<PAGE>
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 (AMENDMENT NO. )
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 Section 240.14a-11(c) or Section 240.14a-12
Sterling Electronics Corporation
- --------------------------------------------------------------------------------
(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.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.50 per share ("Common Stock"), of Sterling
Electronics Corporation.
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-------------------------------------------------------------------------
[X] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
STERLING ELECTRONICS CORPORATION
4201 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77027
Dear Stockholder:
I am pleased to enclose information relating to a Special Meeting of
Stockholders of Sterling Electronics Corporation ("Sterling" or the "Company")
to be held at the offices of Sterling's counsel, Schlanger, Mills, Mayer &
Grossberg, LLP, 5847 San Felipe, Suite 1700, Houston, Texas 77057, at 9:00
a.m. C.S.T. on January , 1998.
The purpose of the Special Meeting of Stockholders is to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated as
of September 18, 1997 (the "Merger Agreement") by and among Sterling, Marshall
Industries ("Marshall") and MI Holdings Nevada, Inc. (the "Subsidiary") and
the merger contemplated thereby (the "Merger"), pursuant to which (i) the
Subsidiary will be merged with and into Sterling, whereupon Sterling will
become a wholly-owned subsidiary of Marshall, (ii) the stockholders of
Sterling will receive the right to receive cash consideration of $21.00 per
share and (iii) the holders of options to acquire shares of common stock of
Sterling will each be paid, in cash, net of withholding taxes, an amount per
option equal to the excess, if any, of $21 per share over the exercise price
of such option. A copy of the Merger Agreement is attached as Appendix A to,
and is summarized in, the accompanying Proxy Statement.
THE BOARD OF DIRECTORS OF STERLING RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL
DESCRIBED ABOVE.
In reaching its recommendations with respect to the Merger, the Board of
Directors relied upon, among other things, the opinion of Goldman, Sachs &
Co., an investment banking firm engaged by the Company, that the $21.00 per
share price in cash to be received by the Company's stockholders pursuant to
the Merger Agreement is fair from a financial point of view to such
stockholders. A copy of such opinion is attached to the enclosed Proxy
Statement as Appendix B and should be read carefully in its entirety.
The enclosed Notice of Special Meeting of Stockholders and Proxy Statement
contain detailed information concerning the Special Meeting and the Merger.
Please give these enclosures your careful consideration.
The members of the Board of Directors and management look forward to
personally greeting as many stockholders as possible at the Special Meeting.
However, whether or not you plan to attend personally, and regardless of the
number of shares you own, it is important that your shares be represented.
Although you may presently plan to attend the Special Meeting of
Stockholders, please complete, sign, date and promptly return the enclosed
proxy card. If you attend the Special Meeting of Stockholders and wish to vote
in person, you may withdraw your proxy at that time. You may also revoke your
proxy prior to the Special Meeting of Stockholders by delivering a written
notice of revocation to the Secretary of the Company at 4201 Southwest
Freeway, Houston, Texas 77027 or by executing a subsequent proxy card and
delivering it to the Secretary of the Company at the Special Meeting of
Stockholders.
Promptly after the Merger, a letter of transmittal will be mailed to all
holders of record of shares of Sterling's Common Stock to be used in
connection with the surrendering of their stock certificates. Please do not
send your stock certificates with the enclosed proxy card. The letter of
transmittal will include instructions as to the procedure to be used in
sending your stock certificates to the Merger
<PAGE>
Paying Agent. We urge you to vote in favor of approval and adoption of the
Merger Agreement. If you have any questions about the Merger or need
assistance in completing your proxy card, please contact Mac McConnell of the
Company at (713) 881-4230.
Very truly yours,
Ronald S. Spolane
Chairman of the Board and Chief
Executive Officer
Houston, Texas
November , 1997
<PAGE>
STERLING ELECTRONICS CORPORATION
4201 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77027
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY , 1998
TO THE STOCKHOLDERS OF STERLING ELECTRONICS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Sterling Electronics Corporation ("Sterling" or the "Company")
will be held at the offices of Sterling's counsel, Schlanger, Mills, Mayer &
Grossberg, LLP, 5847 San Felipe, Suite 1700, Houston, Texas 77057 on January
, 1998 at 9:00 a.m. local time for the purpose of considering and taking
action upon the following proposals:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of September 18, 1997 by and among Sterling,
Marshall Industries, a California corporation ("Marshall"), and MI Holdings
Nevada, Inc., a Nevada corporation and a wholly-owned subsidiary of Marshall
("Subsidiary") (the "Merger Agreement"), and the merger contemplated thereby
(the "Merger"), pursuant to which (i) the Subsidiary will be merged with and
into Sterling, whereupon Sterling will become a wholly-owned subsidiary of
Marshall, (ii) the stockholders of Sterling will receive the right to receive
cash consideration of $21.00 per share (the "Cash Consideration Per Share") of
common stock, $0.50 par value per share, of Sterling (the "Common Stock") and
(iii) the holders of options to acquire shares of Common Stock will each be
paid, in cash, net of withholding taxes, an amount per option equal to the
excess, if any, of the Cash Consideration Per Share (i.e., $21 per share) over
the exercise price of such option. A copy of the Merger Agreement is attached
as Appendix A to, and is summarized in, the accompanying Proxy Statement; and
2. To act upon any other matters properly coming before the Meeting or any
adjournment or postponement thereof.
