2002 18,000
-----------
$43,392,000
===========
NOTE D - EARNINGS PER SHARE
In the second quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share," which supersedes Accounting Principle Board Opinion No. 15. Under
SFAS No. 128, earnings per common share is computed by dividing net
income available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock. Prior-period amounts
have been restated, where appropriate, to conform to the requirements of
SFAS No. 128.
F-46
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE D (continued)
The number of shares used in the Company's basic and diluted earnings per
share computations are as follows:
<TABLE>
<CAPTION>
Three-month periods Nine-month periods
ended April 30, ended April 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares
Outstanding for basic earnings
per share 13,621,394 13,619,644 13,620,227 13,619,644
Common stock equivalents for
stock options and warrants 163,679 - 89,625 -
---------- ---------- ---------- ----------
Weighted average common shares
Outstanding for diluted earnings
per share 13,785,073 13,619,644 13,709,852 13,619,644
========== ========== ========== ==========
</TABLE>
NOTE E - STOCKHOLDERS' EQUITY
In March 1998, options to acquire 3,750 shares of common stock at an
exercise price of $2.4375 per share were exercised.
F-47
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE F - ACQUISITION
On December 17, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Denver Dubbing, Inc., a
videocassette duplicator. The purchase price was $873,000 payable in cash
of $170,000 and the assumption of net liabilities for the balance. The
purchase agreement contained a covenant not-to-compete for a period of
three years. Also, under the purchase agreement, the Company may pay
additional consideration of $270,000 in the event net sales for the
acquired company exceed certain predetermined amounts during 1998 and
1999. Such additional consideration will be accounted for as compensation
expense in the periods in which the contingencies are met. The Company
accounted for the acquisition as a purchase and as such, the fair values
of the assets acquired and liabilities assumed have been recorded on the
date of the acquisition and the results of operations are included in the
Company's statement of earnings since the acquisition date. The excess of
consideration paid over the estimated fair value of the net assets
acquired in the amount of $773,000 has been recorded as excess of fair
value over the cost of net assets acquired and is being amortized on a
straight-line basis over 15 years. Pro forma historical results of
operations are not presented, as such results would not be materially
different from the historical results of the Company.
In connection with this acquisition, the Company entered into a two year
employment agreement with an officer of the acquired company with an
annual base salary of approximately $150,000.
NOTE G - PROPOSED TRANSACTION
On May 5, 1998, the Company entered into a definitive merger agreement
(the "Merger Agreement") with Analog Acquisition Corp., a corporation
formed at the direction of 399 Venture Partners, Inc. ("399"), an
affiliate of Citicorp Venture Capital, Ltd. In accordance with the terms
of the Merger Agreement, an investors' group consisting of 399 and
certain members of management of the Company will acquire the Company in
a transaction structured as a leveraged recapitalization (the "Merger").
F-48
<PAGE>
Allied Digital Technologies Corp.
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (continued)
April 30, 1998
(unaudited)
NOTE G (continued)
The Merger is subject to the customary conditions to closing, including
approval by a majority of the Company's stockholders, regulatory review
and other conditions. Under the terms of the Merger Agreement, each
outstanding share of the Company's common stock, except for treasury
shares, shares held directly or indirectly by 399 and shares held by
certain members of management, will be converted into the right to
receive $5.00 in cash. The Merger will be funded through the issuance of
$100 million of Senior Subordinated Notes due 2008 with interest payable
semiannually at an assumed rate of 10.75% per annum. Certain stockholders
who, together with 399, represent approximately 68.51% of the issued and
outstanding common stock of the Company have executed agreements to vote
their shares in favor of the Merger. Following the Merger, the capital
stock of the Company will no longer be publicly traded. The Merger is
expected to be completed in early August 1998.
NOTE H - LITIGATION
On May 12, 1998, a complaint purporting to state a class action was filed
in the Delaware Court of Chancery by Crandon Capital Partners, alleged to
be a stockholder of the Company, on behalf of itself and all others
similarly situated, against the Company and its directors. The plaintiffs
allege that the Merger is wrongful, unfair and harmful to holders of
common stock and that it has been effected with unfair dealing, that the
proposed consideration of $5.00 a share is unfair to the Company's
stockholders and that the directors of the Company have violated their
fiduciary obligation owed to the plaintiffs and other members of the
class. The complaint seeks to enjoin the Merger and an unspecified amount
of damages, in addition to payment of attorney's fees and reimbursement
of expenses. Management believes that this claim is without merit and
does not believe such claim will have a material adverse effect on the
Company; however, there can be no assurance as to the outcome of such
claim.
F-49
<PAGE>
ANNEX A
May 27, 1998
The Board of Directors of Allied Digital Technologies Corp.
c/o Mr. Steven Wolosky
Olshan, Grundman, Frome & Rosenzweig
505 Fifth Avenue
New York, NY 10022
Gentlemen:
We understand that Allied Digital Technologies Corp. ("Allied" or the
"Company") and Analog Acquisition Corp. ("AAC"), an affiliate of Citicorp
Venture Capital, Ltd. ("CVC"), will enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated as of April 28, 1998 (the
"Agreement"), which has been furnished to us, whereby among other things, AAC
will be merged with and into the Company (the "Merger") and the Company will
be the corporation surviving the Merger (the "Surviving Corporation") and in
which, among other things:
(a) Each share of Allied's Common Stock, par value $0.01 per share
(the "Company Common Stock") (or fraction thereof) issued and
outstanding immediately prior to the Effective Time, as defined
in the Agreement, (excluding treasury shares, shares held
directly or indirectly by AAC, the Rollover Shares (as defined
herein) and Dissenting Shares (as defined in the Agreement))
shall be converted automatically into the right to receive an
amount equal to $5.00 in cash (the "Merger Consideration").
(b) Certain of the shares held by and registered in the names of 399
Venture Partners Inc., an affiliate of CVC, and certain Company
stockholders who are members of management of the Company shall
remain outstanding and become shares of the Surviving
Corporation common stock (the "Rollover Shares").
The terms and conditions of the Merger are set forth in more detail in the
Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the Merger Consideration to be offered to
the holders of the Company Common Stock excluding treasury shares, shares held
directly or indirectly by AAC, the Rollover Shares and Dissenting Shares.
In connection with rendering our opinion as set forth below, we have, among
other things:
<PAGE>
The Board of Directors of Allied Digital Technologies Corp.
May 4, 1998
Page 2
(i) reviewed the Agreement and certain related documents and the
financial terms of the Merger set forth therein;
(ii) reviewed the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1997, Quarterly Report on Form 10-Q for the
fiscal quarter ended January 31, 1998 and certain other filings
with the Securities and Exchange Commission made by the Company,
including proxy statements and Form 8-Ks;
(iii) reviewed certain other publicly available information concerning
the Company and the trading market for the Company's Common
Stock;
(iv) reviewed certain non-public information relating to the Company,
including financial forecasts and projections, furnished to us
by the Company;
(v) reviewed certain publicly available information, including
research reports, concerning certain other companies engaged in
businesses which we believe to be comparable to the Company's
and the trading markets for certain of such companies'
securities;
(vi) reviewed the financial terms of certain recent mergers and
acquisitions, which we believe to be relevant;
(vii) conducted discussions with certain members of senior management
of the Company concerning its businesses and operations, assets,
present condition and future prospects; and
(viii) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered
such other factors, as we have deemed, in our sole judgment, to
be necessary, appropriate or relevant to render an opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information obtained from public
sources or provided to us by the Company and we have not assumed
responsibility for any independent verification of such information or
undertaken any obligation to verify such information. In addition, with
respect to the financial forecasts and projections of the Company used in our
analysis, the management of the Company has informed us that such forecasts
and projections represent the best current judgment of the management of the
Company as to the future financial performance of the Company on a stand-alone
basis, and we have assumed that the projections have been reasonably prepared
based on such current judgment. We assume no responsibility for and express no
view as to such forecasts and projections or the assumptions on which they are
based.
For purposes of our opinion, we were not requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company.
<PAGE>
The Board of Directors of Allied Digital Technologies Corp.
May 4, 1998
Page 3
In arriving at our opinion, we made limited physical inspections of the
properties and facilities of the Company and have not made, obtained or
assumed any independent evaluations or appraisals of any such properties and
facilities or of the assets or liabilities of the Company.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well
as our experience in securities valuation in general. Our opinion necessarily
is based upon regulatory, economic, market and other conditions as they exist
on, and the information made available to us, as of the date hereof, and does
not represent an opinion as to the value of the Company.
Furman Selz is acting as financial advisor to the Independent Committee of the
Board of Directors of Allied (the "Independent Committee") in connection with
the Merger and has received a fee for its services to the Independent
Committee in connection with this opinion pursuant to the engagement letter
dated April 29, 1998 entered into and between Furman Selz and the Independent
Committee. In addition, the Independent Committee has agreed to reimburse
Furman Selz for certain out-of-pocket expenses and to indemnify Furman Selz
for certain liabilities arising in connection with this opinion. In the
ordinary course of our business, we may actively trade in the equity
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in its consideration of the Merger. We were not requested to opine as
to, and this opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Merger, or the relative merits
of the Merger as compared to any alternative business strategies which might
exist for the Company or the effect of any other transaction in which the
Company might engage. This opinion may be included in its entirety in any
proxy statement/prospectus with respect to the Merger, but it may not be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
Based upon and subject to the foregoing, as investment bankers it is our
opinion as of the date hereof that the Merger Consideration to be offered in
the Merger is fair, from a financial point of view, to the holders of the
Company Common Stock, excluding treasury shares, shares held directly or
indirectly by AAC, the Rollover Shares and Dissenting Shares.
Very truly yours,
<PAGE>
ANNEX B
--------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER,
DATED AS OF MAY 5, 1998,
BETWEEN
ANALOG ACQUISITION CORP.
AND
ALLIED DIGITAL TECHNOLOGIES CORP.
--------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions.....................................................................................1
2. Transactions...................................................................................10
(a) The Merger............................................................................10
(b) The Closing...........................................................................10
(c) Effect of Merger......................................................................10
(d) Certificate of Incorporation..........................................................10
(e) Bylaws................................................................................10
(f) Directors and Officers................................................................11
(g) Conversion of Securities..............................................................11
(h) Employee Stock Options; Warrants......................................................12
(i) Dissenting Shares.....................................................................12
(j) Surrender of Shares; Stock Transfer Books.............................................13
3. Representations and Warranties of the Company..................................................14
(a) Organization, Qualification, and Corporate Power......................................14
(b) Capitalization........................................................................15
(c) Authorization of Transactions.........................................................15
(d) Noncontravention......................................................................16
(e) Filings with the SEC..................................................................16
(f) Financial Statements..................................................................16
(g) Events Subsequent to Most Recent Fiscal Year End......................................17
(h) No Undisclosed Liabilities............................................................17
(i) Brokers' Fees.........................................................................17
(j) Absence of Certain Changes............................................................17
(k) Litigation............................................................................18
(l) Taxes.................................................................................18
(m) Compliance with Laws..................................................................19
(n) Permits...............................................................................19
(o) Contracts.............................................................................20
(p) Intellectual Property Rights..........................................................20
(q) Board Recommendation..................................................................21
(r) ERISA.................................................................................21
(s) Labor and Employment Matters..........................................................23
(t) Real Estate...........................................................................24
(u) Environmental Matters.................................................................24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
4. Representations and Warranties of AAC..........................................................26
(a) Organization..........................................................................26
(b) Debt Financing........................................................................27
(c) Authorization of the Transactions.....................................................27
(d) Noncontravention......................................................................27
(e) Brokers' Fees.........................................................................28
(f) ......................................................................................28
5. Covenants......................................................................................28
(a) Further Assurances....................................................................28
(b) Notices and Consents..................................................................28
(c) Regulatory Matters and Approvals......................................................29
(d) Securities Act, Securities Exchange Act, and State Securities Laws....................29
(e) DGCL; Special Meeting.................................................................29
(f) Accounting Treatment..................................................................30
(g) Debt Financing........................................................................30
(h) Operation of the Company's Business...................................................30
(i) Full Access...........................................................................31
(j) Notice of Developments................................................................32
(k) No Solicitation.......................................................................32
(l) Insurance and Indemnification.........................................................34
(m) Joint Disclosure Documents............................................................34
(n) Comfort Letters.......................................................................34
(o) Options...............................................................................34
6. Conditions to Obligation to Close..............................................................35
(a) Conditions to Closing by AAC..........................................................35
(b) Conditions to Closing by the Company..................................................36
7. Termination....................................................................................38
(a) Termination of Agreement..............................................................38
(b) Effect of Termination.................................................................39
8. Miscellaneous..................................................................................39
(a) Press Releases and Public Announcement................................................39
(b) No Third Party Beneficiaries..........................................................39
(c) Entire Agreement......................................................................39
(d) Succession and Assignment.............................................................40
(e) Counterparts..........................................................................40
(f) General Interpretive Principles.......................................................40
(g) Notices...............................................................................41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(h) Governing Law.........................................................................42
(i) Waiver of Jury Trial..................................................................42
(j) Amendments and Waivers................................................................42
(k) Severability..........................................................................42
(l) Expenses..............................................................................43
(m) Incorporation of Exhibits and Schedules...............................................43
(n) Transfer Taxes........................................................................43
(o) Limited Recourse......................................................................43
(p) Parties in Interest...................................................................43
(q) Specific Performance..................................................................43
(r) Headings..............................................................................43
(s) Counterparts..........................................................................43
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement"), dated as of
May 5, 1998, between Analog Acquisition Corp., a Delaware corporation ("AAC"),
and Allied Digital Technologies Corp., a Delaware corporation (the "Company").
AAC and the Company are sometimes referred to collectively herein as the
"Parties."
WITNESSETH:
WHEREAS, the Boards of Directors of AAC and the Company have
each determined that it is in the best interests of its shareholders for AAC to
acquire the Company and consummate the transactions contemplated by the
Agreement (the "Transactions") upon the terms and subject to the conditions set
forth herein; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of AAC and the Company have each approved the merger (the "Merger")
of AAC with and into the Company in accordance with the General Corporation Law
of the State of Delaware ("DGCL") upon the terms and subject to the conditions
set forth herein; and
WHEREAS, AAC is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, certain
beneficial and record stockholders of the Company have entered into certain
voting agreements, substantially in the form of Exhibit A-1 (the "Voting
Agreements") and certain rollover agreements, substantially in the form of
Exhibit A-2 (the "Rollover Agreements"), or combination thereof, in each case
providing for certain actions relating to certain of the shares ("Shares") of
common stock, par value $.01 per Share, of the Company ("Company Common Stock")
or Options (as hereinafter defined) owned or controlled by them;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties agree as follows:
1. Definitions.
"399" means 399 Venture Partners Inc., a Delaware corporation.
"AAC" has the meaning set forth in the preamble.
"Acquisition Proposals" has the meaning set forth in Section 5(k)(i).
"Acquisition Transaction" has the meaning set forth in Section 5(k)(i).
<PAGE>
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preamble.
"AMEX" means the American Stock Exchange.
"Anchor Bay Option" has the meaning set forth in Section 2(h).
" Bankruptcy Code" has the meaning set forth in Section 6(b).
"Benefit Plan" means any Plan, other than a Multiemployer Plan,
existing at the Closing Date or within the 5 years prior thereto, established or
to which contributions have at any time been made by the Company or any
Subsidiary thereof, or any predecessor of the Company or any Subsidiary thereof,
under which any employee, former employee or director of the Company or any
Subsidiary thereof, or any beneficiary thereof is covered, is eligible for
coverage or has benefit rights in respect of service to the Company or any
Subsidiary thereof.
"Business Day" means any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings or, in the case of determining a
date when any payment is due, any day other than a day on which banks in New
York, New York are required or authorized to be closed.
"Capital Lease" means a Lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a Liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a Liability
on a balance sheet of such Person.
"Certificate of Merger" has the meaning set forth in Section 2(c).
"Certificates" has the meaning set forth in Section 2(j).
"Class A Common Stock" has the meaning set forth in Section 2(g)(iv).
"Class A Warrants" has the meaning set forth in Section 2(h).
"Class B Warrants" has the meaning set forth in Section 2(h).
"Class C Warrants" has the meaning set forth in Section 2(h).
2
<PAGE>
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preamble.
"Company Comfort Letter" has the meaning set forth in Section 5(n).
"Company Common Stock" has the meaning set forth in the recitals.
"Company Preferred Stock" has the meaning set forth in Section 3(b).
"Company Stockholder" means any Person who or which holds any Shares of
Company Common Stock.
"Confidential Information" means any information concerning the
businesses and affairs of the Company and its Subsidiaries that is not (i)
already generally available to the public, (ii) otherwise required to be
disclosed by law or court order, or (iii) already within the possession of the
party to whom the information is proposed to be delivered without violating the
terms of any confidentiality agreement governing such information.
"Confidentiality Agreement" means the confidentiality agreement, dated
as of January 16, 1998, between CVC and the Company.
"Contracts" means, with respect to any Person, any agreement, contract,
obligation, note, bond, mortgage, indenture, option, Lease, promise or
undertaking that is legally binding on such Person or to which such Person is a
party.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Debt" with respect to any Person means, at any time, without
duplication, (a) Liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable preferred stock; (b) Liabilities for the
deferred purchase price of property acquired by such Person (excluding accounts
payable arising in the Ordinary Course of Business but including all Liabilities
created or arising under any conditional sale or other title retention agreement
with respect to any such property); (c) Capital Lease Obligations of such
Person; (d) Liabilities for borrowed money secured by any Lien with respect to
any property owned by such Person (whether or not such Person has assumed or
otherwise become liable for such Liabilities); (e) Liabilities in respect of
letters of credit or instruments serving a similar function issued or accepted
for its account by banks and other financial institutions (whether or not
representing
3
<PAGE>
obligations for borrowed money); (f) Swap Obligations of such Person; and (g)
any Guaranty of such Person with respect to Liabilities of a type described in
any of clauses (a) through (f) hereof.
"Debt Financing" has the meaning set forth in Section 4(b).
"Definitive Proxy Materials" means the definitive proxy materials
relating to the Special Meeting.
"DGCL" has the meaning set forth in the recitals.
"Dissenting Shares" has the meaning set forth in Section 2(i).
"Effective Time" has the meaning set forth in Section 2(c).
"Environment" means all air, surface water, groundwater or land,
including land surface or subsurface, including all fish, wildlife, biota and
all other natural resources.
"Environmental Claim" means any and all administrative or judicial
actions, suits, orders, claims, Liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or, to the Knowledge of the Company or any Subsidiary
thereof, oral), whether criminal or civil pursuant to or relating to any
applicable Environmental Law by any Person (including but not limited to any
Governmental or Regulatory Body, private Person and citizens' group) based upon,
alleging, asserting or claiming any actual or potential (i) violation of or
Liability under any Environmental Law, (ii) violation of any Environmental
Permit, or (iii) Liability for investigatory costs, cleanup costs, removal
costs, remedial costs, response costs, natural resource damages, property
damage, personal injury, fines or penalties arising out of, based on, resulting
from or related to the presence, Release or threatened Release into the
Environment, of any Hazardous Materials at any location, including but not
limited to any off-Site location to which Hazardous Materials or materials
containing Hazardous Materials were sent for handling, storage, treatment or
disposal.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites requiring investigation or cleanup, or which is the
subject of any pending or threatened action, suit, proceeding or investigation
related to or arising from any alleged violation of any Environmental Law.
"Environmental Law" means any and all current and future, federal,
state, local, provincial and foreign, civil and criminal laws, statutes,
ordinances, orders, codes, rules, regulations, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions or agreements with any
Governmental or Regulatory Body, relating to the protection of health and the
Environment, and/or governing the handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution, formulation, packaging,
labeling or
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Release of Hazardous Materials, whether now existing or subsequently amended or
enacted, including but not limited to: the Clean Air Act, 42 U.S.C. Section 7401
et seq.; the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq.; the Federal Water Pollution Control
Act, 33 U.S.C. Section 1251 et seq.; the Hazardous Material Transportation Act,
49 U.S.C. Section 1801 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 et seq.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq.; and the state analogies thereto, all as amended or
superseded from time to time; and any common law doctrine, including but not
limited to, negligence, nuisance, trespass, personal injury or property damage
related to or arising out of the presence, Release or exposure to a Hazardous
Material.
"Environmental Permit" means any federal, state, local, provincial or
foreign permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Body under or in connection with any Environmental
Law and includes any and all orders, consent orders or binding agreements issued
or entered into by a Governmental or Regulatory Body under any applicable
Environmental Law.
"Equity Financing Commitment" has the meaning set forth in
Section 4(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is, or was, a member of a
controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the Company or any Subsidiary thereof, or any
predecessor of any of the foregoing.
"Fixed Amount" has the meaning set forth in Section 5(k).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether foreign or domestic, federal, state, provincial,
county, local, municipal or regional, or any other governmental entity, any
agency, authority, department, division or instrumentality of any such
government, political subdivision, or other governmental entity, any court,
arbitral tribunal or arbitrator, and any nongovernmental regulating body, to the
extent that the rules, regulations or orders of such body have the force of law.
"Guaranties" by any Person means all obligations (other than
endorsements in the Ordinary Course of Business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Debt, cash dividend or other monetary obligation of
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any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through an
agreement, contingent or otherwise, by such Person: (i) to purchase such Debt or
obligation or any property or assets constituting security therefor; (ii) to
advance or supply funds for the purchase or payment of such Debt or obligation;
(iii) to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Debt or obligation of
the ability of the primary obligor to make payment of the Debt or obligation; or
(iv) otherwise to assure the owner of the Debt or obligation of the primary
obligor against loss in respect thereof. For the purposes of all computations
made under this Agreement, a Guaranty in respect of any Debt for borrowed money
shall be deemed to be Debt equal to the principal amount of such Debt for
borrowed money which has been guaranteed, and a Guaranty in respect of any other
obligation or Liability or any dividend shall be deemed to be Debt equal to the
maximum aggregate amount of such obligation, Liability or dividend unless such
Guaranty is limited.
"Hazardous Material" means petroleum, petroleum hydrocarbons or
petroleum products, petroleum by-products, radioactive materials, asbestos or
asbestos-containing materials, gasoline, diesel fuel, pesticides, radon, urea
formaldehyde, lead or lead-containing materials, polychlorinated biphenyls and
any other chemicals, materials, substances or wastes in any amount or
concentration which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous materials," "hazardous wastes,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "pollutants," "regulated substances," "solid wastes" or
"contaminants" or words of similar import, under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" shall mean all trademarks and trademark rights,
trade names and trade name rights, service marks and service mark rights,
service names and service name rights, copyrights and copyright rights, patents
and patent rights, brand names, trade dress, business and product names, logos,
slogans, trade secrets, inventions, processes, formulae, industrial models,
processes, designs, specifications, data, technology, methodologies, computer
programs (including all source codes), confidential and proprietary information,
whether or not subject to statutory registration, and all related technical
information, manufacturing, engineering and technical drawings, know-how and all
pending applications for and registrations of patents, trademarks, service marks
and copyrights, and the right to sue for past payment, if any, in connection
with any of the foregoing, and all documents, disks and other media on which any
of the foregoing is stored.
"Joint Disclosure Documents" means the disclosure document combining
the Schedule 13E-3 and the Definitive Proxy Materials.
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"Knowledge" means actual or constructive knowledge without independent
investigation of any current director or current executive officer.
"Liability" means all indebtedness, obligations and other liabilities
(or contingencies that have not yet become liabilities) of a Person (whether
absolute, accrued, contingent (or based upon any contingency), fixed or
otherwise, or whether due or to become due).
"Lease" means all oral and written leases, subleases, license
agreements and other use and occupancy agreements (and any amendments, renewals,
supplements, modifications or extensions thereto), in each case affecting or
relating to real property under which the Company or any Subsidiary thereof is a
party or to what it or any of its property is bound.
"Lien" means any lien, claim, restriction, security interest,
preemptive right, covenant, easement, mortgage, other encumbrance or any claim
of any Third Party other than mechanic's, materialman's and similar liens.
"Material Adverse Effect" means any material adverse effect on the
financial condition or operations, business, prospects, assets or results of
operations of the Company and its Subsidiaries taken as a whole, or AAC, as the
context in this Agreement requires.
"Merger" has the meaning set forth in the recitals.
"Merger Consideration" has the meaning set forth in Section 2(g).
"Most Recent Fiscal Year End" has the meaning set forth in Section
3(f).
"Multiemployer Plan" means a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA with respect to which the Company or any ERISA
Affiliate has an obligation to contribute or has or could have withdrawal
liability under Section 4201 of ERISA.
"Options" has the meaning set forth in Section 2(h).
"Option Plan" means Allied Digital Technologies Corp. Amended and
Restated 1994 Long Term Incentive Plan.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parties" has the meaning set forth in the preamble.
"Paying Agent" has the meaning set forth in Section 2(j).
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"Permits" means each material license (other than with respect to
Intellectual Property), franchise, permit, certificate, approval, consent or
other similar authorization affecting, or relating in any way to, the assets or
business of the Company and its Subsidiaries.
"Per Share Amount" has the meaning set forth in Section 2(g).
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, an
estate, a joint venture, an unincorporated organization or other entity or a
Governmental or Regulatory Body.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, without limitation, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA (whether or
not subject thereto).
"Preliminary Proxy Materials" has the meaning set forth in Section
5(d)(i).
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"Requisite Stockholder Approval" means the affirmative vote of at least
a majority, but less than the 66 2/3% of the Shares in favor of this Agreement
and the Merger in accordance with the DGCL.
"Requisite Super-Majority Stockholder Approval" means the affirmative
vote of at least 66 2/3% of the Shares in favor of the Merger and this Agreement
in accordance with the DGCL.
"Restricted Parties" has the meaning set forth in Section 5(k).
"Revolving Credit Facility" has the meaning set forth in Section 5(g).
"Rollover Agreements" has the meaning set forth in the recitals.
"Rollover Stockholders" has the meaning set forth in Section 2(g)(iii).
"Schedule 13E-3" has the meaning set forth in Section 3(y).
"SEC" means the Securities and Exchange Commission.
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"SEC Reports" has the meaning set forth in Section 3(e).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Share(s)" has the meaning set forth in the recitals.
"Site" means any of the real properties currently or previously owned,
leased or operated by the Company or any Subsidiary thereof, including all soil,
subsoil, surface water and groundwater thereat.
"Special Meeting" has the meaning set forth in Section 3(y).
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Superior Acquisition Proposal" has the meaning set forth in Section
7(a)(iv).
"Surviving Corporation" has the meaning set forth in Section 2(a).
"Surviving Corporation Common Stock" has the meaning set forth in
Section 2(g)(iv).
"Swap Obligations" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of any Swap Obligation shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap Obligation had terminated at the end of
such fiscal quarter, and, in making such determination, if any agreement
relating to such Swap Obligation provides for the netting of amounts payable by
and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then, in each such case,
the amount of such obligation shall be the net amount so determined.
"Taxes" means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever together with all
interest, penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to tax.
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"Tax Returns" means all returns and reports (including elections,
claims, declarations, disclosures, schedules, estimates, computations and
information returns) required to be supplied to a Tax authority in any
jurisdiction relating to Taxes.
"Third Party" means any "group," as described in Rule 13d-5(b)
promulgated under the Securities Exchange Act, or Person, other than AAC or any
of its Affiliates.
"Transactions" has the meaning set forth in the recitals.
"Warrants" has the meaning set forth in Section 2(h).
"Voting Agreements" has the meaning set forth in the recitals.
2. Transactions.
(a) The Merger. Subject to the terms and conditions of this
Agreement and in accordance with the DGCL, AAC will merge with and into the
Company at the Effective Time. Upon the Effective Time, the separate existence
of AAC shall cease and the Company shall be the corporation surviving the Merger
and shall continue under the name Allied Digital Technologies Corp. (the
"Surviving Corporation").
(b) The Closing. The closing of the Transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Morgan, Lewis
& Bockius LLP in New York City commencing at 9:00 a.m., local time, on the first
Business Day immediately following the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the Transactions as set forth in
Article 6 (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to satisfaction or waiver of those conditions) or
such other date as the Parties may mutually determine (the "Closing Date").
(c) Effect of Merger. The Merger shall become effective at the
time (the "Effective Time") the Company duly files a certificate of merger
("Certificate of Merger") with the Secretary of State of the State of Delaware
or at such later time as is specified in the Certificate of Merger. The Merger
shall have the effect set forth in the DGCL. The Surviving Corporation may, at
any time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Company or AAC
in order to carry out and effectuate the Transactions.
(d) Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Surviving Corporation shall be amended to
read in its entirety as set forth in Exhibit B -1 attached hereto if the
Transactions receive the Requisite Stockholder Approval or Exhibit B-2 attached
hereto if the Transactions receive the Requisite Super-Majority Stockholder
Approval, in each case until thereafter amended as provided by law and such
certificate of incorporation.
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(e) Bylaws. At the Effective Time, the bylaws of the Surviving
Corporation shall be amended to read as set forth in Exhibit C attached hereto
until thereafter amended as provided by law and such bylaws.
(f) Directors and Officers. The directors of the Company
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
(g) Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of AAC, the Company or the holders
of any of the following securities:
(i) Each Share (or fraction thereof) issued and outstanding
immediately prior to the Effective Time (other than any Shares to be canceled
pursuant to Section 2(g)(ii), any Shares to remain outstanding pursuant to
Section 2(g)(iii) and any Dissenting Shares (as defined in Section 2(i)) shall
be canceled and shall be converted automatically into the right to receive an
amount equal to $5 (the "Per Share Amount") in cash (the "Merger Consideration")
payable, without interest, to the holder of such Share, upon surrender, in the
manner provided in Section 2(j), of the Certificate that formerly evidenced such
Share.
(ii) Treasury Stock and AAC-owned Shares. At and as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Company or AAC or any holder of Shares of Company Common Stock, each Share
of Company Common Stock owned by the Company or any Subsidiary as treasury stock
and each Share owned by AAC held immediately prior to the Effective Time shall
be canceled and cease to exist, and no consideration shall be delivered or
deliverable with respect thereto.
(iii) Certain of the Shares held by and registered in the
names of certain Company Stockholders who are members of management of the
Company (the "Rollover Stockholders"), in each case as set forth in Exhibit D
shall not be canceled as provided above, but shall remain outstanding and become
shares of Class A Common Stock (as defined below).
(iv) Conversion of AAC Common and Preferred Stock and Shares
Held by 399. All of (A) the issued and outstanding shares of common stock, par
value $.01 per share, of AAC, (B) the issued and outstanding shares of preferred
stock, par value $.01 per share, of AAC, and (C) 1,100,110 Shares of Company
Common Stock held by and registered in the name of 399, shall be converted into
74,000 shares of Class A common stock, $.01 par value per share, of the
Surviving Corporation ("Class A Common Stock"), 351,000 shares of Class B Common
Stock, $.01 par value per share, of the Surviving Corporation and 165,000 shares
of Series A preferred stock, par value $.01 per share, of the Surviving
Corporation.
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(h) Employee Stock Options; Warrants.
(i) Unless otherwise provided in the Rollover Agreements, each
option to purchase Shares that is not a Substitute Option (as defined in the
Option Plan) or the Option held by Anchor Bay Entertainment Inc. issued on
September 15, 1997 pursuant to a Modification Agreement, dated September 12,
1997, between the Company and Anchor Bay Entertainment (the "Anchor Bay Option")
and is outstanding immediately prior to the Effective Time (whether or not
vested or exercisable) shall, at the Effective Time, be canceled, and in
exchange therefor, each holder of each such Option shall receive a cash payment
which, prior to deduction for applicable withholding Taxes, is in an amount
equal to the product of (A) the excess, if any, of the Per Share Amount over the
per share exercise price of such Option and (B) the number of shares subject to
the Option (whether or not vested). If the per share exercise price of any such
Option equals or exceeds the Per Share Amount, such Option shall be canceled
without any payment required thereunder. The Option Plan will not survive the
Effective Time.
(ii) The Class A warrants issued by the Company with an
exercise price of $6.75 per share of the Company Common Stock (the "Class A
Warrants"), Class B warrants issued by the Company with an exercise price of
$7.50 per share of the Company Common Stock (the "Class B Warrants") and Class C
warrants issued by the Company with an exercise price of $9.00 per share of the
Company Common Stock (the "Class C Warrants") (the Class A Warrants, Class B
Warrants and Class C Warrants collectively being referred to herein as the
"Warrants") the Substitute Options, and the Anchor Bay Option will have been
adjusted in accordance with their terms, unless any such Warrants have expired
in accordance with their terms, such that, upon exercise and payment of the
exercise price, any holder thereof shall have the right to receive only $5 per
share, and in no event shall have the right to receive any shares of capital
stock of the Company or the Surviving Corporation.
(i) Dissenting Shares. Notwithstanding any provisions of the
Agreement to the contrary, Shares of Company Common Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by a
Company Stockholder who has not voted such Shares in favor of the Merger, who
shall have delivered a written demand for appraisal of such Shares in the manner
provided by the DGCL and who, as of the Effective Time, shall not have
effectively withdrawn or lost such right to appraisal ("Dissenting Shares")
shall not be converted into a right to receive the Merger Consideration. The
holders thereof shall be entitled only to such rights as are granted by Section
262 of the DGCL. Each holder of Dissenting Shares who becomes entitled to
payment for such Shares pursuant to Section 262 of the DGCL shall receive
payment therefor from the Surviving Corporation in accordance with the DGCL;
provided, however, that (i) if any such holder of Dissenting Shares shall have
failed to establish his entitlement to appraisal rights as provided in Section
262 of the DGCL, (ii) if any such holder of Dissenting Shares shall have
effectively withdrawn his demand for appraisal of such Shares or lost his right
to appraisal and payment for his Shares under Section 262 of the DGCL or (iii)
if neither any holder of Dissenting Shares nor the Surviving Corporation shall
have filed a petition
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demanding a determination of the value of all Dissenting Shares within the time
provided in Section 262 of the DGCL, such holder shall forfeit the right to
appraisal of such Shares and each such Share shall be treated as if such Share
had been converted, as of the Effective Time, into a right to receive the Merger
Consideration, without interest thereon, from the Surviving Corporation as
provided in this Section 2. The Company shall give AAC prompt notice of any
demands received by the Company for appraisal of Shares, and, until the
Effective Time, AAC shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of AAC, make any payment with respect to, or settle or
offer to settle, any such demands.
(j) Surrender of Shares; Stock Transfer Books.
(i) Prior to the Effective Time, AAC shall designate a bank or
trust company (which bank or trust company shall be reasonably acceptable to the
Company) to act as agent (the "Paying Agent") for the holders of Shares in
connection with the Merger to receive the funds to which holders of Shares shall
become entitled pursuant to Section 2(g)(i) and shall deposit with the Paying
Agent the proceeds of the Debt Financing required in order to consummate the
Transactions. Such funds shall be invested by the Paying Agent as directed by
the Surviving Corporation, provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of America,
in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, respectively, or in deposit
accounts, certificates of deposit or banker's acceptances of, repurchase or
reverse repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $1.0 billion (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise).
(ii) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each Person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2(g)(i), a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates evidencing Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be canceled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a Person other than the
Person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise
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be in proper form for transfer and that the Person requesting such payment shall
have paid all transfer and other Taxes required by reason of the payment of the
Merger Consideration to a Person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such Taxes either have been paid or are not
applicable.
(iii) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat and other similar laws) only as general creditors thereof with respect
to any Merger Consideration that may be payable upon due surrender of the
Certificates held by them to the fullest extent permitted by law.
Notwithstanding the foregoing, to the fullest extent permitted by law, neither
the Surviving Corporation nor the Paying Agent shall be liable to any holder of
a Share for any Merger Consideration delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(iv) Any portion of the Merger Consideration made available to
the Paying Agent to pay for Shares of Company Common Stock for which appraisal
rights have been perfected shall be paid to the Surviving Corporation upon
demand.
(v) At the Effective Time, the stock transfer books of the
Company shall be closed to the extent permitted by applicable law and thereafter
there shall be no further registration of transfers of Shares on the records of
the Company. From and after the Effective Time, the holders of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided herein or by
applicable law.
(vi) The Surviving Corporation shall pay all charges and
expenses of the Paying Agent.
3. Representations and Warranties of the Company. The Company
represents and warrants to AAC as follows, except as set forth in the disclosure
schedule attached hereto:
(a) Organization, Qualification, 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.
Each of the Company and its Subsidiaries has full corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes
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such qualification necessary, except for those jurisdictions where the failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Capitalization. (i) The authorized capital stock of the
Company consists of 25,000,000 Shares of Company Common Stock and 1,000,000
shares, $.01 par value per share, of preferred stock (the "Company Preferred
Stock"). As of the date of this Agreement: (A) 13,623,394 Shares of Company
Common Stock were issued and outstanding, (B) no shares of Company Preferred
Stock were issued or outstanding, and (C) no Shares of Company Common Stock were
held by the Company in its treasury. All of the issued and outstanding Shares of
Company Common Stock have been duly authorized and are validly issued, fully
paid, and nonassessable. Except as indicated in Schedule 3(b), there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights or other contracts or commitments
that could require the Company or any Subsidiary thereof to issue, sell, or
otherwise cause to become outstanding any of its capital stock or the capital
stock of any Subsidiary thereof. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with respect
to the Company or any of its Subsidiaries. All shares of capital stock of
Subsidiaries of the Company are wholly owned directly or indirectly by the
Company and have been duly authorized and are validly issued, fully paid and
nonassessable.
(ii) Except as provided in Schedule 3(b), there are no voting
trusts or shareholder agreements to which the Company or any Subsidiary thereof
is a party with respect to the voting of the capital stock of the Company or any
Subsidiary thereof.
(iii) The Class A Warrants and Class B Warrants expire on July
28, 1998 and the Class C Warrants expire on January 11, 2000. Upon consummation
of the Transactions, the Warrants, Substitute Options and Anchor Bay Option
shall have been adjusted so that, in the case of each Warrant (other than any
Warrant that has expired in accordance with its terms) or applicable Option,
upon exercise and payment of the exercise price, any holder thereof shall have
the right to receive only $5 per share, and in no event shall have the right to
receive any shares of capital stock of the Company or the Surviving Corporation.
(c) Authorization of Transactions. The Company has, and subject to
the Requisite Stockholder Approval will have, full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery by the Company of this Agreement and the Merger, and the
performance of the Company's obligations hereunder, have been and, subject to
the Requisite Stockholder Approval or Requisite Super-Majority Stockholder
Approval, as the case may be, will be, duly authorized by all requisite
corporate action, and this Agreement has been executed and delivered by the
Company. This Agreement constitutes the valid and legally binding obligation of
the Company, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the Transactions contemplated hereby,
will (i) violate any constitution,
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statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any Governmental or Regulatory Body or court to which
any of the Company and its Subsidiaries is subject, including, without
limitation, Section 203 of the DGCL, or any provision of the certificate of
incorporation or bylaws of any of the Company and its Subsidiaries or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any Party the right to accelerate, terminate, modify,
or cancel or require any notice under any Contract to which any of the Company
and its Subsidiaries is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give notice
would not have a Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the Transactions. Other than in connection
with the provisions of the HSR Act, the DGCL, the Securities Exchange Act, the
Securities Act, the state securities laws, and as set forth on Schedule 3(d),
none of the Company and its Subsidiaries needs to give any notice to, make any
filing with, or obtain any authorization, consent or approval of any
Governmental or Regulatory Body in order for the Parties to consummate the
Transactions or execute, deliver and perform its obligations under this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent or approval would not have a Material Adverse Effect or a
material adverse effect on the ability of the Parties to consummate the
Transactions.
(e) Filings with the SEC. Since July 31, 1994, the Company and its
Subsidiaries have made all filings with the SEC that are required under the
Securities Act and the Securities Exchange Act (collectively, the "SEC
Reports"). Each of the SEC Reports has complied with the applicable provisions
of the Securities Act and the Securities Exchange Act and the rules and
regulations promulgated thereunder in all material respects. None of the SEC
Reports, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company has heretofore furnished or made available to
AAC complete and correct copies of all amendments and modifications that have
not been filed by the Company with the SEC to all agreements, documents and
other instruments that previously had been filed by the Company with the SEC and
are currently in effect.
(f) Financial Statements. The Company has delivered to AAC an
Annual Report on Form 10-K of the Company for the fiscal year ended July 31,
1997 (the "Most Recent Fiscal Year End"). The financial statements included in
or incorporated by reference into such SEC Reports (including the related notes
and schedules) have been prepared in accordance with GAAP and present fairly the
financial condition of the Company and its Subsidiaries as of the indicated
dates and the results of operations of the Company and its Subsidiaries for the
indicated periods.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the
Most Recent Fiscal Year End, there has not been any Material Adverse Effect with
respect to the Company and its Subsidiaries taken as a whole.
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(h) No Undisclosed Liabilities. Except for (i) liabilities
incurred in connection with the Transactions and (ii) as and to the extent
disclosed in the SEC Reports or as set forth in Schedule 3(h), since July 31,
1997, neither the Company nor any of its Subsidiaries has incurred any
Liabilities of any nature (whether accrued, absolute, contingent or otherwise)
which could reasonably be expected to be required to be reflected in or reserved
against on a consolidated balance sheet, or in the notes thereto, of the Company
and its consolidated Subsidiaries prepared in accordance with GAAP consistent
with past practice.
(i) Brokers' Fees. Other than fees related to financial advisory
services performed for the Company to be paid to the Persons set forth on
Schedule 3(i), neither the Company nor any of its Subsidiaries has any Liability
or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the Transactions. The Company has furnished to AAC true, correct and
complete copies of engagement letters relating to such services.
(j) Absence of Certain Changes. Except as disclosed in Schedule
3(j), since July 31, 1997, the Company and its Subsidiaries have conducted their
business in the Ordinary Course of Business and there has not been:
(i) any event, occurrence or development of a state of facts
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of the
Company, or (other than (A) any retirement of, or issuance of Company Common
Stock pursuant to the exercise of Options to acquire Shares of Company Common
Stock granted to employees or directors or other Option holders, or (B) as
contemplated pursuant to this Agreement) any repurchase, redemption or other
acquisition by the Company or any Subsidiary thereof of any outstanding shares
of capital stock or other securities of, or other ownership interests in, the
Company or any Subsidiary thereof;
(iii) any amendment of any material term of any outstanding
equity security of the Company or any Subsidiary thereof;
(iv) any incurrence, assumption or guarantee by the Company or
any Subsidiary thereof of any indebtedness for borrowed money, other than in the
Ordinary Course of Business in amounts and on terms consistent with past
practices;
(v) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company or any
Subsidiary thereof which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(vi) any material change in any method of accounting or
accounting practice by the Company or any Subsidiary thereof which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect;
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(vii) any (A) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary thereof, (B)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any Subsidiary thereof, (C) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements or (D) increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any Subsidiary
thereof; in each case, other than in the Ordinary Course of Business; or
(viii) any cancellation of any Permits or Contracts to which
the Company or any Subsidiary thereof is a party, or any written or oral
notification to the Company or any Subsidiary thereof that any party to any such
arrangement intends to cancel or not renew such arrangement beyond its
expiration date as in effect on the date hereof, which cancellation or
notification, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(k) Litigation. Except as set forth on Schedule 3(k), there is no
action, suit or proceeding pending against, or, to the Knowledge of the Company
or any Subsidiary thereof, any action, suit, investigation or proceeding
threatened against or affecting, the Company or any Subsidiary thereof or any of
their respective properties before any Governmental or Regulatory Body, (i)
which could reasonably be expected to have a Material Adverse Effect or (ii)
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the Merger or any of the other Transactions and has a reasonable
likelihood of success.
(l) Taxes. (i) The Company and each of its Subsidiaries have duly
and timely filed (taking into account any extension of time within which to
file) all material Tax Returns required to be filed by any of them and all such
filed Tax Returns are complete and accurate in all material respects; (ii)
except as set forth on Schedule 3(l), the Company and each of its Subsidiaries
have paid all Taxes required to be paid by it including Taxes that the Company
and its Subsidiaries are obligated to withhold from amounts owing to any
employee, creditor or Third Party, except with respect to matters contested in
good faith or for such amounts that, individually or in aggregate, could not
reasonably be expected to have a Material Adverse Effect; (iii) except as set
forth on Schedule 3(l), there are no pending or, to the Knowledge of the
Company, threatened in writing audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters relating to the Company or any of
its Subsidiaries which, if determined adversely to the Company or any of its
Subsidiaries, could reasonably be expected to have a Material Adverse Effect;
(iv) there are no deficiencies or claims for any Taxes that have been proposed,
asserted or assessed against the Company or any of its Subsidiaries which, if
such deficiencies or claims were finally resolved against the Company or any of
its Subsidiaries, could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect; (v) there are no material Liens
for Taxes upon the assets of the Company or any of its Subsidiaries, other than
Liens for current Taxes not yet due and payable and Liens for Taxes that are
being contested in
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good faith by appropriate proceedings; (vi) none of the Company or any of its
Subsidiaries has made an election under Section 341(f) of the Code; (vii) except
as set forth in Schedule 3(l), no extension of the statute of limitations on the
assessment of any Taxes has been granted by the Company or any of its
Subsidiaries and is currently in effect; (viii) except as set forth in Schedule
3(l), none of the Company or its Subsidiaries is a party to any agreement or
arrangement that could reasonably be expected to result, separately or in the
aggregate, in the actual or deemed payment by the Company or a Subsidiary of any
"excess parachute payments" within the meaning of Section 280 G or 162(m) of the
Code; (ix) none of the Company or its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code;
(x) all Taxes required to be withheld, collected or deposited by or with respect
to the Company and its Subsidiaries have been timely withheld, collected or
deposited, as the case may be, and, to the extent required, have been paid to
the relevant taxing authority, except, in each case, to the extent that failing
to so withhold, collect, deposit or pay would not have a Material Adverse
Effect; (xi) none of the Company or its Subsidiaries has issued or assumed (A)
any obligations described in Section 279(b) of the Code, (B) any applicable high
yield discount obligations, as defined in Section 163(i) of the Code, or (C) any
registration-required obligations, within the meaning of Section 163(f)(2) of
the Code, that are not in registered form; (xii) there are no requests for
information currently outstanding that could affect the Taxes of the Company and
its Subsidiaries; and (xiii) except as set forth on Schedule 3(l), there are no
proposed reassessments of any property owned by the Company or any of its
Subsidiaries or other proposals that could increase the amount of any Tax to
which the Company, its Subsidiaries or any such Person would be subject.
(m) Compliance with Laws. Except as set forth on Schedule 3(m),
neither the Company nor any Subsidiary thereof is in violation of, or has since
July 31, 1997 violated, and, to the Knowledge of the Company or any Subsidiary
thereof, none of them is under investigation with respect to or has been
threatened to be charged with or given notice of any violation by any
Governmental or Regulatory Body of any applicable law, rule, regulation,
judgment, injunction, order or decree, except for violations that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(n) Permits. Except as set forth on Schedule 3(n) and except as
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect, (i) the Permits are valid and in full force and effect,
(ii) neither the Company nor any Subsidiary thereof is in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, the Permits and (iii) none of the Permits will be terminated or
impaired or become terminable, in whole or in part, as a result of the
Transactions. The Company and each of its Subsidiaries have all Permits
necessary to carry on its business as currently conducted or as proposed to be
conducted, except where the failure to have any Permit would not have a Material
Adverse Effect.
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(o) Contracts. Schedule 3(o) sets forth a list of all material
Contracts to which the Company or any of its Subsidiaries is a party or by or to
which it or its assets are bound or subject, including, without limitation, (i)
Contracts relating to the borrowing of money; (ii) Contracts with any current
Affiliate or current or former officer or director of the Company or any
Subsidiary thereof; (iii) joint venture agreements between the Company or any of
its Subsidiaries and an unaffiliated third party; (iv) any Contracts providing
for payments to or from the Company or any Subsidiary thereof of $100,000 or
more per year; (v) any license agreements, distribution agreements, franchise
agreements or agreements in respect of similar rights granted to or held by the
Company or any of its Subsidiaries; (vi) any Contract that materially limits the
freedom of the Company or any Subsidiary thereof to compete in any line of
business or with any Person or in any geographical area or which would so
materially limit the freedom of the Company or any Subsidiary thereof so to
compete after the Effective Time; (vii) any other Contract not made in the
Ordinary Course of Business which Contract is material to the Company and its
Subsidiaries taken as a whole; (viii) any Tax sharing agreement or other
arrangement or (ix) any Lease. The Company has heretofore made available to AAC
true and complete copies of each of the Contracts set forth in Schedule 3(o).
Except for Contracts that could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect, all Contracts disclosed in
Schedule 3(o) are valid and binding Contracts of the Company or a Subsidiary
thereof, are in full force and effect (except for those that have terminated or
will terminate by their own terms), and neither the Company, any Subsidiary
thereof nor, to the Knowledge of the Company or any Subsidiary thereof, any
other party thereto, is in default in any material respect under the terms of
any such Contract.