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock on the record date for the Meeting is required to approve and
adopt the Merger Agreement and the Merger.
Management currently knows of no other business to be presented at the
Meeting. If any other matters come before the Meeting, the persons named as
proxyholders in the enclosed proxy card will vote in accordance with their
best judgment.
The Board of Directors has fixed the close of business on November 24, 1997
as the record date for the Meeting. Only stockholders of record at that time
are entitled to notice of, and all such holders of Common Stock are entitled
to vote at, the Meeting and any adjournment or postponement thereof. A
complete list of stockholders entitled to vote at the Meeting will be
available for inspection by any stockholder for any purpose germane to the
Meeting for ten days prior to the Meeting during ordinary business hours at
the headquarters of Sterling located at 4201 Southwest Freeway, Houston, Texas
77027.
To assure that your vote is counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed envelope, whether
or not you plan to attend the Meeting in person. A self-addressed postage paid
envelope is enclosed for your convenience. No additional postage is required
if mailed in the United States. If you do attend the Meeting, you may withdraw
your proxy and vote your shares in person if you so choose. In any event, you
may revoke your proxy prior to its exercise by providing written notice to the
Secretary of Sterling or by submitting a subsequent proxy relating to the same
shares. Shares represented by proxies that are returned properly signed but
unmarked will be voted in favor of the foregoing proposals.
<PAGE>
THE BOARD OF DIRECTORS OF STERLING RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
By order of the Board of Directors,
RONALD S. SPOLANE
Chairman of the Board and Chief
Executive Officer
Houston, Texas
November , 1997
<PAGE>
STERLING ELECTRONICS CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY , 1998
----------------
INTRODUCTION
This Proxy Statement is being furnished to holders of Common Stock, par
value $.50 per share (the "Common Stock"), of Sterling Electronics
Corporation, a Nevada corporation ("Sterling" or the "Company"), in connection
with the solicitation of proxies by the Board of Directors of Sterling from
such holders for use at the Special Meeting of Stockholders of Sterling (the
"Special Meeting") to be held on January , 1998 at 9:00 a.m. local time at
the offices of Sterling's counsel, Schlanger, Mills, Mayer & Grossberg, LLP,
5847 San Felipe, Suite 1700, Houston, Texas 77057 and at any adjournment or
postponement thereof. This Proxy Statement, the enclosed Notice of Special
Meeting of Stockholders and the form of proxy are first being mailed to the
Stockholders of Sterling on or about November , 1997.
The Special Meeting has been called to consider and vote upon a proposal to
approve and adopt (i) an Agreement and Plan of Merger dated as of September
18, 1997 (the "Merger Agreement") among Sterling, Marshall Industries, a
California corporation ("Marshall"), and MI Holdings Nevada, Inc., a Nevada
corporation and a wholly-owned subsidiary of Marshall ("Subsidiary"), and (ii)
the merger contemplated thereby (the "Merger"). The Merger Agreement, a copy
of which is attached as Appendix A hereto, provides for the merger of the
Subsidiary with and into Sterling, whereupon Sterling will become a wholly-
owned subsidiary of Marshall, the stockholders of Sterling will receive the
right to receive cash consideration of $21.00 per share (the "Cash
Consideration Per Share") and the holders of options to acquire shares of
common stock of Sterling will each be paid, in cash, net of withholding taxes,
an amount per option equal to the excess, if any, of the Cash Consideration
Per Share (i.e., $21 per share) over the exercise price of such options. See
"The Merger -- The Merger Agreement."
The Board knows of no matters that will be presented for consideration at
the Special Meeting other than those matters set forth in the Notice of
Special Meeting of Stockholders. If any other matters are properly presented
at the Special Meeting or any postponement or adjournment thereof, the persons
named in the enclosed proxy and acting thereunder will have authority to vote
on such matters, to the extent permitted by the rules of the Securities and
Exchange Commission, in accordance with the judgement of the persons voting
such proxies.
The information contained in this Proxy Statement is qualified in its
entirety by the Appendices to this Proxy Statement and the documents
incorporated by reference herein, each of which is important and should be
reviewed carefully in its entirety.
FORWARD LOOKING STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS PROXY
STATEMENT, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT FROM THE
MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES PERFORMED BY
THE FINANCIAL ADVISOR TO THE COMPANY AND THE PROJECTIONS RELIED UPON BY SUCH
FINANCIAL ADVISOR, ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS.