(p) Intellectual Property Rights. The Company or any Subsidiary
thereof has interests in or uses only the Intellectual Property disclosed in
Schedule 3(p) in connection with the conduct of the business as currently
conducted or as proposed to be conducted. Except as set forth on Schedule 3(p),
the Company or any Subsidiary thereof either owns or has a valid and binding
license to use each item of Intellectual Property set forth on Schedule 3(p). No
other Intellectual Property is used or necessary in the conduct of the business
as currently conducted or as proposed to be conducted. Except as disclosed in
Schedule 3(p), (i) the Company or any Subsidiary thereof has the exclusive right
to use the Intellectual Property disclosed in Schedule 3(p), (ii) all
registrations with and applications to any Governmental or Regulatory Body in
respect of such Intellectual Property are valid and in full force and effect and
are not subject to the payment of any Taxes or maintenance fees or the taking of
any other actions by the Company or any Subsidiary thereof to maintain their
validity or effectiveness, (iii) there are no restrictions on the direct or
indirect transfer of any license, or any interest therein, held by the Company
or any Subsidiary thereof in respect of such Intellectual Property, (iv) the
Company or any Subsidiary thereof has delivered to AAC prior to the execution of
this Agreement documentation with respect to any invention, process, design,
computer program or other know-how or trade secret included in such Intellectual
Property, which documentation is accurate in all material respects and
reasonably sufficient in detail and content to identify and explain such
invention, process, design, computer program or other know-how or trade secret
and to facilitate its full and proper use without reliance on the special
knowledge or memory of any Person, (v) the Company
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<PAGE>
or any Subsidiary thereof has taken reasonable security measures to protect the
secrecy, confidentiality and value of its trade secrets in respect of the
business, (vi) the Company or any Subsidiary thereof is not, nor has it received
any notice that it is, in default (or with the giving of notice or lapse of time
or both, would be in default) under any license to use such Intellectual
Property and (vii) the Company or any Subsidiary thereof does not have any
Knowledge that such Intellectual Property is being infringed by any other
Person. Except as set forth on Schedule 3(p), the Company or any Subsidiary
thereof has not received notice that the Company or any Subsidiary thereof is
infringing any Intellectual Property of any other Person in connection with the
conduct of the business as currently conducted or as proposed to be conducted;
no claim is pending or, to the Knowledge of the Company or any Subsidiary
thereof, has been made to such effect that has not been resolved; and, to the
Knowledge of the Company or any Subsidiary thereof, the Company or any
Subsidiary thereof is not infringing any Intellectual Property rights of any
other Person in connection with the conduct of the business as currently
conducted or as proposed to be conducted.
(q) Board Recommendation. The Board of Directors of the Company,
at a meeting duly called and held and acting on the unanimous recommendation of
the Board of Directors of the Company, has (i) determined that this Agreement
and the Transactions, including the Merger, are fair to, and in the best
interests of, the Company Stockholders, (ii) approved this Agreement and the
Transactions, including the Merger, which approval satisfies in full the
requirements of the DGCL including, without limitation, Section 203 thereof with
respect to the Transactions, and (iii) resolved to recommend approval and
adoption of this Agreement and the Merger by the Company Stockholders. Furman
Selz LLC has delivered to the Company's Board of Directors its opinion that the
consideration to be paid in the Merger is fair to the holders of Shares of
Company Common Stock from a financial point of view.
(r) ERISA. All Benefit Plans and Multiemployer Plans are listed in
Schedule 3(r), and copies of all documentation relating to such Benefit Plans
have been delivered to AAC (including copies of written Benefit Plans, written
descriptions of oral Benefit Plans, summary plan descriptions, trust agreements,
the three most recent annual returns, employee communications, and IRS
determination letters). Except as disclosed in Schedule 3(r):
(i) each Benefit Plan has at all times been maintained and
administered in all material respects in accordance with its terms and with the
requirements of all applicable law, including ERISA and the Code, and each
Benefit Plan intended to qualify under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be qualified under Section 401(a)
of the Code and nothing has occurred since the date of any such determination
which would adversely affect such qualification.
(ii) no Benefit Plan is a "defined benefit plan" within the
meaning of Section 414(j) of the Code, other than a Benefit Plan described in
Section 401(a)(1) of ERISA;
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(iii) no direct, contingent or secondary Liability has been
incurred or is expected to be incurred by the Company or any Subsidiary under
Title IV of ERISA with respect to any Benefit Plan or Multiemployer Plan, or
with respect to any other Plan presently or heretofore maintained or contributed
to during the five (5) year period prior to the Closing Date by any ERISA
Affiliate;
(iv) with respect to each Multiemployer Plan, (A) no
withdrawal liability (within the meaning of Section 4201(b) of ERISA) has been
incurred by the Company or any ERISA Affiliate, and the Company has no reason to
believe that any such withdrawal liability will be incurred, prior to the
Closing Date, (B) no such Multiemployer Plan is in "reorganization" (within the
meaning of Section 4241 of ERISA), (C) no notice has been received that
increased contributions may be required to avoid a reduction in plan benefits or
the imposition of an excise tax, or that the Multiemployer Plan is or may become
"insolvent" (within the meaning of Section 4241 of ERISA), (D) the Company or
any Subsidiary thereof has no Knowledge that proceedings have been instituted by
the Pension Benefit Guaranty Corporation against the Multiemployer Plan, (E)
neither the Company or any Subsidiary thereof has sold assets in a transaction
intended to satisfy the requirements of Section 4204 of ERISA, and (F) except as
disclosed in Schedule 3(r), if the Company or any ERISA Affiliate were to have a
complete or partial withdrawal under Section 4203 of ERISA as of the Closing, no
withdrawal liability would exist on the part of the Company or any ERISA
Affiliate;
(v) neither the Company nor any ERISA Affiliate has incurred
any Liability for any tax imposed under Sections 4971 through 4980B of the Code
or civil Liability under Section 502(i) or (l) of ERISA;
(vi) Except as set forth in Schedule 3(r), no benefit under
any Benefit Plan, including, without limitation, any severance or parachute
payment plan or agreement, will be established or become accelerated, vested or
payable by reason of any Transaction contemplated under this Agreement;
(vii) no tax has been incurred under Section 511 of the Code
with respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto);
(viii) no Benefit Plan provides health or death benefit
coverage for claims incurred beyond the termination of an employee's employment,
except as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B
of the Code or any State laws requiring continuation of benefits coverage
following termination of employment;
(ix) no suit, actions or other litigation (excluding claims
for benefits incurred in the ordinary course of Plan activities) have been
brought or, to the Knowledge of the Company, threatened against or with respect
to any Benefit Plan and there are no facts or circumstances known to the Company
that could reasonably be expected to give rise to any such suit, action or other
litigation; and
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(x) all contributions to Benefit Plans and Multiemployer Plans
that were required to be made under such Plans have been made and each of the
Company and each Subsidiary has performed all material obligations required to
be performed under all such Plans.
(s) Labor and Employment Matters.
(i) Except as set forth on Schedule 3(s), (A) no employee of
the Company or any Subsidiary thereof is represented by a labor union, no labor
union has been certified or recognized as a representative of any such employee,
and neither the Company nor any Subsidiary thereof has any obligation under any
collective bargaining agreement or other agreement with any labor union or any
obligation to recognize or deal with any labor union, and there are no such
Contracts or other agreements pertaining to or which determine the terms or
conditions of employment of any employee of the Company or any Subsidiary
thereof; (B) there are no pending or threatened representation campaigns,
elections or proceedings; (C) the Company has no Knowledge of any strikes,
slowdowns or work stoppages of any kind, or threats thereof, and no such
activities occurred during the 24-month period preceding the date hereof; (D)
neither the Company nor any Subsidiary thereof has engaged in, admitted
committing or been held to have committed any unfair labor practice; and (E)
there are no controversies or grievances between the Company or any Subsidiary
thereof and any of its employees or representatives thereof.
(ii) Schedule 3(s) sets forth all Contracts under which the
Company or any Subsidiary thereof has any obligation to provide compensation or
remuneration of any kind (other than obligations to make current wage or salary
payments that are terminable at will without notice) to or on behalf of any
employee or consultant.
(iii) Except as set forth on Schedule 3(s), the Company and
each of its Subsidiaries have at all times complied in all material respects,
and are in material compliance with, all applicable laws, rules and regulations
respecting employment, wages, hours, compensation, benefits, and payment and
withholding of taxes in connection with employment.
(iv) Except as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, the Company and
each of its Subsidiaries have at all times since July 31, 1994 complied with,
and are in compliance with, all applicable laws, rules and regulations
respecting occupational health and safety, whether now existing or subsequently
amended or enacted, including, without limitation, the Occupational Safety &
Health Act of 1970, 29 U.S.C. Section 651 et seq. and the state analogies
thereto, all as amended or superseded from time to time, and any common law
doctrine relating to worker health and safety.
(t) Real Estate.
(i) Neither the Company nor any of its Subsidiaries own any
real property.
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(ii) Except as set forth on Schedule 3(t), neither the Company
nor any Subsidiary thereof has assigned, pledged or otherwise transferred or has
sublet (as sublessor) the premises demised by any Lease. The Company or a
Subsidiary thereof is in possession of the premises demised by the Leases.
Except as set forth on Schedule 3(t), no tenant or landlord under any Lease has
exercised any option or right to (A) cancel or terminate such Lease or shorten
the term thereof, (B) lease additional premises, (C) reduce or relocate the
premises demised by such Lease, or (D) purchase any property. All brokerage
commissions payable by the Company or any Subsidiary thereof with respect to any
Lease have been fully paid.
(u) Environmental Matters. To the Knowledge of the Company or any
Subsidiary thereof, the Company or any Subsidiary thereof has obtained and holds
all necessary Environmental Permits. To the Knowledge of the Company or any
Subsidiary thereof, the Company or any Subsidiary thereof is in material
compliance with all terms, conditions and provisions of all applicable
Environmental Permits and Environmental Laws. There are no past, pending or, to
the Knowledge of the Company or any Subsidiary thereof, threatened material
Environmental Claims against the Company or any Subsidiary thereof, and the
Company or any Subsidiary thereof is not aware of any facts or circumstances
which could reasonably be expected to form the basis for any such material
Environmental Claim against the Company or any Subsidiary thereof. To the
Knowledge of the Company or any Subsidiary thereof, except as set forth on
Schedule 3(u), no Releases of Hazardous Materials have occurred at, from, in,
to, on or under any Site and no Hazardous Materials are present in, on, about or
migrating to or from any Site that constitutes a violation of any Environmental
Law. Except as set forth on Schedule 3(u), neither the Company or any Subsidiary
thereof, any predecessor of the Company or any Subsidiary thereof, nor any
entity previously owned by the Company or any Subsidiary thereof, has
transported or arranged for the treatment, storage, handling, disposal, or
transportation of any Hazardous Material to any off-Site location which
constitutes a violation of any Environmental Law. To the Knowledge of the
Company, no Site is a current or proposed Environmental Cleanup Site. There are
no Liens arising under or pursuant to any Environmental Law on any Site and
there are no facts, circumstances or conditions that could reasonably be
expected to restrict, encumber or result in the imposition of special conditions
under any Environmental Law with respect to the ownership, occupancy,
development, use or transferability of any Site. To the Knowledge of the Company
or any Subsidiary thereof, except as set forth on Schedule 3(u), no Site
contains any underground storage tanks, active or abandoned, polychlorinated
biphenyl- containing equipment or asbestos-containing material. There have been
no environmental investigations, studies, audits, tests, reviews or other
analyses conducted by, on behalf of, or which are in the possession of the
Company or any Subsidiary thereof with respect to any Site which have not been
delivered to AAC or any of its representatives prior to execution of this
Agreement.
(v) Other Interests. Except as set forth in Schedule 3(v), the
Company or any Subsidiary thereof does not own, directly or indirectly, any
interest or investment (whether
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equity or debt) in any corporation, partnership, joint venture, business, trust
or entity (other than investments in short-term investment securities).
(w) Certain Business Practices. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or employees or, to
the Knowledge of the Company or any Subsidiary thereof, agents or
representatives (in their capacity as directors, officers, agents,
representatives or employees) has: (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, or other Person acting on behalf of or under the auspices of
a governmental official or Governmental or Regulatory Body, in the United States
or any other country, which is in any manner related to the business or
operations of the Company or any of its Subsidiaries, that was illegal under any
federal, state or local laws of the United States or any other country having
jurisdiction; or (iii) made any payment to any customer or supplier of the
Company or any of its Subsidiaries or any officer, director, partner, employee
or agent of any such customer or supplier for the unlawful sharing of fees or to
any such customer or supplier or any such officer, director, partner, employee
or agent for the unlawful rebating of charges, or engaged in any other unlawful
reciprocal practice, or made any other unlawful payment or given any other
unlawful consideration to any such customer or supplier or any such officer,
director, partner, employee or agent, in respect of the business of the Company
and its Subsidiaries.
(x) Insurance. Since July 31, 1992, the Company and its
Subsidiaries have obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms, with such deductibles and covering such risks, including
fire and other risks insured against by extended coverage, as is customarily
carried by reasonably prudent Persons conducting businesses or owning assets
similar to those of the Company and its Subsidiaries, and each has maintained in
full force and effect liability insurance against claims for personal injury or
death or property damage occurring in connection with the activities of the
Company and its Subsidiaries or any properties owned, occupied or controlled by
the Company or any of its Subsidiaries in such amount as is customarily carried
by reasonably prudent Persons conducting businesses or owning assets similar to
those of the Company and its Subsidiaries. There is no material default with
respect to any provision contained in any such policy or binder, nor has the
Company or any of its Subsidiaries failed to give any material notice or to
present any material claim under any such policy or binders in due and timely
fashion. There are no billed but unpaid premiums past due under any such policy
or binder, the failure of which to be paid would result in the cancellation of
such policy or binder. Except as otherwise set forth in the SEC Reports or in
Schedule 3(x), (i) there are no outstanding claims in excess of normal
retentions that are not covered under any such policies or binders and, to the
Knowledge of the Company, there has not occurred any event that might reasonably
form the basis of any claim in excess of normal retentions that is not covered
against or relating to the Company or any of its Subsidiaries that is not
covered by any of such policies and binders; (ii) no notice of cancellation or
non-renewal of any such policies or binders has been received;
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and (iii) except as set forth in Schedule 3(x), there are no performance bonds
outstanding with respect to the Company or any of its Subsidiaries.
(y) Disclosure Documents. The Definitive Proxy Materials to be
filed with the SEC and sent to the Company Stockholders in connection with the
special meeting of the Company Stockholders (the "Special Meeting"), as of the
date first mailed to the Company Stockholders and at the time of the Special
Meeting, and the Rule 13e-3 Transaction Statement on Schedule 13E-3 (together
with all amendments and supplements thereto, the "Schedule 13E-3") at the time
filed with the SEC, or at any time thereafter when the information therein is
required to be updated pursuant to applicable law, will 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 made therein, in
light of the circumstances under which they were made, not misleading. The Joint
Disclosure Documents will, when filed by the Company with the SEC, comply as to
form in all material respects with the applicable provisions of the Securities
Exchange Act and the SEC rules and regulations promulgated thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to the statements made in any of the foregoing documents based on
written information supplied by or on behalf of AAC or any of its respective
Affiliates specifically for inclusion therein.
(z) Customers and Suppliers. Since July 31, 1997, neither the
Company nor any of its Subsidiaries has received written notice that any
customer or supplier intends to cancel, terminate or otherwise modify any
relationship with the Company or any of its Subsidiaries, which constitutes a
Material Adverse Effect.
4. Representations and Warranties of AAC. AAC represents and
warrants to the Company, except as set forth in the disclosure schedule attached
hereto:
(a) Organization. AAC is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. AAC is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect or a material adverse effect on the ability of the Parties to
consummate the Transactions. AAC has full corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it. AAC was formed solely for the purpose of engaging in the
Transactions, has engaged in no other business activities and has conducted its
operations only as contemplated hereby. AAC has not engaged, nor prior to the
Effective Time will it engage, in any business activities other than the
business activities contemplated hereby (including business activities
contemplated by or reasonably incident to the Debt Financing). AAC has conducted
and, prior to the Effective Time, will conduct its operations only as
contemplated hereby (including activities contemplated by or reasonably incident
to the Debt Financing). AAC has no Subsidiaries and, during the period
commencing with the date hereof and ending at the Effective Time, AAC will have
no Subsidiaries. AAC
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does not have, nor at the Effective Time will it have, any Liabilities or
material obligations not expressly contemplated pursuant to this Agreement or
the Transactions.
(b) Debt Financing.
(i) AAC has provided to the Company true and complete copies
of a letter, dated March 31, 1998, from J.P. Morgan Securities Inc. pursuant to
which it has indicated that it is highly confident of its ability to underwrite
in the public markets senior notes of the Company in an aggregate amount of at
least $100 million to provide, together with the equity financing referred to in
Section 4(b)(ii) and the Revolving Credit Facility, all of the financing
required in order to consummate the Transactions and to fund what AAC reasonably
believes to be the working capital needs of the Company and its Subsidiaries
following the Closing. The financing to be provided pursuant to the foregoing
arrangements is hereinafter referred to as the "Debt Financing." As of the date
hereof, the highly confident letter relating to the Debt Financing has not been
withdrawn and is in full force and effect.
(ii) AAC has delivered to the Company a true and complete copy
of a commitment letter, dated as of April 21, 1998, from 399 pursuant to which
399 (together with its Affiliates) will have available $13.12445 million,
subject to the terms and conditions set forth therein, for purposes of
consummating the Transactions (the "Equity Financing Commitment"). As of the
date hereof, such commitment letter from 399 has not been withdrawn and is in
full force and effect.
(c) Authorization of the Transactions. AAC has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by AAC, and the performance of its
obligations hereunder, have been duly authorized by all requisite corporate
action, and this Agreement has been duly executed and delivered by AAC. This
Agreement constitutes the valid and legally binding obligation of AAC,
enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the Transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of any Governmental
or Regulatory Body to which AAC is subject or any provision of the certificate
of incorporation or bylaws of AAC or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any Party
the right to accelerate, terminate, modify or cancel, or require any notice or
consent under any Contract or other arrangement to which AAC is a party or by
which it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation or failure to give notice would not have a Material Adverse Effect
or a material adverse effect on the ability of the Parties to consummate the
Transactions. Other than in connection with the provisions of the HSR Act, the
DGCL, the Securities Exchange Act, the Securities Act and the state securities
laws, AAC is not required to give any notice to, make any
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filing with, or obtain any authorization, consent or approval of any
Governmental or Regulatory Body in order for the Parties to consummate the
Transactions contemplated by this Agreement, except where the failure to give
notice, to file, or to obtain any authorization, consent or approval would not
have a material adverse effect on the ability of the Parties to consummate the
Transactions.
(e) Brokers' Fees. AAC has no Liability or other obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
Transactions contemplated by this Agreement for which any of the Company or its
Subsidiaries thereof could become liable.
(f) Litigation. There is no action, suit or proceeding pending
against, or, to the knowledge of AAC, any action, suit, investigation or
proceeding threatened against or affecting, AAC or any of their respective
properties before any Governmental or Regulatory Body (i) which could reasonably
be expected to have a Material Adverse Effect or (ii) which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the Merger or
any of the other Transactions and has a reasonable likelihood of success.
(g) Disclosure Documents. The information supplied by AAC for
inclusion in the Definitive Proxy Materials to be filed with the SEC and sent to
the Company Stockholders in connection with the Special Meeting, as of the date
first mailed to the Company Stockholders and at the time of the Special Meeting,
and the Schedule 13E-3 at the time filed with the SEC, or at any time thereafter
when the information therein is required to be updated pursuant to applicable
law, will not contain an 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 made therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants. The Parties hereto hereby covenant as follows:
(a) Further Assurances. Each of the Company and AAC will use its
reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the Transactions
contemplated by this Agreement; provided, however, that no director or officer
of the Company shall be required either to violate any requirement imposed by
law in connection therewith or to take any action such director or officer
deems, after consultation with outside counsel, not consistent with such
director's or officer's fiduciary duty.
(b) Notices and Consents. The Company will, and will cause each of
its Subsidiaries to, give any notices to third parties, and will, and will cause
each of its Subsidiaries to, use its reasonable best efforts to obtain any
required third party consents, that AAC reasonably may request.
(c) Regulatory Matters and Approvals. Each of AAC and the Company
will, and will cause any of its respective Subsidiaries to, give any notices to,
make any filings with, and use its
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reasonable best efforts to obtain any necessary authorizations, consents and
approvals of any Governmental or Regulatory Body. Without limiting the
generality of the foregoing, each of AAC and the Company will, and will cause
any of its respective Subsidiaries to, (i) file any notification and report
forms and related material that it may be required to file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice under the HSR Act, (ii) use its best efforts to obtain an early
termination of the applicable waiting period and (iii) make any further filings
pursuant thereto that may be necessary, proper, or advisable.
(d) Securities Act, Securities Exchange Act, and State Securities Laws.
(i) The Company will prepare and file with the SEC preliminary
proxy materials ("Preliminary Proxy Materials") under the Securities Exchange
Act relating to the Merger. The Company will use its best efforts to respond to
the comments of the SEC thereon and will make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper or advisable. AAC will provide the Company with information and
assistance in connection with the foregoing filings that the Company may
reasonably request.
(ii) The Company and AAC shall each use its reasonable best
efforts to take, or cause to be taken, (A) all actions necessary, proper or
advisable by such Party with respect to the prompt preparation and filing of the
Joint Disclosure Documents with the SEC, (B) such actions as may be required to
have the Joint Disclosure Documents declared effective under the Securities Act
as promptly as practicable, and (C) such actions as may be required to be taken
under state securities or applicable Blue Sky laws in connection with the
issuance of the securities contemplated hereby.
(iii) As soon as practicable after the date of announcement of
the execution of this Agreement, the Company shall file with the SEC a Schedule
13E-3. AAC and the Company each agrees to correct any information provided by it
for use in the Schedule 13E-3, if and to the extent that it shall have become
false and misleading in any material respect.
(e) DGCL; Special Meeting. The Company will (i) call the Special
Meeting as soon as reasonably practicable in order that such stockholders may
consider and vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the DGCL and (ii) mail the Joint Disclosure Documents
to the Company Stockholders as soon as reasonably practicable, which Joint
Disclosure Documents will contain the affirmative recommendation of the Board of
Directors of the Company in favor of the adoption of this Agreement and the
approval of the Merger; provided, however, that any provision of this Agreement
to the contrary notwithstanding, the Company will not have any obligation to
call the Special Meeting or mail the Joint Disclosure Documents to the Company
Stockholders if such action would require any director or officer of the Company
either to violate any requirement imposed by law in connection therewith or,
after consultation with and advice from its outside counsel, any director
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or officer of the Company determines in good faith that to take such action
would be inconsistent with such director's or officer's fiduciary duty.
(f) Accounting Treatment. Each Party hereto shall cooperate with
the other Party hereto in connection with the recording of the Merger as a
recapitalization for financial reporting purposes, including, without
limitation, providing appropriate disclosure with regard to such recording in
all filings with the SEC. In furtherance of the foregoing, the Company shall
provide AAC with a reasonable time period to review any description of the
Transactions filed with the SEC.
(g) Debt Financing.
(i) AAC shall use its reasonable best efforts to assist the
Company in obtaining the Debt Financing or other alternative financing on
substantially comparable or more favorable terms. The Company shall use its
reasonable best efforts to cooperate with AAC in the obtaining of the Debt
Financing, including, without limitation, by participating in road shows and
meeting with, and providing information to, potential sources of financing
identified by AAC.
(ii) The Company shall use its reasonable best efforts to
obtain a revolving credit facility commitment from a lending institution
designated by AAC in the amount of approximately $25 million ("Revolving Credit
Facility").
(h) Operation of the Company's Business. The Company will not
(and will not cause or permit any of its Subsidiaries to) engage in any
practice, take any action or enter into any transaction outside the Ordinary
Course of Business, including, without limitation, the following:
(i) authorizing or effecting any change in its certificate of
incorporation or bylaws (other than as contemplated by this Agreement);
(ii) granting any options, warrants, or other rights to
purchase or obtain any of its capital stock or issuing, selling or otherwise
disposing of any of its capital stock (except upon the conversion or exercise of
Options and other rights and obligations currently outstanding);
(iii) declaring, setting aside, or paying any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
redeeming, repurchasing or otherwise acquiring any of its capital stock, in
either case, outside the Ordinary Course of Business;
(iv) except as set forth on Schedule 5(h), issuing any note,
bond, or other debt security or creating, incurring, assuming or guaranteeing
any indebtedness for borrowed money or capitalized lease obligation (except for
inter-company loans or advances from the Company to, or Guaranties on behalf of,
any one or more of its Subsidiaries), outside the Ordinary Course of Business;
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(v) except as set forth on Schedule 5(h), imposing any Lien
upon any of its assets outside the Ordinary Course of Business;
(vi) other than pursuant to the Transactions, making any
material change in employment terms for any of its directors, officers and
employees outside the Ordinary Course of Business;
(vii) except pursuant to existing agreements or arrangements
as of the date hereof, making any capital investment in, making any loan to, or
acquiring the securities or assets of any other Person outside the Ordinary
Course of Business;
(viii) adopting or amending any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or employee Benefit Plan, agreement, trust,
Plan, fund or other arrangement for the benefit and welfare of any director,
officer or employee, except for normal increases in the Ordinary Course of
Business and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company or any Subsidiary thereof;
(ix) revaluing in any material respect any significant portion
of its assets, including, without limitation, writing down the value of
inventory in any material amount or write-off of notes or accounts receivable in
any material amount;
(x) paying, discharging or satisfying any material Liabilities
(whether matured, unmatured, absolute, accrued, asserted or unassented,
contingent or otherwise) other than the payment, discharge or satisfaction in
the Ordinary Course of Business of Liabilities reflected or reserved against in
the consolidated financial statements of the Company and set forth in the SEC
Reports or incurred in the Ordinary Course of Business;
(xi) making any Tax election with respect to or settling or
compromising any material income Tax Liability;
(xii) taking any action other than in the Ordinary Course of
Business with respect to accounting policies or procedures; and
(xiii) committing to any of the foregoing.
(i) Full Access. Subject to the terms and conditions of the
Confidentiality Agreement, the Company will, and will cause each of its
Subsidiaries to, permit representatives of AAC and its Affiliates to have full
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Company and its Subsidiaries, to all premises,
properties, personnel, books, records (including Tax records), contracts and
documents of or pertaining to each of the Company and its Subsidiaries.
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(j) Notice of Developments. Each Party will give prompt written
notice to the other Party of any event which could reasonably be expected to
give rise to a Material Adverse Effect or could reasonably be expected to cause
a breach of any of its own respective representations, warranties, covenants or
other agreement contained herein. No disclosure by any Party pursuant to this
Section 5(j), however, shall be deemed to amend or supplement any Schedule, or
to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
(k) No Solicitation.
(i) The Company shall not, and shall not permit any of its
Subsidiaries to (whether directly or indirectly through advisors, agents or
other intermediaries), and the Company shall not, and shall not permit any of
its Subsidiaries to, authorize or knowingly permit any of its or their officers,
directors, agents, representatives, advisors or Subsidiaries (all of the
foregoing parties being referred to as the "Restricted Parties") to solicit,
initiate or knowingly encourage the submission of inquiries, proposals or offers
from any Third Party relating to (A) any acquisition of 5% or more of the
consolidated assets of the Company and its Subsidiaries or of over 5% of any
class of equity securities of the Company or any of its Subsidiaries, (B) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 5% or more of
any class of equity securities of the Company or any of its Subsidiaries, (C)
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 5% of the consolidated assets of the Company, other than the Transactions
or (D) any other transaction the consummation of which would, or could
reasonably be expected to, impede, interfere with, prevent or materially delay
the Merger or which would, or could reasonably be expected to, materially dilute
the benefits to AAC of the Transactions (collectively, the "Acquisition
Proposals" and which, if consummated, will be an "Acquisition Transaction") or
enter into or participate in any discussions (except as may be necessary to
inform a Third Party of the provisions of this Section 5(k)) or negotiations
regarding any of the foregoing, or furnish to any Third Party any information
with respect to the business, properties or assets of the Company in connection
with the foregoing, or otherwise cooperate in any way with, or knowingly assist
or participate in, facilitate or encourage, any effort or attempt by any Third
Party to do or seek any of the foregoing; provided, however, that the provisions
of this Section 5(k) shall not limit or prohibit any of the Restricted Parties
from (x) engaging in discussions or negotiations with such a Third Party who has
made a Superior Acquisition Proposal, but only if the Board of Directors of the
Company, after consultation with and advice from its outside counsel, determines
in good faith that, in the exercise of its fiduciary responsibilities, such
discussions or negotiations should be commenced or such information should be
furnished or such facilitation, cooperation, encouragement or participation
undertaken; (y) furnishing information pursuant to an appropriate and customary
confidentiality letter (which shall not be substantially less restrictive than
the Confidentiality Agreement) concerning the Company or any Subsidiary thereof
and its businesses, properties or assets to a Third Party who has made a
Superior Acquisition Proposal
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as to which a prior determination of the Board of Directors of the Company as
contemplated under clause (x) above has been made; provided, further, that (1)
the Board of Directors of the Company shall not, and shall not authorize any
officers or representatives to, take any of the foregoing actions until notice
to AAC of the Company's intent to take such action shall have been given; and
(2) if the Board of Directors of the Company receives a Superior Acquisition
Proposal, to the extent it may do so without breaching its fiduciary duties as
determined in good faith after consultation with its outside counsel, and
without violating any of the conditions of such Superior Acquisition Proposal,
then the Company shall promptly inform AAC of the material terms and conditions
of such proposal and the identity of the Third Party making it; or (z) taking a
position on a tender offer by a Third Party, as required by Rule 14e-2 under the
Securities Exchange Act (provided no such position shall constitute a
recommendation of such transaction if it does not constitute a Superior
Acquisition Proposal) or complying with its duties of disclosure under
applicable state law. As of the date hereof, the Company shall immediately cease
and shall cause each of its Subsidiaries and its and their advisors, agents and
other intermediaries to cease, any and all existing activities, discussions or
negotiations with any Third Party conducted heretofore with respect to any of
the foregoing; provided that the limitation set forth in this sentence shall not
restrict the Company from engaging in any such activities with such a Third
Party who hereafter makes a Superior Acquisition Proposal so long as the Company
has complied with the provisions of this Section 5(k).
(ii) If (A) this Agreement shall be terminated pursuant to
Section 7(a)(iv), 7(a)(vi)(B) or (B)(1) a Third Party shall have made an
Acquisition Proposal, (2) the Agreement shall be terminated pursuant to Section
7(a)(ii), Section 7(a)(vi)(A), 7(a)(vi)(C) and (3) any Acquisition Proposal
(whether or not proposed prior to the Special Meeting and whether or not it
involves the Third Party making the Acquisition Proposal referred to in Section
5(k)(ii)(B)(1) above) shall have been consummated within twelve months following
the termination of this Agreement, the Company shall pay to AAC, within ten (10)
Business Days following such occurrence, a fee of $3.375 million as liquidated
damages and not as a penalty together with reimbursement of all reasonable
out-of-pocket costs, fees and expenses, including, without limitation, the
reasonable fees and disbursements of banks, investment banks, accountants or
legal counsel and the expenses of any litigation incurred in connection with
collecting the fees and other amounts provided for in this Section 5(k)(ii),
which out-of-pocket costs, fees and expenses shall be no more than $1 million in
the aggregate (collectively, the "Fixed Amount"). Notwithstanding the foregoing,
if the Company breaches any representation, warranty, covenant or other
agreement hereunder, the Fixed Amount paid by Company and actually received by
AAC shall be credited against the amount of damages awarded to AAC as a result
of such breach and any damages awarded to AAC as a result of such breach shall
be credited against any subsequent payment of the Fixed Amount, to the extent
the Company is also obligated hereunder to pay the Fixed Amount.
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(l) Insurance and Indemnification.
(i) For a period of 6 years after the Effective Time, the
Surviving Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company and its Subsidiaries in respect of acts or
omissions occurring prior to the Effective Time to the maximum extent provided
under the Company's certificate of incorporation and bylaws, or any of its
Subsidiary's certificate of incorporation or bylaws, in either case, as in
effect on the date hereof; provided that such indemnification shall be subject
to any limitation imposed from time to time under applicable law.
(ii) For a period of 6 years after the Effective Time, the
Surviving Corporation shall provide officers' and directors' liability insurance
in respect of acts or omissions occurring prior to the Effective Time covering
each such Person currently covered by the Company's or any of its Subsidiary's
officers' and directors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy in effect on the
date hereof (or, if such insurance policy cannot be obtained, such insurance
policy on terms with respect to coverage and amount as favorable as can be
obtained, subject to the proviso at the conclusion of this sentence), provided
that, in satisfying its obligation under this Section, the Surviving Corporation
shall not be obligated to pay premiums in excess of 150% of the amount per annum
the Company paid in its last full fiscal year, which amount has been disclosed
to AAC.
(m) Joint Disclosure Documents. The Company shall cause the Joint
Disclosure Documents to comply with the Securities Exchange Act in all material
respects. The Company shall cause the Joint Disclosure Documents to not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading, other than with
respect to information provided by or on behalf of AAC and its Affiliates. AAC
shall cause the Joint Disclosure Documents to not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
will be made, not misleading, with respect to information provided by or on
behalf of AAC and its Affiliates.
(n) Comfort Letters. The Company will deliver to AAC on or before
the date the Joint Disclosure Documents are mailed to the Company Stockholders a
letter from its accountants, Grant Thornton LLP, stating its conclusions as to
the accuracy of certain information derived from the financial records from the
Company and its Subsidiaries and contained in the Joint Disclosure Document (the
"Company Comfort Letter"). The Company Comfort Letter shall be reasonably
satisfactory to AAC in form and substance.
(o) Options. Prior to the Effective Time, the Company shall take
such action as may be necessary to terminate the Company's Option Plan.
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(p) Debt Financing Expense. Subject to any right to reimbursement
pursuant to Section 5(k)(ii) hereof, in the event the Transactions are not
consummated, 399 and AAC shall, jointly and severally, be responsible for the
payment of any fee due to, or reimbursement of expenses incurred by, J. P.
Morgan Securities, Inc. and its affiliates or any other lender designated by AAC
pursuant to the Debt Financing, including, without limitation, the Revolving
Credit Facility.
6. Conditions to Obligation to Close.
(a) Conditions to Closing by AAC. The obligations of AAC to
consummate the Transactions are subject to satisfaction or waiver by AAC of the
following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all respects at and as of the Effective Time,
except (A) for those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date,
subject to clause (B)), and (B) where the failure of any representations and
warranties set forth in Section 3, taken together without regard to any
materiality or Knowledge qualification set forth therein, to be true and correct
could not reasonably be expected to have a Material Adverse Effect, with the
same force and effect as if made on and as of the Effective Time;
(ii) the Company shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) there shall not be any judgment, order, decree,
stipulation, injunction or charge in effect preventing consummation of any of
the Transactions;
(iv) the Company shall have delivered to AAC a certificate to
the effect that each of the conditions specified above in Section 6(a)(i)-(iii)
is satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(vi) the holders of not more than 10% of the outstanding
Shares of Company Common Stock shall have demanded appraisal of such Shares in
accordance with the DGCL;
(vii) the Company shall have delivered to AAC written consents
to the Transactions from the Persons who are parties to Contracts set forth on
Schedule 6(a);
(viii) all applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated and
the Parties shall have received all other authorizations, consents and approvals
of Governmental or Regulatory Bodies in connection with the execution, delivery
and performance of this Agreement;
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(ix) AAC shall be reasonably satisfied that the Merger will be
recorded as a recapitalization for financial reporting purposes;
(x) total Debt of the Company and its Subsidiaries determined
on a consolidated basis in accordance with GAAP as of the Effective Time shall
not exceed $45 million;
(xi) the Company shall have received the proceeds of the Debt
Financing and the amount to be drawn under the Revolving Credit Facility or
other proceeds on terms and conditions which are substantially equivalent
thereto;
(xii) the Company shall have received and accepted the
resignations of all directors of the Company designated by AAC;
(xiii) each of the Voting Agreements and the Rollover
Agreements shall be in full force and effect;
(xiv) there shall not be instituted or pending any action or
proceeding by any Governmental or Regulatory Body, or any action or proceeding
by any other Person, that has a reasonable likelihood of success before any
Governmental or Regulatory Body, (A) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger or seeking to obtain material damages or otherwise
directly or indirectly relating to the Transactions, (B) seeking to restrain or
prohibit the ownership or operation by AAC of all or any material portion of the
business or assets of the Company and its Subsidiaries, taken as a whole, (C)
seeking to impose or confirm material limitations on the ability of AAC to
effectively control the business or operations of the Company and its
Subsidiaries, taken as a whole, or effectively to exercise full rights of
ownership of the Shares of Company Common Stock or (D) requiring divestiture by
AAC of any Shares of Company Common Stock, and no Governmental or Regulatory
Body shall have issued any judgment, order, decree or injunction, and there
shall not be any statute, rule or regulation, that, in the reasonable judgment
of AAC is likely, directly or indirectly, to result in any of the consequences
referred to in the preceding clauses (A) through (D); and
(xv) the Warrants shall have been adjusted in accordance with
the terms of such Warrants, except for such Warrants that have expired in
accordance with their terms.
(xvi) AAC shall have received an opinion of Warshaw Burstein
Cohen Schlesinger & Kuh LLP, counsel to the Company, in the form of Exhibit E
attached hereto.
(b) Conditions to Closing by the Company. The obligations of the
Company to consummate the Transactions are subject to satisfaction or waiver by
the Company of the following conditions:
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(i) the representations and warranties set forth in Section 4
above shall be true and correct in all respects at and as of the Effective Time,
except (A) for those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date,
subject to clause (B)), and (B) where the failure of any representations and
warranties set forth in Section 4 taken together without regard to any
materiality qualification set forth therein to be true and correct could not
reasonably be expected to have a Material Adverse Effect, with the same force
and effect as if made on and as of the Effective Time;
(ii) AAC shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any judgment, order, decree,
stipulation, injunction or charge in effect preventing consummation of any of
the Transactions;
(iv) AAC shall have delivered to the Company a certificate to
the effect that each of the conditions specified above in Section 6(b)(i)-(iii)
is satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(vi) all applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated and
the Parties shall have received all other authorizations, consents and approvals
of Governmental or Regulatory Bodies in connection with the execution delivery
and performance of this Agreement;
(vii) there shall not be instituted or pending any action or
proceeding by any Governmental or Regulatory Body, or any action or proceeding
by any other Person, that has a reasonable likelihood of success before any
Governmental or Regulatory Body, (A) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger or seeking to obtain material damages or otherwise
directly or indirectly relating to the Transaction or (B) seeking to impose
liability on any officer or director of the Company for any actions taken in
connection with the Transactions, and no Governmental or Regulatory Body shall
have issued any judgment, order, decree or injunction, and there shall not be
any statute, rule or regulation, that, in the reasonable judgement of the
Company is likely, directly or indirectly, to result in any of the consequences
referred to in the preceding clauses (A) or (B);
(viii) the Company shall have received an opinion of Furman
Selz LLC as to the fairness to the Company Stockholders of the cash merger
consideration to be received by them; and
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(ix) the Company shall have received an opinion of Houlihan
Lokey Howard & Zukin to the effect that consummation of the Transactions
contemplated hereby will not render the Company (i) "insolvent" as that term is
defined in Section 101(32) of the United States Bankruptcy Code (the "Bankruptcy
Code"), or Section 271 of the New York Debtor and Creditor Law (the "NYDCL")
(ii) unable to pay its debts as they mature, within the meaning of Section
548(a)(2)(B)(iii) of the Bankruptcy Code or Section 275 of the NYDCL, or (iii)
left with an unreasonably small capital.
7. Termination.
(a) Termination of Agreement. The Parties hereto may terminate
this Agreement as follows:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) AAC may terminate this Agreement by giving written notice
to the Company at any time prior to the Effective Time (A) in the event the
Company has breached any material representation, warranty or covenant contained
in this Agreement when made or at any time prior to the Closing in any material
respect, AAC has notified the Company of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach, or
(B) if the Closing shall not have occurred on or before September 30, 1998, by
reason of the failure of any condition precedent under Section 6(a) hereof
(unless the failure results from a breach by AAC of any of its representations,
warranties or covenants or other agreements contained in this Agreement);
(iii) the Company may terminate this Agreement by giving
written notice to AAC at any time prior to the Effective Time (A) in the event
AAC has breached any material representation, warranty or covenant contained in
this Agreement when made or at any time prior to the Closing in any material
respect, the Company has notified AAC of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach, or
(B) if the Closing shall not have occurred on or before September 30, 1998, by
reason of the failure of any condition precedent under Section 6(b) hereof
(unless the failure results from a breach by the Company of any of its
representations, warranties, covenants or other agreements contained in this
Agreement);
(iv) the Company may terminate this Agreement by giving
written notice to AAC, at any time prior to the Effective Time, in the event
that a Person has made an Acquisition Proposal that the Board of Directors of
the Company determines, in good faith, and after consultation with and advice
from its financial advisors, is reasonably likely to be subject to completion
and would, if consummated, result in a transaction more favorable, from a
financial point of view, to the Company Stockholders than the Transactions
contemplated by this Agreement and the Merger (a "Superior Acquisition
Proposal");
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<PAGE>
(v) either the Company or AAC may terminate this Agreement by
giving written notice to the other Party at any time after the Special Meeting
in the event this Agreement and the Merger fail to receive the Requisite
Stockholder Approval;
(vi) AAC may terminate this Agreement by giving written notice
to the Company if (A) the Board of Directors of the Company shall have withdrawn
or modified or amended, in a manner adverse to AAC, either its approval or
recommendation of this Agreement and the Merger or its recommendation that the
Company Stockholders adopt and approve the Transactions contemplated by this
Agreement and the Merger, (B) the Board of Directors of the Company shall have
approved, recommended or endorsed any Superior Acquisition Proposal, or (C) if
the Company has failed to duly call the Special Meeting;
(vii) either the Company or AAC may terminate this Agreement
by giving written notice to the other Party hereto if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining AAC or the Company
from consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable.
(b) Effect of Termination. If either Party terminates this Agreement
pursuant to Section 7(a) above, all rights and obligations hereunder shall
terminate; provided, however, that (i) this Section 7(b), Section 5(i), Section
5(k), Section 5(p), Section 8 and the Confidentiality Agreement shall survive
any such termination and (ii) nothing herein shall release any Party from
Liability for any breach hereof.
8. Miscellaneous.
(a) Press Releases and Public Announcement. Neither the Company
nor AAC shall issue any press release or make any public announcement relating
to the subject matter of this Agreement without the prior written approval of
the other Party; provided, however, that the Company or AAC may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Party prior to making the disclosure).
(b) No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties hereto and their
respective successors and permitted assigns, other than Section 5(1) which shall
be for the benefit of the Persons set forth therein, which Person shall have the
independent right to enforce their rights under such Section.
(c) Entire Agreement. This Agreement (including the Exhibits and
the Schedules hereto and any attachments thereto) and the Confidentiality
Agreement constitute the entire agreement between the Parties hereto and
supersede any prior understandings, agreements or
39
<PAGE>
representations by or between the Parties hereto, written or oral, to the extent
they related in any way to the subject matter hereof, including, without
limitation, the Agreement, dated March 10, 1998, between the Company and CVC, as
amended.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party hereto may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other Party hereto.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) General Interpretive Principles. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(i) the terms defined in this Agreement include the plural as
well as the singular, and the use of any gender herein shall be deemed to
include the other gender;
(ii) accounting terms not otherwise defined herein have the
meanings given to them in accordance with GAAP;
(iii) references herein to "articles," "sections," "Sections,"
"subsections" and other subdivisions without reference to a document are to
designated articles, sections, Sections, subsections and other subdivisions of
this Agreement;
(iv) a reference to a subsection without further reference to
a section is a reference to such subsection as contained in the same section in
which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions;
(v) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision;
(vi) the term "include" or "including" shall mean without
limitation by reason of enumeration;
(vii) the headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement;
(viii) any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context otherwise requires; and
40
<PAGE>
(ix) the Parties have participated jointly in the negotiation
and drafting of this Agreement, and, in the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring either Party by virtue of the authorship of any of the
provisions of this Agreement.
(g) Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the day of service if served personally on the party
to whom notice is to be given; (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
provided that a copy shall be sent via certified mail, return receipt requested,
simultaneously with any such facsimile; (iii) on the business day after delivery
to Federal Express or similar overnight courier or the Express Mail service
maintained by the United States Postal Service; or (iv) on the fifth day after
mailing, if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid and properly addressed, to the
party as follows:
If to the Company: Allied Digital Technologies Corp.
140 Fell Court
Hauppauge, New York 11788
Facsimile: (516) 232-5370
Attention: George Fishman
Copy to: Warshaw Burstein Cohen Schlesinger & Kuh LLP
555 Fifth Avenue
New York, New York 10017
Facsimile: (212) 972-9150
Attention: Frederick R. Cummings, Jr., Esq.
If to AAC: Analog Acquisition Corp.
c/o 399 Venture Partners Inc.
399 Park Avenue
New York, New York 10043
Facsimile: (212) 888-2940
Attention: Richard M. Cashin, Jr.
Copies to: 399 Venture Partners Inc.
399 Park Avenue
New York, New York 10043
Facsimile: (212) 888-2940
Attention: Richard M. Cashin, Jr.
41
<PAGE>
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Facsimile: (212) 309-6273
Attention: Philip H. Werner, Esq.
Any Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule that would
cause the application of the laws of any jurisdiction other than the State of
New York, except to the extent that the DGCL applies as a result of the Company
being incorporated in the State of Delaware, in which case the DGCL shall apply.
(i) Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS AND FOR ANY COUNTERCLAIM RELATING
THERETO.
(j) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective Boards of Directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the DGCL. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both
Parties hereto. No waiver by either Party hereto of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence. No waiver shall be valid unless the same shall be in writing and
signed by both Parties.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction; provided, however, that if the
invalidity of any covenant, agreement or provision shall deprive any Party of
the economic benefit intended to be conferred by this Agreement, the Parties
shall negotiate in good faith to amend the Agreement in a manner so that the
economic effect of the Agreement, as amended, is as nearly as possible the same
as the economic effect of this Agreement.
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<PAGE>
(l) Expenses. Other than as expressly set forth herein, each of
the Parties will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the Transactions,
whether or not the Merger is consummated.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Transfer Taxes. Any Liability arising out of any real property
transfer taxes, if applicable, and due with respect to the Merger, shall be
borne by the Surviving Corporation and expressly shall not be a Liability of the
Company Stockholders.
(o) Limited Recourse. Notwithstanding anything in this Agreement,
the Voting Agreements or the Rollover Agreements to the contrary (except as
otherwise expressly provided in the Voting Agreements or the Rollover
Agreements, as the case may be), (i) the obligations and Liabilities of the
Parties hereunder and the parties thereunder shall be without recourse to any
stockholder of such Party or any of such stockholder's Affiliates (other than
the Parties), or any of their respective directors, employees, officers,
representatives or agents (in each case, in their capacity as such) and shall be
limited to the assets of such Party and (ii) the stockholders of AAC have made
no (and shall not be deemed to have made any) representations, warranties or
covenants (express or implied) under or in connection with this Agreement, the
Voting Agreements or the Rollover Agreements.
(p) Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each Party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 5(1) which shall be for the benefit of the Persons
set forth therein, which Person shall have the independent right to enforce
their rights under such Section.
(q) Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
(r) Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
(s) Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
----------------------------------
Name:
Title:
ANALOG ACQUISITION CORP.
By:
----------------------------------
Name:
Title:
44
<PAGE>
Exhibit A-1
(See Annex E)
<PAGE>
Exhibit A-2
(See Annex F)
<PAGE>
Exhibit B-1
(See Annex D-1)
<PAGE>
Exhibit B-2
(See Annex D-2)
<PAGE>
EXHIBIT C
AMENDED AND RESTATED
BY-LAWS
OF
ALLIED DIGITAL TECHNOLOGIES CORP.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of
such other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the
Chairman of the Board. Any special meeting of the stockholders shall be held
on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other
<PAGE>
than that stated in the notice of the meeting unless all of the stockholders
are present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these By-Laws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his or her address as it appears on the records of the
Corporation. The notice shall state the place, date and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of a majority in number of the total outstanding shares of stock of
the Corporation entitled to vote at such meeting, present in person or
represented by proxy, shall constitute a quorum of the stockholders for all
purposes, unless the representation of a larger number of shares shall be
required by law, by the Certificate of Incorporation or by these By-Laws, in
which case the representation of the number of shares so required shall
constitute a quorum; provided that at any meeting of the stockholders at which
the holders of any class of stock of the Corporation shall be entitled to vote
separately as a class, the holders of a majority in number of the total
outstanding shares of such class, present in person or represented by proxy,
shall constitute a quorum for purposes of such class vote unless the
representation of a larger number of shares of such class shall be required by
law, by the Certificate of Incorporation or by these By-Laws.
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SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
may adjourn from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the stockholders, or the holders of any class
of stock entitled to vote separately as a class, as the case may be, may
transact any business which might have been transacted by them at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board, or, in his
absence, the Chief Executive Officer, or, in the absence of the Chairman of
the Board and the Chief Executive Officer, the President, or, in the absence
of the Chairman of the Board, the Chief Executive Officer and the President, a
Vice President shall call all meetings of the stockholders to order, and shall
act as Chairman of such meetings. In the absence of the Chairman of the Board,
the
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<PAGE>
Chief Executive Officer, the President and all of the Vice Presidents, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the
Chairman may appoint any person to act as Secretary of the meeting. It shall
be the duty of the Secretary to prepare and make, at least ten days before
every meeting of stockholders, a complete list of stockholders entitled to
vote at such meeting, arranged in alphabetical order and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held,
for the ten days next preceding the meeting, to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, and shall be produced and kept at the time and place of the meeting
during the whole time thereof and subject to the inspection of any stockholder
who may be present.