(i)
<PAGE>
Neither Sterling nor Marshall makes any express or implied representation or
warranty as to the attainability of the projected or estimated financial
information referenced under "The Merger -- Opinion of Financial Advisor" or
elsewhere herein or as to the accuracy or completeness of the assumptions from
which such projected or estimated information is derived. Projections or
estimations of the Company's future performance are necessarily subject to a
high degree of uncertainty and may vary materially from actual results.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 1
The Companies............................................................ 1
The Merger............................................................... 1
Reasons for the Merger; Recommendation of the Board of Directors......... 1
Opinion of Financial Advisor............................................. 2
Conditions to the Merger................................................. 2
Acquisition Transaction.................................................. 2
Termination Fee.......................................................... 3
Dissenters' Rights....................................................... 3
Accounting Treatment; Certain Federal Income Tax Consequences............ 3
Market Price Data........................................................ 3
Selected Consolidated Financial Data....................................... 4
Recent Developments........................................................ 5
The Special Meeting........................................................ 5
Record Date; Vote Required for Approval.................................. 5
Proxies.................................................................. 5
Rights of Dissenting Stockholders........................................ 6
Accountants.............................................................. 6
The Merger................................................................. 7
Background of the Merger................................................. 7
Recommendation of the Board of Directors; Reasons for the Merger......... 8
Accounting Treatment..................................................... 9
Certain Federal Income Tax Consequences of the Merger.................... 9
Opinion of Financial Advisor............................................. 10
Interests of Certain Persons in the Merger............................... 14
Required Regulatory Approvals............................................ 19
Dissenters' Rights....................................................... 19
The Merger Agreement....................................................... 20
Effective Time........................................................... 20
The Merger............................................................... 20
Consideration to be Received in the Merger............................... 20
Surrender of Shares and Payment.......................................... 20
Conditions to the Consummation of the Merger............................. 21
Representations and Warranties........................................... 23
Conduct of Business Pending the Merger................................... 23
Acquisition Transaction.................................................. 24
Termination Fee.......................................................... 24
Additional Agreements.................................................... 25
Governing Law............................................................ 27
Termination, Amendment And Waiver........................................ 27
Market Price of and Dividends on Sterling Common Stock..................... 28
Security Ownership of Certain Beneficial Owners and Management............. 29
1998 Annual Meeting of Stockholders........................................ 30
Other Matters.............................................................. 30
Independent Auditors....................................................... 30
Available Information...................................................... 30
Incorporation of Certain Documents by Reference............................ 31
APPENDICES
Appendix A -- Agreement and Plan of Merger dated as of September 18, 1997
by and among Marshall Industries, MI Holdings Nevada, Inc. and Sterling
Electronics Corporation................................................... A-1
Appendix B -- Fairness Opinion of Goldman, Sachs & Co...................... B-1
</TABLE>
(ii)
<PAGE>
SUMMARY
The following is a brief summary of the information contained elsewhere in
this Proxy Statement. The information contained in this Summary is qualified in
its entirety by, and should be read in conjunction with, the full text of this
Proxy Statement and the Appendices.
THE COMPANIES
Sterling Electronics Corporation has been engaged in the distribution of
electronic parts since its inception. As of September 1997, Sterling operated
38 locations covering over 80% of the United States' and Canada's geographic
markets for electronic components. Sterling's principal executive offices are
located at 4201 Southwest Freeway, Houston, Texas 77027, telephone (713) 627-
9800. Sterling Common Stock is quoted for trading on the New York Stock
Exchange under the symbol "SEC".
Marshall is one of the largest domestic distributors of industrial electronic
components and production supplies. Marshall also provides its customers with a
variety of value-added services, such as inventory management, kitting
programming of programmable logic devices and testing services. Marshall's
common stock is listed on the New York Stock Exchange under the symbol "MI".
Marshall's principal executive offices are located at 9320 Telstar Avenue, El
Monte, California 91731-2895, telephone (626) 307-6000.
The Subsidiary is a newly formed wholly-owned subsidiary of Marshall.
THE MERGER
The acquisition by Marshall of Sterling will be effected pursuant to the
terms of the Merger Agreement by the merger of the Subsidiary with and into
Sterling, with Sterling being the surviving corporation. In connection with the
closing of the Merger, Sterling and Subsidiary will execute Articles of Merger
(the "Articles of Merger") in accordance with the NRS. The Merger will become
effective at the time (the "Effective Time") that the Articles of Merger have
been accepted for filing by the Secretary of State of the State of Nevada.
At the Effective Time, each share of Sterling Common Stock issued and
outstanding will be converted into the right to receive cash consideration per
share of $21.00 (the "Cash Consideration Per Share"). See "The Merger
Agreement." As of the Effective Time: (i) all shares of Sterling Common Stock
outstanding will represent only the right to receive the Cash Consideration Per
Share, without interest, and the holders thereof will cease to have any other
rights with respect thereto, (ii) each outstanding option to acquire Sterling
Common Stock will be cancelled and the holder thereof will have the right to
receive the difference between the Cash Consideration Per Share and the
exercise price for such option and (iii) each outstanding share of the
Subsidiary will be converted into one share of Sterling Common Stock.
BY VIRTUE OF THE MERGER, STOCKHOLDERS OF STERLING WILL NOT RECEIVE ANY COMMON
STOCK OR OTHER SECURITIES OF MARSHALL OR ITS SUBSIDIARIES AND WILL NOT HAVE ANY
CONTINUING INVESTMENT IN MARSHALL, ITS SUBSIDIARIES, OR STERLING FROM AND AFTER
THE EFFECTIVE TIME. MARSHALL WILL OWN 100% OF THE OUTSTANDING COMMON STOCK OF
STERLING FROM AND AFTER THE EFFECTIVE TIME.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Merger Agreement has been adopted and approved by the Board of Directors
of Marshall, the Subsidiary and Sterling (with two directors, Ronald S. Spolane
and David A. Spolane, abstaining). See "The Merger -- Background of the
Merger." Sterling's Board of Directors recommends that
1
<PAGE>
Sterling stockholders vote in favor of the Merger and approve and adopt the
Merger Agreement. The recommendation of Sterling's Board of Directors is based
on a number of factors, which are discussed more fully below in the section
"The Merger -- Recommendation of the Board of Directors; Reasons for the
Merger." Such factors include, among other things, the all-cash nature of the
proposed transaction, consolidation in the industry and the opinion of Goldman,
Sachs & Co., Sterling's financial advisor.
OPINION OF FINANCIAL ADVISOR
Goldman, Sachs & Co. ("Goldman Sachs") has delivered its written opinion to
the Board of Directors of Sterling that, as of September 18, 1997, the $21.00
per share of Common Stock in cash to be received by the holders of shares of
Common Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is attached hereto as Appendix B and is
incorporated herein by reference. Goldman Sachs' opinion was provided for the
information and assistance of the Board of Directors of Sterling in connection
with its consideration of the transactions contemplated by the Merger Agreement
and such opinion does not constitute a recommendation as to how any holder of
Common Stock should vote with respect to such transactions. HOLDERS OF SHARES
OF COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
See "The Merger -- Opinion of Financial Advisor."
CONDITIONS TO THE MERGER
The effectiveness of the Merger is subject to the approval of Sterling's
stockholders and other conditions to closing set forth in the Merger Agreement.
In addition, the Merger Agreement provides that consummation of the Merger is
subject to Sterling and Marshall having complied with their covenants and
agreements set forth in the Merger Agreement and their representations and
warranties being, in all material respects, true and correct as of the
Effective Time. See "The Merger Agreement -- Conditions to the Consummation of
the Merger."
ACQUISITION TRANSACTION
After the date of the Merger Agreement and prior to the Effective Time or
earlier termination of the Merger Agreement, Sterling shall not directly or
indirectly initiate, solicit, negotiate, encourage, participate in discussions
or negotiations with, or provide any information to any person (other than
Marshall or Subsidiary) concerning, or enter into any agreement providing for,
any merger, sale of material assets, sale of shares of capital stock or tender
offer or exchange (in each case relating to more than 15% of Sterling Common
Stock), liquidation or similar transaction involving Sterling (any such
transactions being referred to herein as an "Acquisition Transaction").
Notwithstanding the foregoing, Sterling may furnish information and may
participate in discussions or negotiations with persons making unsolicited
proposals, if doing so is required to satisfy the fiduciary obligations of the
Board of Directors of Sterling, such determination is made with the written
advice of independent counsel and Sterling provides notice to Marshall. If,
prior to the consummation of the transactions contemplated by the Merger
Agreement, a person shall have made a bona fide proposal for an Acquisition
Transaction that the Board of Directors determines in its good faith judgment
and in the exercise of its fiduciary duties, based as to legal matters on the
written opinion of legal counsel and as to financial matters on the written
opinion of an investment banking firm of national reputation, is more favorable
to Sterling's stockholders than the Merger and that the
2
<PAGE>
failure to terminate the Merger Agreement and accept such alternative proposal
would be inconsistent with the proper exercises of such fiduciary duties under
applicable law, Sterling may terminate the Merger Agreement, subject to payment
of a termination fee described in the following paragraph.
TERMINATION FEE
If the Merger Agreement is terminated pursuant to the provisions described in
the foregoing paragraph (or due to (i) the failure of Sterling's stockholders
to approve and adopt the Merger or (ii) the withdrawal or modification by the
Board of Directors of its recommendation of the Merger to Sterling's
stockholders), then Sterling must make a cash payment to Marshall, upon demand,
of $5,000,000 (the "Termination Fee"). The Termination Fee will be Marshall's
sole and exclusive remedy against Sterling for a termination that gives rise to
the payment of the Termination Fee as described above (but not for any other
termination of the Merger Agreement (see "The Merger Agreement -- Termination;
Amendment and Waiver -- Effect of Termination")) and Marshall shall not pursue
in any manner, directly or indirectly, any claim or cause of action based upon
tortious or other interference with rights under the Merger Agreement against
any person submitting a proposal for an Acquisition Transaction.
DISSENTERS' RIGHTS
Holders of Sterling Common Stock will NOT be entitled to any dissenters' or
appraisal rights in respect to such shares under Nevada law.
ACCOUNTING TREATMENT; CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will be accounted for by Marshall under the purchase method of
accounting in accordance with generally accepted accounting principles. The
transaction intended by the Merger Agreement is NOT a tax-free transaction,
reorganization or exchange, and each holder of Sterling Common Stock will be
subject to federal income tax on the gain represented by the excess of the Cash
Consideration Per Share over such stockholder's basis in the share. See "The
Merger -- Certain Federal Income Tax Consequences of the Merger."