SECTION 7. Voting. Except as otherwise provided in the
Certificate of Incorporation or by law, each stockholder shall be entitled to
one vote for each share of the capital stock of the Corporation registered in
the name of such stockholder upon the books of the Corporation. Each
stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for
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<PAGE>
him or her by proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation,
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in the election and,
whenever any corporate action, other than the election of Directors is to be
taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or
rejection of votes shall be decided at any meeting of the stockholders by one
or more Inspectors who may be appointed by the Board of Directors before the
meeting, or if not so appointed, shall be appointed by the presiding officer
at the meeting. If any person so appointed fails to appear or act, the vacancy
may be filled by appointment in like manner. Each inspector, before entering
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<PAGE>
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be made by hand or by certified or registered mail,
return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days
of the date the earliest dated consent is delivered to the Corporation, a
written consent or consents signed by a sufficient number of holders to take
action are delivered to the Corporation in the manner prescribed in the first
paragraph of this Section.
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<PAGE>
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of stockholders, and shall hold office until
their respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that
it is called for that purpose, remove, with or without cause, any Director and
fill the vacancy; provided that whenever any Director shall have been elected
by the holders of any class of stock of the Corporation voting separately as a
class under the provisions of the Certificate of Incorporation, such Director
may be removed and the vacancy filled only by the holders of that class of
stock voting separately as a class. Vacancies caused by any such removal and
not filled by the stockholders at the meeting at which such removal shall have
been made, or any vacancy caused by the death or resignation of any Director
or for any other reason, and any newly created directorship resulting from any
increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the Directors then in office, although less
than a quorum, and any Director so elected to fill any such
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<PAGE>
vacancy or newly created directorship shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
When one or more Directors shall resign effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective,
and each Director so chosen shall hold office as herein provided in connection
with the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to
time by resolution shall determine. No further notice shall be required for
any regular meeting of the Board of Directors; but a copy of every resolution
fixing or changing the time or place of regular meetings shall be mailed to
every Director at least five days before the first meeting held in pursuance
thereof.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board or by any two of the Directors then in office.
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<PAGE>
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the
meeting or by causing the same to be transmitted by facsimile, telegram or
telephone at least one day before the meeting to each Director. Unless
otherwise indicated in the notice thereof, any and all business other than an
amendment of these By-Laws may be transacted at any special meeting, and an
amendment of these By-Laws may be acted upon if the notice of the meeting
shall have stated that the amendment of these By-Laws is one of the purposes
of the meeting. At any meeting at which every Director shall be present, even
though without any notice, any business may be transacted, including the
amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and
the vote of the majority of the Directors present at any meeting of the Board
of Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present,
a majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board shall preside
at all meetings of the Board of Directors. In the absence of the Chairman of the
Board, a Chairman shall be elected from the Directors present. The Secretary of
the Corporation shall act as Secretary of all
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<PAGE>
meetings of the Directors; but in the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may designate one
or more committees including, without limitation, compensation and audit
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board of Directors
in the management of the business and the affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to approving or adopting, or recommending to the stockholders, any
action or matter expressly required by law to be submitted to stockholders for
approval, or adopting, amending or repealing these By-laws.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the
members of the Board of Directors or any committee designated by the Board,
may participate in a meeting of the Board or such
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committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence
in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the President, the
Chief Executive Officer, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting
after each annual meeting of the stockholders. The failure to hold such
election shall not of itself terminate the term of office of any officer. All
officers shall hold office at the pleasure of the Board of Directors. Any
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officer may resign at any time upon written notice to the Corporation.
Officers may, but need not, be Directors. Any number of offices may be held by
the same person.
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of
an officer without cause shall be without prejudice to his or her contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected
by the Board of Directors shall also be subject to removal, with or without
cause, at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any
officer so elected shall hold office at the pleasure of the Board of
Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors.
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SECTION 3. Powers and Duties of the Chief Executive Officer. The
Chief Executive Officer shall be the chief executive officer of the
Corporation, have general charge and control of all the Corporation's business
and affairs and, subject to the control of the Board of Directors, shall have
all powers and shall perform all duties incident to the office of Chief
Executive Officer. In the absence of the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. In addition, the Chief Executive Officer
shall have such other powers and perform such other duties as may from time to
time be assigned by these By-Laws or by the Board of Directors.
SECTION 4. Powers and Duties of the President. The President
shall, subject to the control of the Board of Directors, have all powers and
shall perform all duties incident to the office of President. In the absence
of the Chairman of the Board and the Chief Executive Officer, the President
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors. In the absence of the Chief Executive Officer, the
President shall be the chief executive officer of the Corporation, have
general charge and control of all the Corporation's business and affairs and
shall have such other powers and perform such other duties as may from time to
time be assigned by these By-Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such
other duties as may from time to time be assigned by
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these By-Laws or by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President.
SECTION 6. Powers and Duties of the Secretary. The Secretary
shall keep the minutes of all meetings of the Board of Directors and the
minutes of all meetings of the stockholders in books provided for that
purpose. The Secretary shall attend to the giving or serving of all notices of
the Corporation; shall have custody of the corporate seal of the Corporation
and shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall authorize and direct; shall have charge of the stock
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President shall direct, all of which shall at all
reasonable times be open to the examination of any Director, upon application,
at the office of the Corporation during business hours. The Secretary shall
have all powers and shall perform all duties incident to the office of
Secretary and shall also have such other powers and shall perform such other
duties as may from time to time be assigned by these By-Laws or by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer
shall have custody of, and when proper shall pay out, disburse or otherwise
dispose of, all funds and securities of the Corporation. The Treasurer may
endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in
such
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bank or banks or depositary or depositaries as the Board of Directors may
designate; shall sign all receipts and vouchers for payments made to the
Corporation; shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of and whenever required by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall render statements of such accounts. The Treasurer shall, at
all reasonable times, exhibit the books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and shall have all powers and shall perform all duties incident of the
office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned by these By-Laws or by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
SECTION 8. Additional Officers. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
The Board of Directors may from time to time by resolution
delegate to any Assistant Treasurer or Assistant Treasurers any of the powers
or duties herein assigned to the Treasurer;
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and may similarly delegate to any Assistant Secretary or Assistant Secretaries
any of the powers or duties herein assigned to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish
bonds to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President or any Vice President shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, or in the name of
the Corporation to execute proxies to vote, at any meeting of stockholders of
any corporation in which the Corporation may hold stock, and at any such
meeting shall possess and may exercise, in person or by proxy, any and all
rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers
upon any other person or persons.
SECTION 11. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services
as shall from time to time be determined by the Board of Directors.
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ARTICLE IV
Indemnification of Directors and Officers
Section 1. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "Proceeding"), by reason of the fact that he or
she is or was a director or officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "Indemnitee"), whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such Indemnitee in connection therewith and such
indemnification shall continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 3 of this Article IV with respect to Proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
Indemnitee in
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connection with a Proceeding (or part thereof) initiated by such Indemnitee
only if such Proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
Section 2. Right to Advancement of Expenses. The right to
indemnification conferred in Section 1 of this Article IV shall include the
right to be paid by the Corporation the expenses incurred in defending any
Proceeding for which such right to indemnification is applicable in advance of
its final disposition (hereinafter, an "Advancement of Expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an
Advancement of Expenses incurred by an Indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such Indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (hereinafter, an "Undertaking"), by or on behalf of such
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter, a "Final Adjudication") that such Indemnitee is not
entitled to be indemnified for such expenses under this Section or otherwise.
Section 3. Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 or
2 of this Article IV shall be contract rights. If a claim under Sections 1 or
2 of this Article IV is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an Advancement of Expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought
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by the Corporation to recover an Advancement of Expenses pursuant to the terms
of an Undertaking, the Indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
Indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the Indemnitee to enforce a right to an Advancement of Expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking the
Corporation shall be entitled to recover such expenses upon a Final
Adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the Indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to an
Advancement of Expenses hereunder, or by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the burden of
proving that the Indemnitee is not entitled to be indemnified, or to such
Advancement of Expenses, under this Section or otherwise shall be on the
Corporation.
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Section 4. Non-Exclusivity of Rights. The rights to
indemnification and to the Advancement of Expenses conferred in this Article
IV shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, the Corporation's certificate of
incorporation, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and to the
Advancement of Expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article IV with respect to the
indemnification and Advancement of Expenses of directors and officers of the
Corporation.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent
with the Certificate of Incorporation, as
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shall be approved by the Board of Directors. All certificates shall be signed
by the Chairman of the Board, the Chief Executive Officer, the President or a
Vice President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not
ceased to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue
thereof shall be entered on the books of the Corporation.
Except as hereinafter, provided, all certificates surrendered to
the Corporation for transfer shall be canceled, and no new certificates shall
be issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges
that it has been lost, stolen or destroyed,
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he or she shall file in the office of the Corporation an affidavit setting
forth, to the best of his or her knowledge and belief, the time, place and
circumstances of the loss, theft or destruction, and, if required by the Board
of Directors, a bond of indemnity or other indemnification sufficient in the
opinion of the Board of Directors to indemnify the Corporation and its agents
against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
a new certificate in replacement therefor. Thereupon the Corporation may cause
to be issued to such person a new certificate in replacement for the
certificate alleged to have been lost, stolen or destroyed. Upon the stub of
every new certificate so issued shall be noted the fact of such issue and the
number, date and the name of the registered owner of the lost, stolen or
destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his or her attorney duly authorized in writing, upon surrender
and cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power
and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment
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of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix
a record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not
be more than sixty (60) nor less than ten (10) days before the date of any
meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date
shall be at the close of business on the day on which the Board of Directors
adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall be not more than ten (10) days after
the date upon which the resolution fixing the record date is adopted. If no
record date has been fixed by
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the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed
by Article I, Section 9 hereof. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by the
Delaware General Corporation Law with respect to the proposed action by
written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors shall have power to
declare and pay dividends upon shares of stock of the Corporation, but only
out of funds available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date
fixed for the payment of any dividend shall in any year fall upon a legal
holiday, then the dividend payable on such date shall be paid on the next day
not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide
a suitable seal, containing the name of the Corporation, which seal shall be
kept in the custody of the Secretary.
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A duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board of Directors, the Chairman of the Board,
the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall
be such fiscal year as the Board of Directors from time to time by resolution
shall determine.
ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes,
obligations and orders for the payment of money made payable to the
Corporation may be endorsed for deposit to the credit of the Corporation with
a duly authorized depository by the Treasurer and/or such other officers or
persons as the Board of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation
may effect loans and advances for the Corporation
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from any bank, trust company or other institution or from any firm,
corporation or individual, and for such loans and advances may make, execute
and deliver promissory notes, bonds or other evidences of indebtedness of the
Corporation. When authorized so to do, any officer or agent of the Corporation
may pledge, hypothecate or transfer, as security for the payment of any and
all loans, advances, indebtedness and liabilities of the Corporation, any and
all stocks, securities and other personal property at any time held by the
Corporation, and to that end may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these
By-Laws or by law or as otherwise directed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President shall be authorized to execute and deliver, in the name and on
behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages,
and other instruments, either for the Corporation's own account or in a
fiduciary or other capacity, and the seal of the Corporation, if appropriate,
shall be affixed thereto by any of such officers or the Secretary or an
Assistant Secretary. The Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President or any Vice President designated by the
Board of Directors may authorize any other officer, employee or agent to
execute and deliver, in the name and on behalf of the Corporation, agreements,
bonds, contracts, deeds, mortgages, and other instruments, either for the
Corporation's own account or in a fiduciary or other capacity, and, if
appropriate, to affix the seal of the Corporation thereto. The grant of such
authority by the Board or any such officer may be general or confined to
specific instances.
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SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the
State of Delaware at such place or places as from time to time may be
determined by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended
or repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes
of the meeting; but these By-Laws and any amendment thereof may be altered,
amended or repealed or new By-Laws may be adopted by the holders of a majority
of the total outstanding stock of the Corporation entitled to vote at any
annual meeting or at any special meeting, provided, in the
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case of any special meeting, that notice of such proposed alteration,
amendment, repeal or adoption is included in the notice of the meeting.
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EXHIBIT D
Name Rollover Shares
- ---- ---------------
John K. Mangini 26,250
Donald L. Olesen 26,250
Steven Granat 2,500
Brian Wilson 5,000
Emily Hill 3,750
David Conrad 3,750
Charles A. Mantione 2,500
John Mangini, Jr. 2,500
Edward Simek 2,500
<PAGE>
EXHIBIT E
______________________, 1998
Analog Acquisition Corp.
c/o 399 Venture Partners Inc.
399 Park Avenue
New York, New York 10043
Gentlemen:
We have acted as special transaction counsel to ALLIED
DIGITAL TECHNOLOGIES CORP., a Delaware corporation ("ADT"), in connection that
certain Agreement and Plan of Merger, dated as of ______________, 1998 (the
"Merger Agreement"), by and between Analog Acquisition Corp., a Delaware
corporation ("AAC") and ADT. Our opinion is being delivered to you pursuant to
Section 6(a)(xvi) of the Merger Agreement. Capitalized terms used but not
defined herein shall have the respective meanings assigned to such terms in
the Merger Agreement.
In connection with the preparation of our opinion, we have
reviewed the Merger Agreement as well as the following documents: (i) the
Certificate of Incorporation of ADT, as amended to date, (ii) the By-Laws of
ADT in effect on the date hereof, (iii) the form of Stockholders Agreement
substantially in the form dated April __, 1998, to be entered into between AAC
and each Stockholder, (iv) the form of Rollover Agreement substantially in the
form dated April __, 1998, to be entered into between AAC and each
Stockholder, and (v) the form of Stockholder Voting and Rollover Agreement
substantially in the form, dated April __, 1998 to be entered into between AAC
and Donald Olesen. In addition, we have examined such other records of ADT,
and such other certificates and instruments, including certificates of public
officials, as we have considered necessary or appropriate under the
circumstances to render our opinion.
In rendering our opinion, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
certified or photostatic copies, and the authenticity of all such latter
documents, and we have assumed the incumbency and authority of all public
officials.
As to the matters of fact material to our opinion, we have
relied solely upon the representations and warranties made by ADT in the
Merger Agreement and upon certificates from
<PAGE>
public officials and officers of ADT or its Subsidiaries. We have assumed the
accuracy of the factual matters contained therein, and have not attempted to
verify independently any of such factual matters; however, nothing has come to
our attention which would cause us to question the accuracy of such factual
matters. Without limiting the generality of the foregoing, where the phrase
"to our knowledge" appears herein, the foregoing provisions of this paragraph
apply.
We have made such investigations of law as we have deemed
appropriate and necessary for our opinion, although we have not reviewed the
laws of any jurisdiction other than the laws of the State of New York, the
Delaware General Corporation Law and the federal laws of the United States.
Accordingly, we express no opinion as to the effect on the Transactions
described herein, and in the agreements and materials referred to herein, of
the laws of any State or other jurisdiction other than the laws of the state
of New York or the General Corporation Law of the State of Delaware or the
federal laws of the United States. As members of the Bar of the State of New
York, we do not purport to be experts on the laws of any other State.
In rendering our opinion, we also have assumed that the
Merger Agreement embodies the entire agreement between the parties thereto
with respect to the subject matter thereof, and has not been amended by oral
or written agreement or by conduct of the parties.
Our opinion is also qualified to the extent that the
enforceability of any provisions of the Merger Agreement or any of the rights
granted pursuant thereto, may be subject to or limited by (i) applicable
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally, and (ii) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or in law), including,
without limitation, (a) the possible unavailability of specific performance,
injunctive relief or other equitable remedies, and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
Based upon the foregoing and subject to the comments and
qualifications set forth below, we are of the opinion that:
1. ADT is a corporation validly existing and in good
standing under the laws of the State of Delaware.
2. Neither execution and delivery of the Merger Agreement,
nor the consummation of the Transactions contemplated thereby, will (a)
violate any applicable constitution, statute, regulation, rule, or to our
knowledge, any injunction, judgment, order, decree, ruling, charge or other
restriction, in each case, of any governmental or regulatory body or court to
which ADT or its Subsidiaries is subject, or any provision of the certificate
of incorporation or by-laws of ADT and its Subsidiaries, or (b) conflict with,
result in breach of, constitute a default under, or result in the acceleration
of, create in any Party the right to accelerate, terminate, modify, or cancel
or require any notice under any Contract set forth on Schedules 3(d)(i) and
3(d)(ii) of the Merger Agreement to which any of ADT and its Subsidiaries is a
party or by which it is bound or to which any of its assets
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is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give
notice would not have a Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the Transactions.
3. ADT has duly executed and delivered the Merger Agreement
and it constitutes a legally valid and binding obligation of ADT, enforceable
in accordance with its terms.
Our opinion and the matters addressed herein are as of the
date hereof and we undertake no, and disclaim any, obligation to advise you of
any change in any matter set forth herein after the date hereof. Our opinion
is furnished by us solely for your benefit in connection with the Transactions
referred to above, and it may not be relied upon, quoted by, or delivered to
any other person. Our opinion is limited to the matters stated herein and no
opinion is implied or may be inferred beyond the matters expressly stated
herein.
Our opinion is not to be furnished to any other person or
agency without our prior written consent, except (i) to your counsel, and (ii)
in a legal proceeding, to the court or any party thereto, and then only after
you have given us at least 20 days' prior written notice thereof (or such
shorter period of notice thereof as shall be available if the situation does
not permit 20 days' notice).
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<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262
DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares
of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the
merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in
writing pursuant to ss.228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value the
shareholder's stock under the circumstances described in
subsections (b) and (c) of this section. As used in this
section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a
non-stock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also
membership or membership interest of a member of a non-stock
corporation; and the words "depository receipt" mean a receipt
or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock in deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to ss.251 (other than a
merger effected pursuant to Section 251 (g) of this title),
Section 252, Section 254, Section 257, Section 258, Section 263
or Section 264 of this title.
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class
or series of stock, which stock, or depository receipts
in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice
of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any
shares of stock of the constituent corporation
surviving a merger if the merger did not require for
its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection
appraisal rights under this section shall be available
for the shares of any class or series of stock of a
constituent corporation if the holders thereof are
required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or
consolidation, or depository receipts in
respect thereof;
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b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which
shares of stock (or depository receipts in
respect thereof) or depository receipts at the
effective date of the merger or consolidation
will be either listed on a national securities
exchange or designated as a national market
system security on an interdealer quotation
system by the National Association of
Securities Dealers, Inc. or held of record by
more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in
the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of
fractional shares or fractional depository
receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section
253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an
amendment to its certificate of incorporation, any merger or
consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to
be submitted for approval at a meeting of stockholders,
the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect
to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal
rights are available for any or all of the shares of
the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand
for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10
days after the effective date of such merger or
consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent
corporation who has complied with this subsection and
has not voted in favor of or consented to the merger or
consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each
constituent corporation, either before the effective
date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any
class or series of stock of such constituent
corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that
appraisal rights are available for any or all shares of
such class or series of stock of such constituent
corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on
or after the effective date of the merger or
consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders
of any
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class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the
merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of
such notice,demand in writing from the surviving or
resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to
demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each
such constituent corporation shall send a second notice
before the effective date of the merger or
consolidation notifying each of the holders of any
class or series of stock of such constituent
corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within
10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days
following the sending of the first notice, such second
notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the
corporation that is required to give either notice that
such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that
shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given
on or after the effective date of the merger or
consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is
given prior to the effective date, the record date
shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any
stockholder who has complied with requirements of subsections
(a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file
in the office of the Register in Chancery in which the petition
was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or
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resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given
by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this
section and who have become entitled to appraisal rights. The
Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court
of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any other
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may
order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against
the value of all of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal
rights as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the
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time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal
and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which
the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
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ANNEX D-1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLIED DIGITAL TECHNOLOGIES CORP.
----------------------------------------------------------------
The undersigned officer of ALLIED DIGITAL TECHNOLOGIES CORP.,
a corporation organized and existing under the laws of the State of Delaware
(the 'Corporation') does hereby certify on behalf of the Corporation as follows:
WHEREAS, the name of the Corporation is Allied Digital
Technologies Corp.;
WHEREAS, this Amended and Restated Certificate of
Incorporation is being filed pursuant to Sections 242 and 245 of the Delaware
General Corporation Law in order to amend and restate the Certificate of
Incorporation of the Corporation, as amended by the Certificate of Amendment.
The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated in its entirety as follows:
1. The name of the corporation is Allied Digital Technologies
Corp.
2. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
4. The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,250,000 shares, consisting of (a)
500,000 shares of Class A Common Stock, par value $0.01 per share (the 'Class A
Common'); (b) 250,000 shares of Class B Common Stock, par value $0.01 per share
(the 'Class B Common'; the Class A Common and the Class B Common hereinafter
being referred to collectively as the 'Common Stock') and (c) 500,000 shares of
Preferred Stock, par value $0.01 per share (the 'Preferred Stock').
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PART I
DEFINITIONS
-----------
(A) The following terms shall have the following meanings in this
Certificate of Incorporation (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
'Affiliate' means with respect to any Person, any other
Person that controls, is controlled by or is under common control with such
Person. For the purposes of this definition, 'control' (including its
correlative meanings, the terms 'controlling', 'controlled by' and 'under common
control with'), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of securities, by
contract or otherwise.
'Board of Directors' means the board of directors of the
Corporation.
'Business Day' means a day, other than a Saturday or Sunday,
on which banks in New York, New York are open for business.
'Effective Time' means the date upon which the certificate of
merger regarding the merger of Analog Acquisition Corp. with and into the
Corporation is filed with the Secretary of State of the State of Delaware.
'Person' or 'person' means an individual, partnership,
corporation, limited liability company or partnership, trust, unincorporated
organization, joint venture, government (or agency or political subdivision
thereof) or any other entity of any kind.
'Qualifying Offering' means the consummation by the
Corporation, after the Effective Time, of an underwritten primary or secondary
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act, covering the distribution of the Common Stock which
(taken together with all similar previous public offerings subsequent to the
Effective Time) raises at least $15 million of aggregate net proceeds to the
Company (after underwriters' fees, commissions and discounts and offering
expenses).
'Sale of the Company' means the sale of the Corporation
(whether by merger, consolidation, recapitalization, reorganization, sale of
securities, sale of assets or otherwise) in one transaction or series of related
transactions to a Person or Persons pursuant to which such Person or Persons
(together with its Affiliates) acquires (1) securities representing at least a
majority of the voting power of all securities of the Corporation, assuming the
conversion, exchange or exercise of all securities convertible, exchangeable or
exercisable for or into voting securities, or (2) all or substantially all of
the Corporation's assets on a consolidated basis.
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'Securities Act' means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated thereunder.
'Tax' or 'Taxes' means all Federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
(B) The following terms, when used in this Amended and Restated
Certificate of Incorporation, shall have the meanings provided for such terms in
the Sections set forth below (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
Section (Part)
Term of Article FOURTH
---- -----------------
Class A Common preamble
Class B Common preamble
Common Stock preamble
Date of Issuance A(3)(b) (Part III)
Dividend Payment Date A(3)(c) (Part III)
Dividend Period A(3)(b) (Part III)
Dividend Rate A(3)(b) (Part III)
Junior A Stock A(3)(e) (Part III)
Preferred Liquidation Value A(3)(d) (ii) (Part III)
Preferred Stock preamble
Redemption Date A(4)(a) (iii) (Part III)
Redemption Event A(4)(a) (i) (Part III)
Redemption Price A(4)(a) (iii) (Part III)
Series A Preferred A(1)(a) (Part III)
Special Acquisition A(4)(d) (Part III)
Stated Value A(1)(b) (Part III)
PART II
COMMON STOCK
------------
The powers and rights of the shares of each class of Common Stock, and
the qualifications, limitations or restrictions thereof, are set forth in this
Part II.
(A) (1) Voting Rights. Except as expressly provided herein
or as required under the GCL, on all matters to be voted on by the Corporation's
stockholders, (a) each holder of record of shares of Class A Common will be
entitled to one vote per share so held, and (b) each holder of record of shares
of Class B Common will be entitled to no voting rights.
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(2) Cumulative Voting in Election of Directors. In any
election of Directors of the Corporation, there shall be cumulative voting for
election of Directors so that any holder of shares of the Corporation entitled
to vote generally in the election of Directors may cumulate the voting power
represented by his shares and give one candidate a number of votes equal to the
number of Directors to be elected multiplied by the number of votes to which
such shares are entitled, or distribute such votes on the same principle among
as many candidates for election as such holder of shares determines.