MARKET PRICE DATA
Sterling Common Stock is traded on the New York Stock Exchange under the
symbol "SEC". On September 18, 1997, the last full trading day prior to the
public announcement of the proposed Merger, the closing price of Sterling
Common Stock was $18.0625 per share. On such date, the high and low sale price
of Sterling Common Stock was $18.0625 per share and $17.625 per share,
respectively. On September 12, 1997 (one week prior to the public announcement
of the Merger) and August 19, 1997 (one month prior to the public announcement
of the Merger), the closing price of Sterling Common Stock was $16.125 per
share and $14.125 per share, respectively. See "Market Price of and Dividends
on Sterling Common Stock." Stockholders are urged to obtain current market
quotations for Sterling Common Stock.
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of March 29, 1997 and March 30,
1996 and for the fiscal years ended March 29, 1997, March 30, 1996 and April
1, 1995 are derived from the audited consolidated financial statements of the
Company included in the Company's Annual Report on Form 10-K for the year
ended March 29, 1997 and should be read in conjunction with such financial
statements. The selected consolidated financial data as of April 1, 1995,
April 2, 1994 and April 3, 1993 and for the fiscal years ended April 2, 1994
and April 3, 1993 are derived from audited consolidated financial statements
of the Company. The unaudited consolidated financial data as of and for the
twenty-six weeks ended September 27, 1997 and September 28, 1996 are derived
from unaudited consolidated financial statements included in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 27, 1997 and
have been prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited consolidated
financial statements include all adjustments necessary to present fairly the
information presented. The operating results for the twenty-six weeks ended
September 27, 1997 are not necessarily indicative of the operating results for
the full fiscal year.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED YEAR ENDED (NOTE A)
--------------------------- ----------------------------------------------
MARCH 29, MARCH 30, APRIL 3,
SEPTEMBER 27, SEPTEMBER 28, 1997 1996 APRIL 1, APRIL 2, 1993
1997 1996 (NOTE B) (NOTE C) 1995 1994 (NOTE D)
------------- ------------- --------- --------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $195,390 $159,400 $343,764 $322,135 $239,024 $196,987 $144,892
Gross margin............ 39,854 35,743 75,298 68,825 53,270 46,865 35,535
Operating income........ 6,620 8,784 17,883 19,050 13,906 10,448 5,601
Net income (Note E)..... 3,101 4,731 9,598 9,839 7,792 3,904 2,165
Earnings per share:
Primary................ .43 .65 1.32 1.33 1.06 .63 .47
Fully diluted.......... .41 .65 1.32 1.32 1.06 .58 .43
Weighted average common
and common equivalent
shares (Note F):
Primary................ 7,280 7,314 7,280 7,421 7,323 6,227 4,604
Fully diluted.......... 7,619 7,314 7,283 7,440 7,326 7,258 7,076
Cash dividends.......... -0- -0- -0- -0- -0- -0- -0-
<CAPTION>
NOTE A
------------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, MARCH 29, MARCH 30, APRIL 1, APRIL 2, APRIL 3,
1997 1996 1997 1996 1995 1994 1993
------------- ------------- --------- --------- -------- -------- --------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 94,369 $ 60,178 $ 77,833 $ 71,391 $ 47,343 $ 41,960 $ 31,816
Total assets............ 163,818 112,974 151,530 126,838 86,348 76,307 57,217
Long-term debt.......... 51,788 20,921 39,301 33,719 12,950 15,058 21,249
Shareholders' equity.... 61,101 51,225 56,484 48,453 39,497 31,364 16,863
Book value per share
(Note G)............... 8.48 7.29 8.00 6.73 5.49 4.39 3.59
Tangible book value per
share (Note H)......... 7.23 6.71 6.69 6.16 5.24 4.14 3.19
</TABLE>
- --------
Note A: Restated for discontinued operations and five percent stock dividends
paid to stockholders as of December 9, 1996 and January 11, 1997.
Note B: Includes operations of Marsh Electronics, Inc. from date acquired
(November 19, 1996) which was accounted for using the purchase method
of accounting.
Note C: Includes Canadian operations from date acquired (August 22, 1995)
which was accounted for using the purchase method of accounting.
Note D: Fifty-Three week year.
Note E: Includes $1,742 charge in fiscal 1994 for cumulative effect as of
April 4, 1993 of adopting Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Post Employment Benefits".
Note F: In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is effective for
financial statements issued for periods ending after December 15,
1997. At such time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. The impact of Statement 128 on the calculation of earnings
per share is not expected to be material.
Note G: Shareholders' equity, divided by shares outstanding.
Note H: Shareholders' equity less goodwill, divided by shares outstanding.
4
<PAGE>
RECENT DEVELOPMENTS
Since March 29, 1997, the shareholders of Sterling have approved the 1997
Stock Option Plan of the Company and elected directors. Since June 28, 1997,
inventory has increased by $6 million or 10%. In addition, Sterling has
borrowed an additional $5 million from one of the banks that is a party to its
existing senior credit facility. On September 18, 1997, Sterling entered into
the Merger Agreement.