(3) Removal Without Cause. If at any time less than the
entire Board of Directors is to be removed, no Director may be removed from
office without cause if the votes cast against his removal would be sufficient
to elect him as a Director if then cumulatively voted at an election of the
entire Board of Directors.
(4) Amendment, Repeal or Alteration. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 95% of the combined voting power of
the outstanding shares of the Common Stock entitled to vote thereon, voting
together as a single class, shall be required to alter, change, amend, repeal or
adopt any provision inconsistent with this Section (A) of this Part II.
(B) Dividends. When and as dividends are declared or paid on
shares of Common Stock, whether in cash, property or securities, each holder of
record of shares of Common Stock will be entitled to a ratable portion of such
dividend, based upon the number of shares of Common Stock then held of record by
each such holder, provided that (1) if dividends are declared in shares of
Common Stock, such dividends will be declared and paid at the same rate per
share on each class of Common Stock, and, unless the Corporation obtains the
prior affirmative vote or written consent of at least 95% of the issued and
outstanding shares of each class of Common Stock, dividends payable in shares of
a specific class of Common Stock will be payable only to holders of that
particular class of Common Stock; provided, further, that any dividend or
distribution payable to one class of Common Stock entitles the other class of
Common Stock to the same form and distribution amount (except as provided for in
(2) below) on the same date, and (2) if the dividends consist of voting
securities of the Corporation, the Corporation will make available to each
holder of Class B Common, at such holder's request, dividends consisting of
non-voting securities of the Corporation, which are otherwise identical to the
voting securities and which are convertible into or exchangeable for such voting
securities on the same terms as the shares of Class B Common are convertible
into the shares of Class A Common.
(C) Stock Splits; Combinations. If the Corporation, in any
manner, subdivides or combines (by stock split, stock dividend or otherwise) the
issued and the outstanding shares of any class of Common Stock, the issued and
outstanding shares of the other class of Common Stock will be proportionately
subdivided or combined , unless the Corporation obtains the prior affirmative
vote or consent of the holders of all of the issued and outstanding shares of
the Class A Common and the Class B Common voting together as a single class.
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(D) Liquidation.
(1) Ratable Participation. The holders of the Common
Stock will be entitled to share ratably, on the basis of the number of shares of
Common Stock then held by each such holder, in all distributions to the holders
of the Common Stock in any liquidation, dissolution or winding-up of the
Corporation.
(2) Mergers, etc. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
(E) Conversion.
(1) Optional Conversion of Class A Common. Each share of
Class A Common is convertible into one share of Class B Common at the option of
the holder.
(2) Optional Conversion of Class B Common. Each share of
Class B Common is convertible into one share of Class A Common at the option of
the holder.
(3) Conversion Procedure.
(a) Each conversion of shares of one class of
Common Stock into shares of another class of Common Stock will be effected by
the surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with written notice by the holder of such shares
stating that the holder desires to convert the shares, or a stated number of the
shares, of a class of Common Stock represented by such certificate or
certificates into such other class of Common Stock.
(b) Each conversion of shares of one class
of Common Stock into shares of another class of Common Stock will be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates were surrendered and such notice was received. At
such time the rights of the holder of the converted Common Stock as such holder
will cease and the person or persons in whose name or names the certificate or
certificates for shares of such other class of Common Stock are to be issued
upon such conversion will be deemed to have become the holder or holders of
record of the shares of such other class of Common Stock represented thereby.
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(c) Following each surrender of certificates
and the receipt of such written notice, the Corporation will issue and deliver
in accordance with the surrendering holder's instructions (i) the certificate or
certificates for the class of Common Stock issuable upon such conversion and
(ii) a certificate representing any Common Stock which was represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but which was not converted.
(d) The issuance of certificates for a class
of Common Stock upon conversion of any class of Common Stock will be made
without charge to the holders of such shares for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of such other class of Common Stock.
(e) The Corporation will at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common and Class B Common the number of such shares sufficient for issuance upon
conversion of any Class A Common and Class B Common hereunder.
(f) The Corporation will not close its books
against the transfer of any class of Common Stock in any manner which would
interfere with the timely conversion of any class of Common Stock.
(F) Mergers, etc. In connection with any merger, consolidation or
recapitalization in which holders of Class A Common generally receive, or are
given the opportunity to receive, consideration for their shares, then, in all
such circumstances, unless otherwise approved by the holders of a majority of
shares of Class B Common voting as a separate class, all holders of Class B
Common shall be given the opportunity to receive the same form and amount of
consideration per share.
PART III
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series, the number of shares and any designation of each series and the powers
(including voting powers), designations, preferences and relative,
participating, optional, and other special rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
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(A) Series A Preferred Stock
(1) Designation.
(a) Series A Preferred. A series of Preferred
Stock is hereby created with the designations, powers, preferences and rights
set forth herein. The Corporation is authorized to issue a series of Preferred
Stock designated as Series A Preferred Stock consisting of 250,000 shares (the
'Series A Preferred').
(b) Stated Value; Date of Issuance. Each
share of Series A Preferred shall have a stated value of $100 (the 'Stated
Value'). No shares of Series A Preferred will be issued except as part of the
original issuance thereof. The date on which the Corporation initially issues
any share of Preferred Stock will be deemed its 'Date of Issuance' regardless of
the number of times transfer of such share is made on the stock records of the
Corporation and regardless of the number of certificates which may be issued to
evidence such share.
(c) Ranking. For so long as any shares of
Series A Preferred are issued and outstanding, the Corporation will not issue
any series of Preferred Stock which will be senior or pari passu with respect to
payment of dividends, other distributions, preference on redemption or
liquidation rights or otherwise; provided, however, that holders of more than a
majority of the shares of Series A Preferred may consent to the issuance of
Preferred Stock ranking senior or pari passu to the Series A Preferred.
(2) Voting.
(a) No Voting Rights Generally. Except as
otherwise provided specifically herein or required by law, none of the shares of
Series A Preferred shall have any voting rights.
(b) Consent Requirements. For so long as
shares of Series A Preferred are issued and outstanding, the affirmative vote or
consent of the holders of more than a majority of all of the shares of Series A
Preferred at the time issued and outstanding, voting as a separate class, given
in person or by proxy either in writing (as may be permitted by law and the
Certificate of Incorporation and By-laws of the Corporation) or at any special
or annual meeting, shall be necessary to permit, effect or validate the taking
of any of the following actions by the Corporation, whether such actions are
effected directly or through a merger or another transaction (provided, that, no
such affirmative vote or consent shall be required in connection with a merger
or other transaction which would effect such an action if such merger or other
transaction would result in a Sale of the Company, so long as prior to or
simultaneously with completion of that transaction, the Series A Preferred will
be redeemed in full):
(i) the amendment of the Certificate
of Incorporation or By-laws of the Corporation, or the alteration or change of
the powers, rights, privileges or
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preferences of the Series A Preferred, if such amendment, alteration or change
would adversely affect any of the powers, rights, privileges or preferences of
the holders of the Series A Preferred;
(ii) the authorization of (or
issuance of any shares of) any class of Preferred Stock which ranks senior to or
pari passu with the Series A Preferred with respect to dividends or upon
liquidation, dissolution or winding-up of the Corporation;
(iii) the increase of the number of
shares of Series A Preferred authorized for issuance; or
(iv) the issuance after the Effective
Time of any shares of Series A Preferred (excluding the issuance of share
certificates upon transfers or exchanges of shares by holders (other than the
Corporation) thereof or upon replacement of lost, stolen, damaged or mutilated
share certificates), except for issuances of shares of Series A Preferred which
have been redeemed or otherwise acquired.
(3) Dividends; Cash and Stock Dividends.
(a) Payment. Dividends will be payable on
each share of Series A Preferred, in cash, as provided herein when, as and if
declared by the Board of Directors, to the extent funds are legally available
therefor.
(b) Rates; Dates Payable. Dividends on
shares of Series A Preferred will be payable in cash at a rate per annum equal
to 12% of the Preferred Liquidation Value (as defined in Section 3(d)(ii) below)
thereof (the 'Dividend Rate'). Such dividends shall be payable semi-annually on
June 30 and December 31 of each year (each such date hereinafter referred to as
a 'Dividend Payment Date' and each such dividend period hereinafter referred to
as a 'Dividend Period') (or, if such date is not a Business Day, then on the
next succeeding Business Day), to the holders of record as they appear on the
register of the Corporation for the shares of such Series A Preferred.
(c) Record Date. The Board of Directors may
fix a record date for the determination of holders of shares of Series A
Preferred entitled to receive payment of the dividends payable pursuant to
Section 3(b), which record date shall not be more than 60 days prior to the
Dividend Payment Date.
(d) Accrual.
(i) Dividends on the shares of
Series A Preferred shall accrue cumulatively on a daily basis and shall accrue
from the Date of Issuance to and including the date on which the redemption of
such share of Series A Preferred shall have been effected or on which full
payment with respect to such share shall have been made pursuant to any
liquidation, dissolution or winding-up of the Corporation, whether or not such
dividends have
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been declared and whether or not there shall be (at the time such dividends
became or become payable or any other time) profits, surpluses or other funds of
the Corporation legally available for the payment of dividends.
(ii) To the extent not paid on any
Dividend Payment Date, all dividends which have accrued on any share of Series A
Preferred then outstanding during the period from and including the preceding
Dividend Payment Date (or from and including the Date of Issuance in the case of
the initial Dividend Payment Date) to (but excluding) such Dividend Payment Date
shall be added on such Dividend Payment Date to the Preferred Liquidation Value
of such share of Series A Preferred (so that, without limitation, dividends
shall thereafter accrue in respect of the amount of such accrued but unpaid
dividends) and shall remain a part thereof until (but only until) such dividends
are paid. The 'Preferred Liquidation Value' of any share of Series A Preferred
as of a particular date shall be equal to the sum of $100 plus an amount equal
to any accrued and unpaid dividends (whether or not earned or declared) on such
share of Series A Preferred added to the Preferred Liquidation Value of such
share of Series A Preferred on any Dividend Payment Date pursuant to this
Section 3(d) and not thereafter paid.
(e) Priority. For so long as any shares of
Series A Preferred shall be outstanding, no dividend or distribution, whether in
cash, stock or other property, shall be paid, declared and set apart for payment
or made on any date on or in respect to the Common Stock, or any other class or
series of stock of the Corporation ranking junior to the Series A Preferred
(together with the Common Stock, a 'Junior A Stock') as to dividends or
distributions of assets upon liquidation, dissolution or winding up, and no
payment on account of the redemption, purchase or other acquisition or
retirement for value by the Corporation of shares of Common Stock or any other
Junior A Stock shall be made on any date unless, in each case, the full amount
of unpaid dividends accrued on all outstanding shares of Series A Preferred
shall have been paid or contemporaneously are declared and paid; provided,
however, that the foregoing provisions of this sentence shall not prohibit (i) a
dividend payable solely in shares of Common Stock or any other Junior A Stock or
(ii) the acquisition of any shares of any Common Stock or any other Junior A
Stock upon conversion or exchange thereof into or for any shares of any other
class of Common Stock or other Junior A Stock.
(4) Redemption.
(a) Redemption by the Corporation.
(i) To the extent funds are legally
available therefor, on the earlier of (x) ________, 2009 1/ , or if such date is
not a Business Day then on the next Business Day, and (y) the date on which a
Sale of the Company or a Qualifying Offering occurs, the Corporation shall
redeem at the Redemption Price therefor all issued and outstanding shares of
- --------
1/ Day and month of closing.
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Series A Preferred (the events described in any of the above clauses (x) or (y)
are each referred to herein as a 'Redemption Event').
(ii) To the extent funds are legally
available therefor, on any Business Day prior to a Redemption Event, the
Corporation, at its option, may redeem at the Redemption Price therefor all or
any portion of the shares of Series A Preferred then issued and outstanding.
(iii) The date on which shares of
Series A Preferred are required to be redeemed pursuant to this Section 4 is
referred to herein as the 'Redemption Date.' If, on the Redemption Date, there
shall be insufficient funds of the Corporation legally available for the
complete redemption of the Series A Preferred, such amount of the funds as is
legally available shall be used for the redemption obligation as described in
Section 4(d) of this Part III. If the Corporation shall fail to discharge its
obligation to redeem shares of the Series A Preferred upon the occurrence of a
Redemption Event, such obligation shall be discharged as soon as the Corporation
is permitted by law to discharge such obligations. Such redemption obligation
shall be cumulative so that if such obligation shall not be fully discharged for
any reason, all funds legally available therefor shall immediately be applied
thereto upon receipt by the Corporation until such obligation is discharged.
The redemption price (the 'Redemption Price') for each outstanding share of
Series A Preferred to be redeemed pursuant to this Section 4(a) shall be the
Preferred Liquidation Value thereof as of the Redemption Date.
(b) Payment of Redemption Price. Each payment
of the Redemption Price in accordance with Section 4(a)(iii) of this Part III
shall be made to the holder of each share of Series A Preferred being redeemed,
upon surrender by such holder at the Corporation's principal executive office of
the certificate representing such share of Series A Preferred, duly endorsed in
blank or accompanied by an appropriate form of assignment.
(c) Redeemed Shares not to be Reissued. All
shares of Series A Preferred redeemed pursuant to Section 4(a) of this Part III
shall be retired and canceled and shall not thereafter be reissued. This Section
shall not apply to any shares of Series A Preferred which is otherwise redeemed,
purchased or acquired by the Corporation.
(d) Amount of Shares Redeemed. The
Corporation may acquire shares of the Series A Preferred from time to time
without redeeming or otherwise acquiring all or any other issued and outstanding
shares of the Series A Preferred (such acquisition, a 'Special Acquisition').
Except with respect to any Special Acquisition, if less than all of the issued
and outstanding shares of Series A Preferred is to be redeemed pursuant to this
Section 4, the Corporation shall determine the number of shares held by each
holder of such series to be redeemed as hereinafter provided. The number of
shares of Series A Preferred to be redeemed from each holder thereof shall be
the number of shares determined by multiplying the total
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number of shares of Series A Preferred to be redeemed by a fraction, the
numerator of which shall be the total number of shares of Series A Preferred
then held by such holder and the denominator of which shall be the total number
of shares of Series A Preferred then issued and outstanding.
(e) Notice of Redemption. Notice of the
redemption of shares of Series A Preferred pursuant to Section 4(a) of this Part
III, specifying the time and place of redemption and the Redemption Price, shall
be mailed by certified or registered mail, return receipt requested, to each
holder of record of shares to be redeemed, at the address for such holder shown
on the stock records of the Corporation not less than 10 Business Days prior to
the date on which such redemption is to be made; provided, that neither failure
to give such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any shares of Series A Preferred to be
redeemed. Such notice shall also specify the number of shares of Series A
Preferred of each holder thereof and the certificate numbers thereof which are
to be redeemed. In case less than all the shares of Series A Preferred
represented by any certificate are redeemed, a new certificate representing the
unredeemed shares shall be issued to the holder thereof without cost to such
holder.
(f) Dividends After Redemption Date. Unless
the Redemption Price is not made available on the Redemption Date to the holder
of a share of Series A Preferred, then from and after the Redemption Date, such
share of Series A Preferred shall not be entitled to any dividends accruing
after such date, all rights of the holder of such share of Series A Preferred as
a stockholder of the Corporation by reason of the ownership of such share of
Series A Preferred shall cease, except the right to receive the Redemption Price
of such share of Series A Preferred upon the presentation and surrender of the
certificate representing such share of Series A Preferred and such share of
Series A Preferred shall not after such date be deemed to be outstanding for any
purpose.
(5) Liquidation Rights.
(a) Preference. Upon the dissolution,
liquidation or winding-up of 0the Corporation, whether voluntary or involuntary,
the holders of issued and outstanding shares of Series A Preferred shall be
entitled to receive, out of the assets of the Corporation available for
distribution to stockholders, before any payment or distribution shall be made
to the holders of Common Stock or any other Junior A Stock, an amount per share
of Series A Preferred, in cash, equal to the Preferred Liquidation Value of such
shares as of the date of final distribution. Such assets shall be distributed
ratably among the shares of Series A Preferred.
(b) Preferences are not Participating. After
the payment to the holders of the shares of Series A Preferred of the full
preferential amounts provided for in Section 5 of this Part III the holders of
shares of Series A Preferred shall have no right or claim to any of the
remaining assets of the Corporation.
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(c) Mergers, etc. Neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to make, alter or
repeal the bylaws of the corporation.
7. Elections of directors need not be by written ballot unless
the bylaws of the corporation shall so provide.
8. Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the bylaws of the corporation.
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit.
Any repeal, amendment or other modification of this Article
shall not increase the liability or alleged liability of any director of the
corporation then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. If the
General Corporation Law of the State of Delaware is subsequently amended to
authorize corporate action further eliminating or limiting personal liability of
directors, then the liability of directors shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as so amended.
11. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the
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application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation as the case may be,
and also on this corporation.
12. Any action required or permitted under the General Corporation
Law of the State of Delaware to be taken at an annual or special meeting of
stockholders may be taken without a meeting and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted. Not less than ten (10) days
prior written notice of the corporate action to be taken without a meeting by
less than unanimous written consent shall be given to stockholders who have not
consented in writing.
13. The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors. The number of directors which
shall constitute the whole board shall be not more than twelve (12) nor less
than one (1), the exact number of directors to be determined from time to time
by resolution adopted by affirmative vote of a majority of the entire Board of
Directors. The directors shall be divided into three classes designated Class I,
Class II, and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors constituting the entire Board of
Directors. The initial term of the Class I directors shall expire at the first
annual meeting of stockholders after the Effective Time, the initial term of the
Class II directors shall expire at the second annual meeting of stockholders
after the Effective Time and the initial term of the Class III directors shall
expire at the third annual meeting of stockholders after the Effective Time. At
each annual meeting of stockholders, successors to the class of directors whose
term expires at the annual meeting shall be elected for a three-year term. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his or her term expires and until his or her successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
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Directors may only be removed only for cause. The initial Board of Directors of
the corporation immediately after the Effective Time shall consist of nine (9)
directors. This Article 13 may not be amended or repealed unless approved by the
affirmative vote of not less than two-thirds of the outstanding shares of the
corporation entitled to vote in an election of directors.
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Certificate of Incorporation on behalf of the Corporation and does
verify and affirm, under penalty of perjury, that this Amended and Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this ___ day of __________, 1998.
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
-----------------------------------
Name:
Title:
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ANNEX D-2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLIED DIGITAL TECHNOLOGIES CORP.
----------------------------------------------------------------
The undersigned officer of ALLIED DIGITAL TECHNOLOGIES CORP.,
a corporation organized and existing under the laws of the State of Delaware
(the 'Corporation') does hereby certify on behalf of the Corporation as follows:
WHEREAS, the name of the Corporation is Allied Digital
Technologies Corp.;
WHEREAS, this Amended and Restated Certificate of
Incorporation is being filed pursuant to Sections 242 and 245 of the Delaware
General Corporation Law in order to amend and restate the Certificate of
Incorporation of the Corporation, as amended by the Certificate of Amendment.
The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated in its entirety as follows:
1. The name of the Corporation is Allied Digital Technologies
Corp.
2. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
4. The total number of shares of capital stock which the
Corporation shall have authority to issue is 1,250,000 shares, consisting of (a)
500,000 shares of Class A Common Stock, par value $0.01 per share (the 'Class A
Common'); (b) 250,000 shares of Class B Common Stock, par value $0.01 per share
(the 'Class B Common'; the Class A Common and the Class B Common hereinafter
being referred to collectively as the 'Common Stock') and (c) 500,000 shares of
Preferred Stock, par value $0.01 per share (the 'Preferred Stock').
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PART I
DEFINITIONS
(A) The following terms shall have the following meanings in this
Certificate of Incorporation (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
'Affiliate' means with respect to any Person, any other Person
that controls, is controlled by or is under common control with such Person. For
the purposes of this definition, 'control' (including its correlative meanings,
the terms 'controlling', 'controlled by' and 'under common control with'), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of securities, by contract or otherwise.
'Board of Directors' means the board of directors of the
Corporation.
'Business Day' means a day, other than a Saturday or Sunday,
on which banks in New York, New York are open for business.
'Effective Time' means the date upon which the certificate
of merger regarding the merger of Analog Acquisition Corp. with and into the
Corporation is filed with the Secretary of State of the State of Delaware.
'Person' or 'person' means an individual, partnership,
corporation, limited liability company or partnership, trust, unincorporated
organization, joint venture, government (or agency or political subdivision
thereof) or any other entity of any kind.
'Qualifying Offering' means the consummation by the
Corporation, after the Effective Time, of an underwritten primary or secondary
public offering of Common Stock pursuant to an effective registration statement
under the Securities Act, covering the distribution of the Common Stock which
(taken together with all similar previous public offerings subsequent to the
Effective Time) raises at least $15 million of aggregate net proceeds to the
Company (after underwriters' fees, commissions and discounts and offering
expenses).
'Sale of the Company' means the sale of the Corporation
(whether by merger, consolidation, recapitalization, reorganization, sale of
securities, sale of assets or otherwise) in one transaction or series of related
transactions to a Person or Persons pursuant to which such Person or Persons
(together with its Affiliates) acquires (1) securities representing at least a
majority of the voting power of all securities of the Corporation, assuming the
conversion, exchange or exercise of all securities convertible, exchangeable or
exercisable for or into voting securities, or (2) all or substantially all of
the Corporation's assets on a consolidated basis.
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'Securities Act' means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated thereunder.
'Tax' or 'Taxes' means all Federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
(B) The following terms, when used in this Amended and Restated
Certificate of Incorporation, shall have the meanings provided for such terms in
the Sections set forth below (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
Section (Part)
Term of Article FOURTH
---- -----------------
Class A Common preamble
Class B Common preamble
Common Stock preamble
Date of Issuance A(3)(b) (Part III)
Dividend Payment Date A(3)(c) (Part III)
Dividend Period A(3)(b) (Part III)
Dividend Rate A(3)(b) (Part III)
Junior A Stock A(3)(e) (Part III)
Preferred Liquidation Value A(3)(d) (ii) (Part III)
Preferred Stock preamble
Redemption Date A(4)(a) (iii) (Part III)
Redemption Event A(4)(a) (i) (Part III)
Redemption Price A(4)(a) (iii) (Part III)
Series A Preferred A(1)(a) (Part III)
Special Acquisition A(4)(d) (Part III)
Stated Value A(1)(b) (Part III)
PART II
COMMON STOCK
------------
The powers and rights of the shares of each class of Common Stock, and
the qualifications, limitations or restrictions thereof, are set forth in this
Part II.
(A) (1) Voting Rights. Except as expressly provided herein
or as required under the GCL, on all matters to be voted on by the Corporation's
stockholders, (a) each holder of record of shares of Class A Common will be
entitled to one vote per share so held, and (b) each holder of record of shares
of Class B Common will be entitled to no voting rights.
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(2) Cumulative Voting in Election of Directors. In any
election of Directors of the Corporation, there shall be cumulative voting for
election of Directors so that any holder of shares of the Corporation entitled
to vote generally in the election of Directors may cumulate the voting power
represented by his shares and give one candidate a number of votes equal to the
number of Directors to be elected multiplied by the number of votes to which
such shares are entitled, or distribute such votes on the same principle among
as many candidates for election as such holder of shares determines.
(3) Removal Without Cause. If at any time less than the
entire Board of Directors is to be removed, no Director may be removed from
office without cause if the votes cast against his removal would be sufficient
to elect him as a Director if then cumulatively voted at an election of the
entire Board of Directors.
(4) Amendment, Repeal or Alteration. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 95% of the combined voting power of
the outstanding shares of the Common Stock entitled to vote thereon, voting
together as a single class, shall be required to alter, change, amend, repeal or
adopt any provision inconsistent with this Section (A) of this Part II.
(B) Dividends. When and as dividends are declared or paid on
shares of Common Stock, whether in cash, property or securities, each holder of
record of shares of Common Stock will be entitled to a ratable portion of such
dividend, based upon the number of shares of Common Stock then held of record by
each such holder, provided that (1) if dividends are declared in shares of
Common Stock, such dividends will be declared and paid at the same rate per
share on each class of Common Stock, and, unless the Corporation obtains the
prior affirmative vote or written consent of at least 95% of the issued and
outstanding shares of each class of Common Stock, dividends payable in shares of
a specific class of Common Stock will be payable only to holders of that
particular class of Common Stock; provided, further, that any dividend or
distribution payable to one class of Common Stock entitles the other class of
Common Stock to the same form and distribution amount (except as provided for in
(2) below) on the same date, and (2) if the dividends consist of voting
securities of the Corporation, the Corporation will make available to each
holder of Class B Common, at such holders request, dividends consisting of
non-voting securities of the Corporation, which are otherwise identical to the
voting securities and which are convertible into or exchangeable for such voting
securities on the same terms as the shares of Class B Common are convertible
into the shares of Class A Common.
(C) Stock Splits; Combinations. If the Corporation, in any manner,
subdivides or combines (by stock split, stock dividend or otherwise) the issued
and the outstanding shares of any class of Common Stock, the issued and
outstanding shares of the other class of Common Stock will be proportionately
subdivided or combined , unless the Corporation obtains the prior affirmative
vote or consent of the holders of all of the issued and outstanding shares of
the Class A Common and the Class B Common voting together as a single class.
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(D) Liquidation.
(1) Ratable Participation. The holders of the Common
Stock will be entitled to share ratably, on the basis of the number of shares of
Common Stock then held by each such holder, in all distributions to the holders
of the Common Stock in any liquidation, dissolution or winding-up of the
Corporation.
(2) Mergers, etc. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
(E) Conversion.
(1) Optional Conversion of Class A Common. Each share of
Class A Common is convertible into one share of Class B Common at the option of
the holder.
(2) Optional Conversion of Class B Common. Each share of
Class B Common is convertible into one share of Class A Common at the option of
the holder.
(3) Conversion Procedure.
(a) Each conversion of shares of one class of
Common Stock into shares of another class of Common Stock will be effected by
the surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with written notice by the holder of such shares
stating that the holder desires to convert the shares, or a stated number of the
shares, of a class of Common Stock represented by such certificate or
certificates into such other class of Common Stock.
(b) Each conversion of shares of one class
of Common Stock into shares of another class of Common Stock will be deemed to
have been effected as of the close of business on the date on which such
certificate or certificates were surrendered and such notice was received. At
such time the rights of the holder of the converted Common Stock as such holder
will cease and the person or persons in whose name or names the certificate or
certificates for shares of such other class of Common Stock are to be issued
upon such conversion will be deemed to have become the holder or holders of
record of the shares of such other class of Common Stock represented thereby.
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(c) Following each surrender of certificates
and the receipt of such written notice, the Corporation will issue and deliver
in accordance with the surrendering holder's instructions (i) the certificate or
certificates for the class of Common Stock issuable upon such conversion and
(ii) a certificate representing any Common Stock which was represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but which was not converted.
(d) The issuance of certificates for a class
of Common Stock upon conversion of any class of Common Stock will be made
without charge to the holders of such shares for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of such other class of Common Stock.
(e) The Corporation will at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common and Class B Common the number of such shares sufficient for issuance upon
conversion of any Class A Common and Class B Common hereunder.
(f) The Corporation will not close its books
against the transfer of any class of Common Stock in any manner which would
interfere with the timely conversion of any class of Common Stock.
(F) Mergers, etc. In connection with any merger, consolidation or
recapitalization in which holders of Class A Common generally receive, or are
given the opportunity to receive, consideration for their shares, then, in all
such circumstances, unless otherwise approved by the holders of a majority of
shares of Class B Common voting as a separate class, all holders of Class B
Common shall be given the opportunity to receive the same form and amount of
consideration per share.
PART III
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series, the number of shares and any designation of each series and the powers
(including voting powers), designations, preferences and relative,
participating, optional, and other special rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
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(A) Series A Preferred Stock
(1) Designation.
(a) Series A Preferred. A series of Preferred
Stock is hereby created with the designations, powers, preferences and rights
set forth herein. The Corporation is authorized to issue a series of Preferred
Stock designated as Series A Preferred Stock consisting of 250,000 shares (the
'Series A Preferred').
(b) Stated Value; Date of Issuance. Each
share of Series A Preferred shall have a stated value of $100 (the 'Stated
Value'). No shares of Series A Preferred will be issued except as part of the
original issuance thereof. The date on which the Corporation initially issues
any share of Preferred Stock will be deemed its 'Date of Issuance' regardless of
the number of times transfer of such share is made on the stock records of the
Corporation and regardless of the number of certificates which may be issued to
evidence such share.
(c) Ranking. For so long as any shares of
Series A Preferred are issued and outstanding, the Corporation will not issue
any series of Preferred Stock which will be senior or pari passu with respect to
payment of dividends, other distributions, preference on redemption or
liquidation rights or otherwise; provided, however, that holders of more than a
majority of the shares of Series A Preferred may consent to the issuance of
Preferred Stock ranking senior or pari passu to the Series A Preferred.
(2) Voting.
(a) No Voting Rights Generally. Except as
otherwise provided specifically herein or required by law, none of the shares of
Series A Preferred shall have any voting rights.
(b) Consent Requirements. For so long as
shares of Series A Preferred are issued and outstanding, the affirmative vote or
consent of the holders of more than a majority of all of the shares of Series A
Preferred at the time issued and outstanding, voting as a separate class, given
in person or by proxy either in writing (as may be permitted by law and the
Certificate of Incorporation and By-laws of the Corporation) or at any special
or annual meeting, shall be necessary to permit, effect or validate the taking
of any of the following actions by the Corporation, whether such actions are
effected directly or through a merger or another transaction (provided, that, no
such affirmative vote or consent shall be required in connection with a merger
or other transaction which would effect such an action if such merger or other
transaction would result in a Sale of the Company, so long as prior to or
simultaneously with completion of that transaction, the Series A Preferred will
be redeemed in full):
(i) the amendment of the Certificate
of Incorporation or By-laws of the Corporation, or the alteration or change of
the powers, rights, privileges or
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preferences of the Series A Preferred, if such amendment, alteration or change
would adversely affect any of the powers, rights, privileges or preferences of
the holders of the Series A Preferred;
(ii) the authorization of (or
issuance of any shares of) any class of Preferred Stock which ranks senior to or
pari passu with the Series A Preferred with respect to dividends or upon
liquidation, dissolution or winding-up of the Corporation;
(iii) the increase of the number of
shares of Series A Preferred authorized for issuance; or
(iv) the issuance after the Effective
Time of any shares of Series A Preferred (excluding the issuance of share
certificates upon transfers or exchanges of shares by holders (other than the
Corporation) thereof or upon replacement of lost, stolen, damaged or mutilated
share certificates), except for issuances of shares of Series A Preferred which
have been redeemed or otherwise acquired.
(3) Dividends; Cash and Stock Dividends.
(a) Payment. Dividends will be payable on
each share of Series A Preferred, in cash, as provided herein when, as and if
declared by the Board of Directors, to the extent funds are legally available
therefor.
(b) Rates; Dates Payable. Dividends on shares
of Series A Preferred will be payable in cash at a rate per annum equal to 12%
of the Preferred Liquidation Value (as defined in Section 3(d)(ii) below)
thereof (the 'Dividend Rate'). Such dividends shall be payable semi-annually on
June 30 and December 31 of each year (each such date hereinafter referred to as
a 'Dividend Payment Date' and each such dividend period hereinafter referred to
as a 'Dividend Period') (or, if such date is not a Business Day, then on the
next succeeding Business Day), to the holders of record as they appear on the
register of the Corporation for the shares of such Series A Preferred.
(c) Record Date. The Board of Directors may
fix a record date for the determination of holders of shares of Series A
Preferred entitled to receive payment of the dividends payable pursuant to
Section 3(b), which record date shall not be more than 60 days prior to the
Dividend Payment Date.
(d) Accrual.
(i) Dividends on the shares of
Series A Preferred shall accrue cumulatively on a daily basis and shall accrue
from the Date of Issuance to and including the date on which the redemption of
such share of Series A Preferred shall have been effected or on which full
payment with respect to such share shall have been made pursuant to any
liquidation, dissolution or winding-up of the Corporation, whether or not such
dividends have
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been declared and whether or not there shall be (at the time such dividends
became or become payable or any other time) profits, surpluses or other funds of
the Corporation legally available for the payment of dividends.
(ii) To the extent not paid on any
Dividend Payment Date, all dividends which have accrued on any share of Series A
Preferred then outstanding during the period from and including the preceding
Dividend Payment Date (or from and including the Date of Issuance in the case of
the initial Dividend Payment Date) to (but excluding) such Dividend Payment Date
shall be added on such Dividend Payment Date to the Preferred Liquidation Value
of such share of Series A Preferred (so that, without limitation, dividends
shall thereafter accrue in respect of the amount of such accrued but unpaid
dividends) and shall remain a part thereof until (but only until) such dividends
are paid. The 'Preferred Liquidation Value' of any share of Series A Preferred
as of a particular date shall be equal to the sum of $100 plus an amount equal
to any accrued and unpaid dividends (whether or not earned or declared) on such
share of Series A Preferred added to the Preferred Liquidation Value of such
share of Series A Preferred on any Dividend Payment Date pursuant to this
Section 3(d) and not thereafter paid.
(e) Priority. For so long as any shares of
Series A Preferred shall be outstanding, no dividend or distribution, whether in
cash, stock or other property, shall be paid, declared and set apart for payment
or made on any date on or in respect to the Common Stock, or any other class or
series of stock of the Corporation ranking junior to the Series A Preferred
(together with the Common Stock, a 'Junior A Stock') as to dividends or
distributions of assets upon liquidation, dissolution or winding up, and no
payment on account of the redemption, purchase or other acquisition or
retirement for value by the Corporation of shares of Common Stock or any other
Junior A Stock shall be made on any date unless, in each case, the full amount
of unpaid dividends accrued on all outstanding shares of Series A Preferred
shall have been paid or contemporaneously are declared and paid; provided,
however, that the foregoing provisions of this sentence shall not prohibit (i) a
dividend payable solely in shares of Common Stock or any other Junior A Stock or
(ii) the acquisition of any shares of any Common Stock or any other Junior A
Stock upon conversion or exchange thereof into or for any shares of any other
class of Common Stock or other Junior A Stock.
(4) Redemption.
(a) Redemption by the Corporation.
(i) To the extent funds are legally
available therefor, on the earlier of (x) ________, 2009 1/ , or if such date is
not a Business Day then on the next Business Day, and (y) the date on which a
Sale of the Company or a Qualifying Offering occurs, the Corporation shall
redeem at the Redemption Price therefor all issued and outstanding shares of
- --------
1/ Day and month of closing.
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Series A Preferred (the events described in any of the above clauses (x) or (y)
are each referred to herein as a 'Redemption Event').
(ii) To the extent funds are legally
available therefor, on any Business Day prior to a Redemption Event, the
Corporation, at its option, may redeem at the Redemption Price therefor all or
any portion of the shares of Series A Preferred then issued and outstanding.
(iii) The date on which shares of
Series A Preferred are required to be redeemed pursuant to this Section 4 is
referred to herein as the 'Redemption Date.' If, on the Redemption Date, there
shall be insufficient funds of the Corporation legally available for the
complete redemption of the Series A Preferred, such amount of the funds as is
legally available shall be used for the redemption obligation as described in
Section 4(d) of this Part III. If the Corporation shall fail to discharge its
obligation to redeem shares of the Series A Preferred upon the occurrence of a
Redemption Event, such obligation shall be discharged as soon as the Corporation
is permitted by law to discharge such obligations. Such redemption obligation
shall be cumulative so that if such obligation shall not be fully discharged for
any reason, all funds legally available therefor shall immediately be applied
thereto upon receipt by the Corporation until such obligation is discharged.
The redemption price (the 'Redemption Price') for each outstanding share of
Series A Preferred to be redeemed pursuant to this Section 4(a) shall be the
Preferred Liquidation Value thereof as of the Redemption Date.
(b) Payment of Redemption Price. Each payment
of the Redemption Price in accordance with Section 4(a)(iii) of this Part III
shall be made to the holder of each share of Series A Preferred being redeemed,
upon surrender by such holder at the Corporation's principal executive office of
the certificate representing such share of Series A Preferred, duly endorsed in
blank or accompanied by an appropriate form of assignment.
(c) Redeemed Shares not to be Reissued. All
shares of Series A Preferred redeemed pursuant to Section 4(a) of this Part III
shall be retired and canceled and shall not thereafter be reissued. This Section
shall not apply to any shares of Series A Preferred which is otherwise redeemed,
purchased or acquired by the Corporation.
(d) Amount of Shares Redeemed. The
Corporation may acquire shares of the Series A Preferred from time to time
without redeeming or otherwise acquiring all or any other issued and outstanding
shares of the Series A Preferred (such acquisition, a 'Special Acquisition').
Except with respect to any Special Acquisition, if less than all of the issued
and outstanding shares of Series A Preferred is to be redeemed pursuant to this
Section 4, the Corporation shall determine the number of shares held by each
holder of such series to be redeemed as hereinafter provided. The number of
shares of Series A Preferred to be redeemed from each holder thereof shall be
the number of shares determined by multiplying the total
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number of shares of Series A Preferred to be redeemed by a fraction, the
numerator of which shall be the total number of shares of Series A Preferred
then held by such holder and the denominator of which shall be the total number
of shares of Series A Preferred then issued and outstanding.
(e) Notice of Redemption. Notice of the
redemption of shares of Series A Preferred pursuant to Section 4(a) of this Part
III, specifying the time and place of redemption and the Redemption Price, shall
be mailed by certified or registered mail, return receipt requested, to each
holder of record of shares to be redeemed, at the address for such holder shown
on the stock records of the Corporation not less than 10 Business Days prior to
the date on which such redemption is to be made; provided, that neither failure
to give such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any shares of Series A Preferred to be
redeemed. Such notice shall also specify the number of shares of Series A
Preferred of each holder thereof and the certificate numbers thereof which are
to be redeemed. In case less than all the shares of Series A Preferred
represented by any certificate are redeemed, a new certificate representing the
unredeemed shares shall be issued to the holder thereof without cost to such
holder.
(f) Dividends After Redemption Date. Unless
the Redemption Price is not made available on the Redemption Date to the holder
of a share of Series A Preferred, then from and after the Redemption Date, such
share of Series A Preferred shall not be entitled to any dividends accruing
after such date, all rights of the holder of such share of Series A Preferred as
a stockholder of the Corporation by reason of the ownership of such share of
Series A Preferred shall cease, except the right to receive the Redemption Price
of such share of Series A Preferred upon the presentation and surrender of the
certificate representing such share of Series A Preferred and such share of
Series A Preferred shall not after such date be deemed to be outstanding for any
purpose.
(5) Liquidation Rights.
(a) Preference. Upon the dissolution,
liquidation or winding-up of the Corporation, whether voluntary or involuntary,
the holders of issued and outstanding shares of Series A Preferred shall be
entitled to receive, out of the assets of the Corporation available for
distribution to stockholders, before any payment or distribution shall be made
to the holders of Common Stock or any other Junior A Stock, an amount per share
of Series A Preferred, in cash, equal to the Preferred Liquidation Value of such
shares as of the date of final distribution. Such assets shall be distributed
ratably among the shares of Series A Preferred.
(b) Preferences are not Participating. After
the payment to the holders of the shares of Series A Preferred of the full
preferential amounts provided for in Section 5 of this Part III the holders of
shares of Series A Preferred shall have no right or claim to any of the
remaining assets of the Corporation.
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(c) Mergers, etc. Neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to make, alter or
repeal the bylaws of the Corporation.
7. Elections of directors need not be by written ballot unless
the bylaws of the Corporation shall so provide.
8. Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the bylaws of the Corporation.
9. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit.
Any repeal, amendment or other modification of this Article
shall not increase the liability or alleged liability of any director of the
Corporation then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. If the
General Corporation Law of the State of Delaware is subsequently amended to
authorize corporate action further eliminating or limiting personal liability of
directors, then the liability of directors shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as so amended.
11. Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of
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Delaware may, on the application of any receiver or receivers appointed for the
Corporation under the provisions of Section 291 of Title 8 of the Delaware Code
or on the application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation as the case may be,
and also on the Corporation.
12. Any action required or permitted under the General Corporation
Law of the State of Delaware to be taken at an annual or special meeting of
stockholders may be taken without a meeting and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote thereon were present and voted.
13. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. The number of directors which
shall constitute the whole board shall be not more than twelve (12) nor less
than one (1), the exact number of directors to be determined from time to time
by resolution adopted by affirmative vote of a majority of the entire Board of
Directors.
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Certificate of Incorporation on behalf of the Corporation and does
verify and affirm, under penalty of perjury, that this Amended and Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this ___ day of __________, 1998.
ALLIED DIGITAL TECHNOLOGIES CORP.
By:
-----------------------------------
Name:
Title:
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ANNEX E
STOCKHOLDER VOTING AGREEMENT
AGREEMENT, dated as of May 5, 1998, by and between Analog Acquisition
Corp., a Delaware corporation ('Purchaser'), and the other party(ies) signatory
hereto (the 'Stockholder'). Capitalized terms used but not defined herein shall
have the meanings set forth in the Agreement and Plan of Merger, dated the date
hereof, by and between Purchaser and ABC (the 'Company') (as such agreement may
be amended from time to time, the 'Merger Agreement').
WHEREAS, concurrently herewith, Purchaser and the Company are entering
into a Merger Agreement, pursuant to which Purchaser will be merged with and
into the Company (the 'Merger'), whereby each share of common stock, par value
$.01 per share, of the Company ('Company Common Stock') issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive cash, other than any shares to remain outstanding pursuant to Section
2(g)(iii) of the Merger Agreement and any Dissenting Shares as defined in
Section 2(i) of the Merger Agreement.
[WHEREAS, the Stockholder desires to convert, upon payment of the
exercise price, certain of its Options into shares of Company Common Stock
immediately prior to the Effective Time.]
WHEREAS, as a condition to Purchaser's entering into the Merger
Agreement, Purchaser requires that the Stockholder enter into, and the
Stockholder has agreed to enter into, this Agreement with Purchaser.
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual agreements contained herein, the parties hereby
agree as follows:
Section 1. Certain Definitions. The following terms, when used
in this Agreement, shall have the following meanings (such definitions to be
equally applicable to both singular and plural terms of the terms defined):
'Acquisition Proposal' shall mean any agreement, letter of intent,
proposal or offer (other than the transactions contemplated in the Merger
Agreement) involving the Company or any of its Subsidiaries for, or an inquiry
or indication of interest that reasonably could be expected to lead to: (i) any
merger, consolidation, share exchange, recapitalization, reorganization,
dissolution, liquidation, business combination, or other similar transaction
with the Company or any of its Subsidiaries, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of a material portion of the
assets of the Company and its Subsidiaries, taken as a whole, in a single
transaction or series of transactions, or (iii) any tender offer or exchange
offer
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for all or any portion of the outstanding shares of capital stock of the Company
or any of its Subsidiaries or the filing of a registration statement under the
Securities Act of 1933, as amended, in connection therewith, but shall not
include the Merger Agreement.
'Affiliate' means, with respect to any Person, any other Person
directly or indirectly controlling, Controlled by, or under common Control with
such Person, provided that no security holder of the Company shall be deemed an
Affiliate of any other security holder solely by reason of any investment in the
Company. For the purpose of this definition, the term 'control' (including with
correlative meanings, the terms 'controlling', 'controlled by' and 'under common
control with'), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of stock,
as a trustee or executor, by contract or credit arrangement or otherwise.
'Beneficially Own' or 'Beneficial Ownership' with respect to any
securities shall mean having 'beneficial ownership' of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned by
all other Persons with whom such Person would constitute a 'group' as described
in Section 13(d)(3) of the Exchange Act.
'Business Days' means any day on which the principal offices of the
Securities and Exchange Commission in Washington, D.C. are open to accept
filings or, in the case of determining a date when any payment is due, any day
other than a day on which banks in New York, New York are required or authorized
to be closed.
'Company' has the meaning ascribed thereto in the recitals of this
Agreement.
'Company Common Stock' has the meaning ascribed thereto in the recitals
of this Agreement.
'Control' (including the terms 'Controlled by' and 'under common
Control with') means the possession, directly or indirectly or as a trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock, as a trustee or
executor, by contract or credit arrangement or otherwise.
'Existing Shares' has the meaning ascribed thereto in Section 2(a)(i).
'HSR Act' means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
'Merger' has the meaning ascribed thereto in the recitals of this
Agreement.
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'Permitted Transferee' means in the case of any Stockholder, (a) a
spouse or lineal descendent (including by adoption and stepchildren), heir,
executor, testamentary trustee or legatee of the Stockholder or (b) any trust or
estate the beneficiaries of which, or any corporation, limited liability company
or partnership, the stockholders, members or partners of which include only the
Persons described in clause (a) above.
'Person' means an individual, corporation, partnership, limited
liability company, limited partnership, association, trust, unincorporated
organization or other entity or group (as defined in Section 13(d)(3) of the
Exchange Act).
'Purchaser' has the meaning ascribed thereto in the introductory
paragraph of this Agreement.
'Shares' means the Existing Shares, together with any shares of
Company Common Stock acquired of record or beneficially by the Stockholder in
any capacity after the date hereof and prior to the termination hereof, whether
upon exercise of options, conversion of convertible securities, purchase,
exchange or otherwise; provided, however, that in the event of a stock dividend
or distribution, or any change in the Company Common Stock by reason of any
stock dividend, split-up, recapitalization, combination, exchange of shares or
the like, the term 'Shares' shall be deemed to refer to and include the Shares
as well as all such stock dividends and distributions and any shares into which
or for which any or all of the Shares may be changed or exchanged.
'Stockholder' has the meaning ascribed thereto in the introductory
paragraph to this Agreement.
'Subsidiary' means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
'Termination Date' has the meaning ascribed thereto in Section 10
of this Agreement.
'Trustee' has the meaning ascribed thereto in Section 2(a)(i) of this
Agreement.
Section 2. Representations and Warranties of the Stockholder.
The Stockholder hereby represents and warrants to Purchaser as follows:
(a) (i) The Stockholder is either (A) the record holder
or beneficial owner of the number of, or (B) trustee of a
trust that is the record holder or beneficial owner of, and
whose beneficiaries are the beneficial owners (such trustee,
a 'Trustee'), shares of Company Common Stock and Options as
is set forth opposite the Stockholder's name on Schedule I
hereto (the 'Existing Shares').
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(ii) On the date hereof, the Existing Shares set
forth opposite the Stockholder's name on Schedule I hereto
constitute all of the outstanding shares of Company Common
Stock owned of record or beneficially by the Stockholder. The
Stockholder does not have record or beneficial ownership of
any Shares not set forth on Schedule I hereto.
(iii) The Stockholder has sole power of disposition
with respect to all of the Existing Shares set forth opposite
the Stockholder's name on Schedule I and sole voting power
with respect to the matters set forth in Section 4 hereof and
sole power to demand dissenter's or appraisal rights, in each
case with respect to all of the Existing Shares set forth
opposite the Stockholder's name on Schedule I, with no
restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(iv) The Stockholder will have sole power of
disposition with respect to Shares other than Existing
Shares, if any, which become beneficially owned by the
Stockholder and will have sole voting power with respect to
the matters set forth in Section 4 hereof and sole power to
demand dissenter's or appraisal rights, in each case with
respect to all Shares other than Existing Shares, if any,
which become beneficially owned by the Stockholder with no
restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(b) The Stockholder has the legal capacity, power and
authority to enter into and perform all of the Stockholder's
obligations under this Agreement. Other than as set forth in Schedule
2(b), the execution, delivery and performance of this Agreement by the
Stockholder will not violate any other agreement to which the
Stockholder is a party or by which the Stockholder is bound including,
without limitation, any trust agreement, voting agreement, stockholders
agreement, voting trust, partnership or other agreement. This Agreement
has been duly and validly executed and delivered by the Stockholder and
constitutes a valid and binding agreement of the Stockholder,
enforceable against the Stockholder in accordance with its terms,
except as limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditor's rights
generally, (b) general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law, and
to the discretion of the court before which any proceeding therefore
may be brought, or (c) public policy considerations or court decisions
which may limit the rights of the parties thereto for indemnification.
All necessary consents of any beneficiary of or holder of interest in
any trust of which a Stockholder is Trustee to the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been obtained. If the Stockholder is married
and the Stockholder's Shares constitute community property, this
Agreement has been duly authorized, executed and delivered by, and
constitutes a valid and binding agreement of, the Stockholder's spouse,
enforceable against such person in accordance with its terms.
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(c) (i) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority
is necessary for the execution of this Agreement by the Stockholder and
the consummation by the Stockholder of the transactions contemplated
hereby and (ii) neither the execution and delivery of this Agreement by
the Stockholder nor the consummation by the Stockholder of the
transactions contemplated hereby nor compliance by the Stockholder with
any of the provisions hereof shall (x) conflict with or result in any
breach of any applicable trust, partnership agreement or other
agreements or organizational documents applicable to the Stockholder,
(y) result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation
of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be
bound or (z) violate any order, writ, injunction, decree, judgment,
statute, rule or regulation applicable to the Stockholder or any of the
Stockholder's properties or assets.