THE SPECIAL MEETING
This Proxy Statement is being provided to stockholders in connection with
the Special Meeting, which will be held at the offices of Sterling's counsel,
Schlanger, Mills, Mayer & Grossberg, LLP, 5847 San Felipe, Suite 1700,
Houston, Texas 77057, on January , 1998, at 9:00 A.M. The Board of Directors
is soliciting proxies for use at the Special Meeting and any adjournments or
postponements thereof. The form of proxy is being provided to the stockholders
with this Proxy Statement. The Special Meeting will be held for the purpose of
approving and adopting the Merger Agreement and to conduct any other business
that may properly come before the Special Meeting or any adjournments or
postponements thereof.
RECORD DATE; VOTE REQUIRED FOR APPROVAL
The Board of Directors has fixed the close of business on November 24, 1997
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only
stockholders of record at the close of business on the Record Date shall be
entitled to notice of and to vote at the Special Meeting and at any
adjournment or postponement thereof. As of the Record Date, there were
shares of Common Stock issued and outstanding held by
approximately holders of record.
Each share of Common Stock entitles the holder of record thereof to one
vote, exercisable in person or by properly executed proxy, on all matters that
properly come before the Special Meeting and any adjournment or postponement
thereof. The presence, in person or by proxy, of stockholders representing a
majority of the voting power of the Common Stock outstanding on the Record
Date will constitute a quorum for purposes of voting at the Special Meeting.
Under the Nevada Revised Statutes ("NRS"), the affirmative vote of the
holders of a majority of the voting power of the Common Stock outstanding on
the Record Date is required to approve and adopt the Merger Agreement and the
Merger.
PROXIES
The enclosed proxy is being solicited by the Board of Directors for use in
connection with the Special Meeting and any postponement or adjournment
thereof. All Common Stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting or any
postponement or adjournment thereof and not revoked in the manner described
below will be voted in accordance with the instructions indicated on such
proxies. Shares of Common Stock represented by proxies that are returned
properly signed but unmarked will be voted in favor of the proposals set forth
in this Proxy Statement.
If a proxy is marked as "Abstain" on any matter, or if specific instructions
are given that no vote be cast on any specific matter (a "Specified Non-
Vote"), the shares represented by proxy will not be voted on such matter.
Abstentions and Specified Non-Votes will be included within the number of
shares present at the Special Meeting and entitled to vote for purposes of
determining whether such matter has been authorized and accordingly will have
the same effect as a negative vote.
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Pursuant to New York Stock Exchange rules, brokers and nominees do not have
discretionary authority to vote shares for approval of the Merger without
instructions from the beneficial owners thereof. Shares referred to as "broker
non-votes" (i.e., shares held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
that the broker or nominee does not have the discretionary power to vote on a
particular matter) will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. However, for
purposes of determining the outcome of any matter as to which the broker has
physically indicated on the proxy that it does not have discretionary
authority to vote, those shares will be treated as not present and not
entitled to vote with respect to that matter (even though those shares are
considered present and entitled to vote for quorum purposes and may be
entitled to vote on other matters). Therefore, the failure of beneficial
owners to provide specific instructions to their brokers with respect to their
shares of Common Stock will have the effect of a negative vote with respect to
the approval and adoption of the Merger.
If a quorum for the Special Meeting is not obtained or, as to any one or
more matters, if fewer shares of Common Stock are voted in favor of the
proposal than the number of shares of Common Stock required for such approval,
the Special Meeting may be adjourned for the purpose of obtaining additional
proxies or votes or for any other purpose and, at any subsequent reconvening
of the Special Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original Special Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter at a previous Special Meeting. Proxies voting against a proposal
set forth herein will not be voted to adjourn the Special Meeting to obtain
additional proxies or votes with respect to such proposal.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by Sterling. In addition to
solicitation by use of the mail, proxies may be solicited by telephone,
telegraph or personally by the directors, officers and employees of Sterling,
who will receive no extra compensation for their services. Sterling will
reimburse banks, brokerage firms and
other custodians, nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy soliciting materials to beneficial owners of shares of
Common Stock.
Proxies may be revoked by those persons executing the proxies by (a)
delivering to the Secretary of Sterling, at or before the Special Meeting, a
written notice of revocation bearing a later date than the proxy, (b) duly
executing a subsequent proxy relating to the same shares of Common Stock and
delivering it to the Secretary of Sterling at or before the Special Meeting or
(c) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered at or prior to
the Special Meeting to: Secretary, Sterling Electronics Corporation 4201
Southwest Freeway, Houston, Texas 77027.
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders who oppose the proposed Merger are NOT entitled to any
dissenters' or appraisal rights under Nevada law.
ACCOUNTANTS
Representatives of Ernst & Young LLP, will be present at the Special
Meeting, will be given the opportunity to make a statement and will be
available to respond to appropriate questions.
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THE MERGER
BACKGROUND OF THE MERGER
In December of 1996, Ronald S. Spolane, the President, Chief Executive
Officer and Chairman of the Board of Directors of Sterling, received an
unsolicited telephone call from Robert Rodin, President and Chief Executive
Officer of Marshall, requesting that Ronald S. Spolane meet with Mr. Rodin to
discuss, on an introductory and preliminary basis, the possibility of a
transaction between Sterling and Marshall. At a meeting in December of 1996,
Ronald S. Spolane and David A. Spolane, Executive Vice President of Sterling,
met with Mr. Rodin to discuss a possible transaction. At the end of such
meeting, Ronald S. Spolane indicated that Sterling was not interested in a
transaction at that time. Due to a change in industry conditions and a trend
toward consolidation in the industry, in April 1997 Ronald S. Spolane called
Mr. Rodin to inquire if Marshall was still interested in pursuing a possible
transaction. After several discussions on the telephone and a meeting in April
1997, Sterling and Marshall agreed to continue discussions. In May 1997,
Sterling engaged Goldman Sachs to be the exclusive financial advisor to
Sterling. Following the engagement of Goldman Sachs, Marshall informed
Sterling that Marshall had engaged Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") to assist Marshall in evaluating a possible acquisition of
Sterling. Several discussions were held between Ronald S. Spolane and David A.