(d) Except for the shares of Company Common Stock
identified in Schedule II hereto (the 'Pledged Shares'), the
Stockholder's Shares and the certificates representing such Shares are
now and at all times during the term hereof will be held by the
Stockholder, or by a nominee or custodian for the benefit of the
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or
any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
(e) No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's
or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Stockholder in his or her capacity as such.
(f) The Stockholder understands and acknowledges that
Purchaser is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement with Purchaser.
Section 3. Representations and Warranties of the Purchaser.
Purchaser hereby represents and warrants to the Stockholder as follows:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation.
(b) Purchaser has all necessary power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution,
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delivery and performance by Purchaser of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby have
been duly and validly authorized and approved by all required corporate
action other than shareholder approval which shall be effected prior to
the Effective Time. This Agreement has been duly executed and delivered
by Purchaser, and (assuming due authorization, execution and delivery
by the Stockholder) constitutes a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms, except
as limited by (a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditor's rights generally, (b) general
principles of equity, whether such enforceability is considered in a
proceeding in equity or at law, and to the discretion of the court
before which any proceeding therefor may be brought, or (c) public
policy considerations or court decisions which may limit the rights of
the parties thereto for indemnification.
(c) The execution and delivery of this Agreement do not,
and the consummation by Purchaser of the transactions contemplated by
this Agreement and compliance by Purchaser with the provisions of this
Agreement will not, conflict with, or result in any breach or violation
of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or
acceleration of or 'put' right with respect to any obligation or to
loss of a material benefit under, or result in the creation of any lien
upon any of the properties or assets of Purchaser under, (i) any
charter or by-laws of Purchaser, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Purchaser or its
properties or assets or (iii) any judgment, order, decree, statute,
law, ordinance, rule, regulation or arbitration award applicable to
Purchaser or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, or
notice to, any state or federal public body or authority is required by
or with respect to Purchaser in connection with the execution and
delivery of this Agreement by Purchaser or the consummation by
Purchaser of any of the transactions contemplated by this Agreement.
(d) No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's
or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Purchaser.
Section 4. Agreement to Vote; Proxy
(a) The Stockholder hereby agrees that, until the
Termination Date (as defined in Section 10), at any meeting of the
stockholders of the Company, however called, or in connection with any
written consent of the stockholders of the Company, the Stockholder
shall vote (or cause to be voted) the Shares held of record or
beneficially by the Stockholder (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions
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contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or
agreement that would result in a breach of any covenant, representation
or warranty or any other obligation or agreement of the Company under
the Merger Agreement or this Agreement; and (iii) against the following
actions (other than the Merger and the transactions contemplated by the
Merger Agreement or any such actions identified in writing by Purchaser
in advance): (A) any extraordinary corporate transaction, including,
without limitation, a merger, consolidation or other business
combination involving the Company or its Subsidiaries; (B) a sale,
lease or transfer of a material amount of assets of the Company or its
Subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of the Company or its Subsidiaries; (C) any change in the
majority of the board of directors of the Company; (D) any material
change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or By-Laws; (E) any other
material change in the Company's corporate structure or business; or
(F) any other action which is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or
materially adversely affect the Merger or the transactions contemplated
by the Merger Agreement or this Agreement. The Stockholder shall not
enter into any agreement or understanding with any person or entity to
vote or give instructions in any manner inconsistent with clauses (i)
or (ii) of the preceding sentence.
(b) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS,
PURCHASER AND ANY DESIGNEE OF PURCHASER, EACH OF THEM INDIVIDUALLY, THE
STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY AND
ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES
AS SET FORTH IN SECTION 4(a) ABOVE. THE STOCKHOLDER INTENDS THIS PROXY
TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN
INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER
INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY
AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY THE STOCKHOLDER WITH
RESPECT TO THE STOCKHOLDER'S SHARES.
Section 5. Certain Covenants of the Stockholder. Except in
accordance with the terms of this Agreement, the Stockholder hereby covenants
and agrees as follows:
(a) Prior to the Termination Date, no Stockholder shall,
in its capacity as such, directly or indirectly (including through
advisors, agents or other intermediaries), solicit (including by way of
furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than Purchaser or any
Affiliate thereof) with respect to the Company that constitutes or
could reasonably be expected to lead to an Acquisition Proposal. If the
Stockholder in its capacity as such receives any such inquiry or
proposal, then the Stockholder shall within 24 hours furnish Purchaser
with an accurate description of the material terms (including any
changes or adjustments to such terms as a
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result of negotiations or otherwise) and conditions, if any, of such
inquiry or proposal and the identity of the person making it. The
Stockholder, in its capacity as such, will immediately cease and cause
to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the
foregoing; provided, that the limitation set forth in this sentence
shall not restrict the Stockholder from engaging in any such activities
with such a third party who hereafter makes a Superior Acquisition
Proposal. The foregoing provisions of this Section 5(a) shall not
restrict a Stockholder who is also a director of the Company from
taking any actions, or refraining from complying with the provisions of
this Section 5(a) solely in the Stockholder's capacity as a director,
provided that any such actions do not violate Section 5(k) of the
Merger Agreement.
(b) Prior to the Termination Date, the Stockholder shall
not, directly or indirectly (i) except pursuant to the terms of the
Merger Agreement or this Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, enforce or
permit the execution of the provisions of any redemption agreement with
the Company or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition
of, or exercise any discretionary powers to distribute, any or all of
the Stockholder's Shares or any interest therein, including any trust
income or principal, except in each case to a Permitted Transferee who
is or agrees to become bound by this Agreement; (ii) except as
contemplated hereby, grant any proxies or powers of attorney with
respect to any Shares, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of the
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling the Stockholder from performing the
Stockholder's obligations under this Agreement.
(c) The Stockholder hereby waives any rights of appraisal
or rights to dissent from the Merger that the Stockholder may have. The
Trustee represents that no beneficiary who is a beneficial owner of
Shares under any trust has any right of appraisal or right to dissent
from the Merger which has not been so waived.
[(d) (i) [Stockholder hereby agrees to convert Options
to purchase Company Common Stock into Shares immediately prior to the
Effective Time and] subject to the terms and provisions of the Merger
Agreement, in connection with the Merger, the Stockholder hereby agrees
to retain an aggregate of _______ shares of Surviving Corporation
Common Stock held by and registered in the name of the Stockholder, and
in the amount opposite such name, set forth on Schedule III hereto,
upon conversion of, and with respect to, _______ of such Stockholder's
Shares (the 'Rollover Shares') unless otherwise agreed with Purchaser.
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[(ii) The Stockholder shall use its best efforts to
negotiate and execute an Investors Agreement on terms and conditions
mutually satisfactory to Purchaser and Stockholder.]
(e) Unless, in connection therewith, the Shares held by
any trust which are presently subject to the terms of this Agreement
are transferred to the Stockholder and remain subject in all respects
to the terms of this Agreement, or other Permitted Transferees who upon
receipt of such Shares become signatories to this Agreement, the
Stockholder who is a Trustee shall not take any action to terminate,
close or liquidate any such trust and shall take all steps necessary to
maintain the existence thereof at least until the first to occur of (i)
the Effective Time and (ii) the Termination Date.
[(f) The Stockholder shall take all actions necessary to
cause any Rollover Shares that constitute Pledged Shares, prior to the
Effective Time, to be free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.]
Section 6. Further Assurances. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further action
as may be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
Section 7. Certain Events. The Stockholder agrees that this
Agreement and the obligations hereunder shall attach to the Stockholder's Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or otherwise,
including without limitation the Stockholder's heirs, guardians, administrators
or successors or as a result of any divorce.
Section 8. Stop Transfer. The Stockholder agrees with, and
covenants to, Purchaser that the Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares, unless
such transfer is made in compliance with this Agreement.
[Section 9. Rule 145 Affiliates. The Stockholder who is an
'affiliate' of the Company for purposes of Rule 145 under the Securities Act of
1933, as amended, hereby agrees to deliver to Purchaser, on or prior to the
Effective Time, a written agreement in form and substance acceptable to
Purchaser, restricting the disposition of Rollover Shares.]
Section 10. Termination. The obligations of the Stockholder
and the irrevocable proxy contained in Section 4(b) of this Agreement shall
terminate upon the first to occur of (a) the Effective Time and (b) the date the
Merger Agreement is terminated in accordance with its
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terms (the 'Termination Date'); provided that the provisions of Sections 2, 3,
10 and 11 and any claim for breach of any representation, warranty, covenant or
other agreement under this Agreement shall survive the Effective Time and/or the
Termination Date, as applicable.
Section 11. Miscellaneous.
(a) Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given (i) on the day of service if served
personally on the party to whom notice is to be given; (ii) on the day
of transmission if sent via facsimile transmission to the facsimile
number given below, and telephonic confirmation of receipt is obtained
promptly after completion of transmission, provided that a copy shall
be sent via certified mail, return receipt requested, simultaneously
with any such facsimile; (iii) on the business day after delivery to
Federal Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service; or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid
and properly addressed, to the party as follows:
If to the Stockholder: [ ]
If to Purchaser: Analog Acquisition Corp.
c/o 399 Venture Partners Inc.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Attn: Richard M. Cashin, Jr.
Telecopier: 212-888-2940
and: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Philip H. Werner, Esq.
Telecopier: 212-309-6273
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
(b) At any time prior to the Effective Time, any party
hereto may, with respect to any other party hereto, (i) extend the time
for the performance of any of the obligations or other acts, (ii) waive
any inaccuracies in the representations and warranties contained herein
or in any document delivered pursuant hereto or (iii) waive compliance
with any of
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the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed
by the party or parties to be bound thereby.
(c) The headings contained in this Agreement are for the
convenience of reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(d) If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated by the
Merger Agreement is not affected in any manner adverse to any party.
Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner.
(e) This Agreement, including all exhibits, disclosure
schedules and schedules hereto, constitutes the entire agreement and
supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject
matter hereof and except as otherwise expressly provided herein.
(f) Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party (whether by
operation of law or otherwise) without the prior written consent of the
other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and no other
Person shall have any right, benefit or obligation under this Agreement
as a third party beneficiary or otherwise.
(g) The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms. It is
accordingly agreed that the parties hereto shall be entitled to
specific performance of the terms hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
(h) No failure or delay on the part of any party hereto
in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
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(i) Notwithstanding anything herein to the contrary, no
Person executing this Agreement who is, or becomes during the term
hereof, a director of the Company makes any agreement or understanding
herein in his or her capacity as such director, and the agreements set
forth herein shall in no way restrict any director in the exercise of
his or her fiduciary duties as a director of the Company. The
Stockholder has executed this Agreement solely in his or her capacity
as the record or beneficial holder of the Stockholder's Shares or as
the trustee of a trust whose beneficiaries are the beneficial owners of
the Stockholder's Shares.
(j) Each party agrees to bear its own expenses in
connection with the transactions contemplated hereby.
(k) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other than
the State of New York, except to the extent that the General
Corporation Law of the State of Delaware applies as a result of the
Company being incorporated in the State of Delaware, in which case such
General Corporation Law shall apply.
(l) EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
(m) This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANALOG ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
---------------------------------
[Stockholder]
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SCHEDULE I
EXISTING SHARES
Shareholder No. of Existing Shares No. of Option Shares
- ----------- ---------------------- --------------------
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SCHEDULE II
PLEDGED SHARES
No. of Pledged Shares
---------------------
<PAGE>
ROLLOVER SHARES
Stockholder No. of Rollover Shares
- ----------- ----------------------
<PAGE>
ANNEX F
ROLLOVER AGREEMENT
AGREEMENT, dated as of May 5, 1998, by and between Analog Acquisition
Corp., a Delaware corporation ('Purchaser'), and the other party signatory
hereto (the 'Stockholder'). Capitalized terms used but not defined herein shall
have the meanings set forth in the Agreement and Plan of Merger, dated the date
hereof, by and between Purchaser and ABC (the 'Company') (as such agreement may
be amended from time to time, the 'Merger Agreement').
WHEREAS, concurrently herewith, Purchaser and the Company are entering
into a Merger Agreement, pursuant to which Purchaser will be merged with and
into the Company (the 'Merger'), whereby each share of common stock, par value
$.01 per share, of the Company ('Company Common Stock') issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive cash, other than any shares to remain outstanding pursuant to Section
2(g)(iii) of the Merger Agreement and any Dissenting Shares as defined in
Section 2(i) of the Merger Agreement.
WHEREAS, the Stockholder desires to convert, upon payment of the
exercise price, certain of its Options into shares of Company Common Stock
immediately prior to the Effective Time.
WHEREAS, as a condition to Purchaser's entering into the Merger
Agreement, Purchaser requires that the Stockholder enter into, and the
Stockholder has agreed to enter into, this Agreement with Purchaser.
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual agreements contained herein, the parties hereby
agree as follows:
Section 1. Certain Definitions. The following terms, when used in this
Agreement, shall have the following meanings (such definitions to be equally
applicable to both singular and plural terms of the terms defined):
'Acquisition Proposal' shall mean any agreement, letter of intent,
proposal or offer (other than the transactions contemplated in the Merger
Agreement) involving the Company or any of its Subsidiaries for, or an inquiry
or indication of interest that reasonably could be expected to lead to: (i) any
merger, consolidation, share exchange, recapitalization, reorganization,
dissolution, liquidation, business combination, or other similar transaction
with the Company or any of its Subsidiaries, (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of a material portion of the
assets of the Company and its Subsidiaries, taken as a
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whole, in a single transaction or series of transactions, or (iii) any tender
offer or exchange offer for all or any portion of the outstanding shares of
capital stock of the Company or any of its Subsidiaries or the filing of a
registration statement under the Securities Act of 1933, as amended, in
connection therewith, but shall not include the Merger Agreement.
'Affiliate' means, with respect to any Person, any other Person
directly or indirectly controlling, Controlled by, or under common Control with
such Person, provided that no security holder of the Company shall be deemed an
Affiliate of any other security holder solely by reason of any investment in the
Company. For the purpose of this definition, the term 'control' (including with
correlative meanings, the terms 'controlling', 'controlled by' and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of stock,
as a trustee or executor, by contract or credit arrangement or otherwise.
'Beneficially Own' or 'Beneficial Ownership' with respect to any
securities shall mean having 'beneficial ownership' of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned by
all other Persons with whom such Person would constitute a 'group' as described
in Section 13(d)(3) of the Exchange Act.
'Business Days' means any day on which the principal offices of the
Securities and Exchange Commission in Washington, D.C. are open to accept
filings or, in the case of determining a date when any payment is due, any day
other than a day on which banks in New York, New York are required or authorized
to be closed.
'Company' has the meaning ascribed thereto in the recitals of this
Agreement.
'Company Common Stock' has the meaning ascribed thereto in the recitals
of this Agreement.
'Control' (including the terms 'Controlled by' and 'under common
Control with') means the possession, directly or indirectly or as a trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock, as a trustee or
executor, by contract or credit arrangement or otherwise.
'Existing Shares' has the meaning ascribed thereto in Section 2(a).
'Merger' has the meaning ascribed thereto in the recitals of this
Agreement.
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'Permitted Transferee' means in the case of any Stockholder, (a) a
spouse or lineal descendent (including by adoption and stepchildren), heir,
executor, testamentary trustee or legatee of the Stockholder or (b) any trust or
estate the beneficiaries of which, or any corporation, limited liability company
or partnership, the stockholders, members or partners of which include only the
Persons described in clause (a) above.
'Person' means an individual, corporation, partnership, limited
liability company, limited partnership, association, trust, unincorporated
organization or other entity or group (as defined in Section 13(d)(3) of the
Exchange Act).
'Purchaser' has the meaning ascribed thereto in the introductory
paragraph of this Agreement.
'Shares' means the Existing Shares, together with any shares of Company
Common Stock acquired of record or beneficially by the Stockholder in any
capacity after the date hereof and prior to the termination hereof, whether upon
exercise of options, conversion of convertible securities, purchase, exchange or
otherwise; provided, however, that in the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term 'Shares' shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
'Stockholder' has the meaning ascribed thereto in the introductory
paragraph to this Agreement.
'Termination Date' has the meaning ascribed thereto in Section 9 of
this Agreement.
'Trustee' has the meaning ascribed thereto in Section 2(a) of this
Agreement.
Section 2. Representations and Warranties of the Stockholder.
The Stockholder hereby represents and warrants to Purchaser as follows:
(a) The Stockholder is either (A) the record holder or
beneficial owner of the number of, or (B) trustee of a trust that is
the record holder or beneficial owner of, and whose beneficiaries are
the beneficial owners (such trustee, a 'Trustee'), shares of Company
Common Stock and Options as is set forth opposite the Stockholder's
name on Schedule I hereto (the 'Existing Shares').
(b) No broker, investment banker, financial adviser or other
person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Stockholder in his or her capacity as such.
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(c) The Stockholder understands and acknowledges that
Purchaser is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement with Purchaser.
Section 3. Representations and Warranties of the Purchaser.
Purchaser hereby represents and warrants to the Stockholder as follows:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation.
(b) Purchaser has all necessary power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by
Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby have been duly and validly authorized
and approved by all required corporate action other than shareholder
approval which shall be effected prior to the Effective Time. This
Agreement has been duly executed and delivered by Purchaser, and
(assuming due authorization, execution and delivery by the Stockholder)
constitutes a valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms, except as limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditor's rights generally, (b) general principles of
equity, whether such enforceability is considered in a proceeding in
equity or at law, and to the discretion of the court before which any
proceeding therefor may be brought, or (c) public policy considerations
or court decisions which may limit the rights of the parties thereto
for indemnification.
(c) No broker, investment banker, financial adviser or other
person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of the
Purchaser.
Section 4. Certain Covenants of the Stockholder. Except in
accordance with the terms of this Agreement, the Stockholder hereby covenants
and agrees as follows:
(a) Prior to the Termination Date, no Stockholder shall, in
its capacity as such, directly or indirectly (including through
advisors, agents or other intermediaries), solicit (including by way of
furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than Purchaser or any
Affiliate thereof) with respect to the Company that constitutes or
could reasonably be expected to lead to an Acquisition Proposal. If the
Stockholder in its capacity as such receives any such inquiry or
proposal, then the Stockholder shall within 24 hours furnish Purchaser
with an accurate description of the material terms (including any
changes or adjustments to such terms as a result of negotiations or
otherwise) and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Stockholder, in its capacity as
such, will
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immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing; provided, that the limitation set
forth in this sentence shall not restrict the Stockholder from engaging
in any such activities with such a third party who hereafter makes a
Superior Acquisition Proposal. The foregoing provisions of this Section
4(a) shall not restrict a Stockholder who is also a director of the
Company from taking any actions, or refraining from complying with the
foregoing provision, in the Stockholder's capacity as a director,
provided that any such actions do not violate Section 5(k) of the
Merger Agreement.
(b) Prior to the Termination Date, the Stockholder shall not,
directly or indirectly (i) except pursuant to the terms of the Merger
Agreement or this Agreement, offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, enforce or permit the
execution of the provisions of any redemption agreement with the
Company or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition
of, or exercise any discretionary powers to distribute, any or all of
the Stockholder's Rollover Shares as defined below or any interest
therein, including any trust income or principal, except in each case
to a Permitted Transferee who is or agrees to become bound by this
Agreement; or (ii) take any action that would make any representation
or warranty of the Stockholder contained herein untrue or incorrect or
have the effect of preventing or disabling the Stockholder from
performing the Stockholder's obligations under this Agreement.
(c) The Stockholder hereby waives any rights of appraisal or
rights to dissent from the Merger that the Stockholder may have. The
Trustee represents that no beneficiary who is a beneficial owner of
Rollover Shares under any trust has any right of appraisal or right to
dissent from the Merger which has not been so waived.
(d) [(i) Stockholder hereby agrees to convert, upon payment of
the exercise price thereof, [_____] Options to purchase Company Common
Stock into [_____] Shares immediately prior to the Effective Time and]
subject to the terms and provisions of the Merger Agreement, in
connection with the Merger, the Stockholder hereby agrees to retain an
aggregate of [_____] shares of Surviving Corporation Class A Common
Stock held by and registered in the name of the Stockholder, and in the
amount opposite such name, set forth on Schedule II hereto, upon
conversion of, and with respect to, [_____] of such Stockholder's
Shares (the 'Rollover Shares') unless otherwise agreed with Purchaser.
(ii) The Stockholder shall use its best efforts to
negotiate and execute an Investors Agreement on terms and conditions
mutually satisfactory to Purchaser and Stockholder.
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(e) Unless, in connection therewith, the Rollover Shares held
by any trust which are presently subject to the terms of this Agreement
are transferred to the Stockholder and remain subject in all respects
to the terms of this Agreement, or other Permitted Transferees who upon
receipt of such Rollover Shares become signatories to this Agreement,
the Stockholder who is a Trustee shall not take any action to
terminate, close or liquidate any such trust and shall take all steps
necessary to maintain the existence thereof at least until the first to
occur of (i) the Effective Time and (ii) the Termination Date.
(f) The Stockholder shall take all actions necessary to cause
any Rollover Shares, prior to the Effective Time, to be free and clear
of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising
hereunder.
Section 5. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
Section 6. Certain Events. The Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Stockholder's Rollover Shares
and shall be binding upon any person or entity to which legal or Beneficial
Ownership of such Rollover Shares shall pass, whether by operation of law or
otherwise, including without limitation the Stockholder's heirs, guardians,
administrators or successors or as a result of any divorce.
Section 7. Stop Transfer. The Stockholder agrees with, and covenants
to, Purchaser that the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Stockholder's Rollover Shares, unless such
transfer is made in compliance with this Agreement.
Section 8. Rule 145 Affiliates. The Stockholder who is an 'affiliate'
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended, hereby agrees to deliver to Purchaser, on or prior to the Effective
Time, a written agreement in form and substance acceptable to Purchaser,
restricting the disposition of Rollover Shares.
Section 9. Termination. The obligations of the Stockholder hereunder
shall terminate upon the first to occur of (a) the Effective Time and (b) the
date the Merger Agreement is terminated in accordance with its terms (the
'Termination Date'); provided that the provisions of Sections 2, 3, 9 and 10 and
any claim for breach of any representation, warranty, covenant or other
agreement under this Agreement shall survive the Effective Time and/or the
Termination Date, as applicable.
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Section 10. Miscellaneous.
(a) Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given (i) on the day of service if served
personally on the party to whom notice is to be given; (ii) on the day
of transmission if sent via facsimile transmission to the facsimile
number given below, and telephonic confirmation of receipt is obtained
promptly after completion of transmission, provided that a copy shall
be sent via certified mail, return receipt requested, simultaneously
with any such facsimile; (iii) on the business day after delivery to
Federal Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service; or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid
and properly addressed, to the party as follows:
If to the Stockholder: [Name]
[Address]
If to Purchaser: Analog Acquisition Corp.
c/o 399 Venture Partners Inc.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Attn: Richard M. Cashin, Jr.
Telecopier: 212-888-2940
and: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Philip H. Werner, Esq.
Telecopier: 212-309-6273
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
(b) At any time prior to the Effective Time, any party hereto
may, with respect to any other party hereto, (i) extend the time for
the performance of any of the obligations or other acts, (ii) waive any
inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto or (iii) waive compliance
with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
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(c) The headings contained in this Agreement are for the
convenience of reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(d) If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated by the
Merger Agreement is not affected in any manner adverse to any party.
Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner.
(e) This Agreement, including all exhibits, disclosure
schedules and schedules hereto, constitutes the entire agreement and
supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject
matter hereof and except as otherwise expressly provided herein.
(f) Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party (whether by
operation of law or otherwise) without the prior written consent of the
other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and no other
Person shall have any right, benefit or obligation under this Agreement
as a third party beneficiary or otherwise.
(g) The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms. It is
accordingly agreed that the parties hereto shall be entitled to
specific performance of the terms hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
(h) No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed
to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
(i) Notwithstanding anything herein to the contrary, no Person
executing this Agreement who is, or becomes during the term hereof, a
director of the Company makes any agreement or understanding herein in
his or her capacity as such director, and the agreements set forth
herein shall in no way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company. The Stockholder has
executed this
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Agreement solely in his or her capacity as the record or beneficial
holder of the Stockholder's Shares or as the trustee of a trust whose
beneficiaries are the beneficial owners of the Stockholder's Shares.
(j) Each party agrees to bear its own expenses in connection
with the transactions contemplated hereby.
(k) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other than
the State of New York, except to the extent that the General
Corporation Law of the State of Delaware applies as a result of the
Company being incorporated in the State of Delaware, in which case such
General Corporation Law shall apply.
(l) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND
FOR ANY COUNTERCLAIM THEREIN.
(m) This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANALOG ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
---------------------------------
[Name]
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SCHEDULE I
EXISTING SHARES
Stockholder No. of Existing Shares No. of Option Shares
- ----------- ---------------------- --------------------
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SCHEDULE II
ROLLOVER SHARES
Stockholder No. of Rollover Shares
- ----------- ----------------------