Spolane on behalf of Sterling and Robert Rodin and Henry Chin, Vice President
and Chief Financial Officer of Marshall, concerning a possible combination or
transaction. In addition, Goldman Sachs had several discussions with DLJ
concerning a possible transaction between Sterling and Marshall. On June 18,
1997, Marshall executed a confidentiality agreement with Sterling. A separate
letter agreement dated the same date provided that Sterling would not
negotiate with any third parties from the date of such letter until July 21,
1997. From June 3, 1997 through July 21, 1997, several general meetings
between management and the financial advisors of Marshall and Sterling were
held to discuss the business of both companies and, on a preliminary basis,
the potential benefits and synergies that could be derived from the
acquisition of Sterling by Marshall. In addition, confidential information
concerning Sterling's projected earnings for fiscal 1998, detailed cost and
revenue information as to each sales location and lease information was
provided to Marshall pursuant to the Confidentiality Agreement. Prior to the
end of the "exclusivity" period with Marshall, Ronald S. Spolane was contacted
by the chief operating officer of another public company in the electronics
parts distribution industry concerning a possible transaction. Ronald S.
Spolane informed the chief operating officer of such other public company that
he could not have discussions with him until after July 21, 1997 and informed
Marshall of such contact. After the expiration of the Marshall "exclusivity"
period, Ronald S. Spolane and the chief operating officer of the other public
company had several discussions concerning a possible acquisition of Sterling
by such public company. The other public company requested that Sterling
provide it with confidential data. Sterling requested that such company
execute a confidentiality agreement similar to the confidentiality agreement
executed by Marshall and such company refused.
In late August 1997 representatives of Marshall met with Ronald S. Spolane
to discuss due diligence issues and the general positioning of Sterling and
Marshall in the electronics distribution industry. Between August 1997 and
mid-September 1997 several meetings were held between management of Marshall
and Sterling to discuss due diligence issues, transaction value and conditions
to consummate an acquisition. After extensive negotiations, Marshall and
Sterling determined to proceed toward the negotiation of a definitive
acquisition agreement. Between mid-August 1997 and September 17, 1997
financial and legal due diligence with respect to Sterling was performed by
Marshall. During the same period, management of Marshall and Sterling and
their respective legal and financial advisors negotiated most but not all of
the definitive terms of the Merger Agreement, and on or about September 3,
1997, Marshall submitted a proposal to acquire Sterling for $19 per share in
cash.
On August 27, 1997, the other public company submitted a written proposal to
acquire Sterling for $19 per share in cash. On September 5, 1997, the other
public company offered to acquire
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Sterling for $20 per share in cash and provided Sterling with a form of merger
agreement for such a transaction. On September 10, 1997, the Board of Sterling
met to consider the proposal from the other public company and the status of
the negotiations with Marshall. Goldman Sachs requested that each of Marshall
and the other public company submit its highest and best proposals by noon,
New York time, on September 12, 1997. Prior to such deadline, the other public
company submitted a proposal to acquire Sterling for $21 per share in cash and
Marshall submitted a proposal to acquire Sterling for $20 per share in cash.
The Marshall proposal had a deadline of 5:00 p.m. New York Time on September
12, 1997 for Sterling to accept such proposal. Goldman Sachs and counsel for
Sterling informed Marshall that the Board of Directors of Sterling could not
comply with such deadline. Goldman Sachs and counsel for Sterling requested
that both bidders provide financing commitments indicating financing for the
proposed transaction. On September 13, 1997, the Board of Directors of
Sterling met to consider the proposals from Marshall and the other public
company. The Board noted that the financing commitments from both bidders
contained "due diligence" and other conditions that were not acceptable to the
Board and instructed Goldman Sachs to contact each bidder and ask them to
provide financing commitments with as few conditions as possible. On September
15, 1997, the other public company executed a confidentiality agreement with
Sterling. From September 15, 1997 until September 17, 1997 representatives
from the other public company and its lender met with Goldman Sachs,
Sterling's counsel and representatives from Sterling concerning a possible
transaction. In addition, during such period, Sterling provided additional
information to Marshall and its counsel concerning Sterling. On September 17,
1997, the other public company submitted a written proposal to acquire
Sterling for $20 per share in cash and Marshall submitted a proposal to
acquire Sterling for $21 per share in cash.
On September 18, 1997, the Sterling Board of Directors met to consider both
proposals. Sterling's outside legal advisors reviewed the terms of the two
merger proposals from a legal perspective and advised the Sterling Board of
Directors as to its legal obligations in considering whether to adopt and
approve the proposed transaction. At such meeting, Goldman Sachs delivered to
the Sterling Board of Directors its opinion that, as of such date and based
upon and subject to certain matters stated in such opinion and such other
matters as Goldman Sachs considered relevant, the $21 per share in cash to be
received by the holders of shares of Common Stock is fair from a financial
point of view to such holders. See "-- Opinion of Financial Advisor." Two
members of the Board of Directors of Sterling, Ronald S. Spolane, and David A.
Spolane, disclosed that they had been offered employment
agreements/arrangements by each bidder and discussed potential concerns and
conflicts. As a result of such conflicts, Ronald S. Spolane and David A.
Spolane each elected to abstain from the consideration of the two merger
proposals and were excused from the meeting. See "-- Interest of Certain
Persons in the Merger." After a full discussion of all of the relevant issues
and upon consideration of the factors described under "-- Recommendation of
the Board of Directors; Reasons for the Merger," the remaining members of the
Board of Directors of Sterling concluded that the proposal from Marshall was
the superior proposal and the Merger Agreement was fair to and in the best
interests of Sterling stockholders and adopted and approved the Merger
Agreement. The definitive Merger Agreement was executed by the parties on the
evening of September 18, 1997 and publicly announced on the morning of
September 19, 1997.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of Sterling (with two members, Ronald S. Spolane and
David A. Spolane, abstaining and not participating in such discussions) has
approved and adopted the Merger, and recommends a vote for the Merger.
Sterling's Board of Directors believes the Merger is fair and in the best
interests of Sterling's stockholders. Stockholders should be aware that
certain members of Sterling's Board of Directors and management have interests
which may present them with potential conflicts. The Board of Directors was
aware of these potential conflicts and considered them in making their
recommendation and approving the Merger Agreement. However, the
recommendations of the Board of Directors should be considered in light of
these potential conflicts of interest. The
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material factors considered by Sterling's Board of Directors in reaching its
conclusion to adopt, approve and recommend the Merger are as follows:
All-cash nature of the proposed transaction. In the event the Merger
becomes effective, the Cash Consideration Per Share will become available
to the stockholders of Sterling without any holdbacks, escrows or
retainages. Sterling stockholders will not have to bear the risks that
would be involved in a purchase transaction where components of the
purchase price would be paid on a deferred basis by promissory notes or
where components of the purchase price are paid as earn-outs or other forms
of contingent consideration dependent on future performance of Sterling
from and after the Effective Time. Furthermore, Sterling's Board of
Directors considers the $21.00 per share all cash form of the transaction
to be a substantial benefit inasmuch as, among other things, it represents
a premium over historical and current trading prices for Sterling Common
Stock.
Consolidation in the Industry. The Sterling Board of Directors noted that
there had been substantial consolidation in the electronics parts
distribution business and that Sterling anticipated having increasing
difficulty competing in the industry against larger companies. In addition,
due to the fact that major electronic parts distributors tend to carry
either parts manufactured by Japanese based distributors or parts
manufactured by U.S. based manufacturers, together with financial
considerations, in the opinion of management, there was a limited number of
companies in the industry which would be in a position to acquire Sterling
or be acquired by Sterling.
The Goldman Sachs Opinion. The opinion dated September 18, 1997 of
Goldman Sachs to the Sterling Board of Directors to the effect that, as of
such date and based upon and subject to certain matters stated in such
opinion and such other matters as Goldman Sachs considers relevant, the
$21.00 per share of Common Stock in cash to be received by the holders of
shares of Common Stock pursuant to the Merger Agreement is fair from a
financial point of view to the holders of Sterling Common Stock.
Sterling's Board of Directors evaluated the primary factors listed above, as
well as others, in light of their knowledge of the business and operations of
Sterling and their business judgment. In view of the variety of factors
considered in connection with evaluation of the transaction, the Board of
Directors did not find it practical to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in its
determination. However, the Board placed special emphasis on the fact that the
Cash Consideration Per Share is at a premium over historical and current
trading prices for Sterling Common Stock, that it will be paid in cash at the
Effective Time, and the difficulties that it perceives Sterling would have in
expanding its business if it were to remain an independent company. The Board
of Directors was not aware of negative factors with respect to the Merger and
did not consider any such factors.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase by Marshall of the shares of
Sterling for accounting and financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes the material federal income tax consequences
of the Merger to holders of Sterling Common Stock who are citizens or residents
of the United States. It does not discuss all the tax consequences that may be
relevant to stockholders of Sterling in special tax situations (such as
insurance companies, dealers in securities, tax exempt organizations or non-
U.S. persons) or to stockholders of Sterling who acquired their shares of
Sterling Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation. Neither Sterling, Marshall
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nor Subsidiary has requested a ruling from the Internal Revenue Service in
regard to any of the federal income tax consequences of the Merger. A
stockholder of Sterling who receives the Cash Consideration Per Share in
payment for a share of Common Stock of Sterling will recognize gain or loss
equal to the difference between the Cash Consideration Per Share received and
such stockholder's basis in the shares. If Common Stock of Sterling were held
as a capital asset, such gain or loss will be capital gain or loss and will be
taxed at various rates depending on such stockholder's holding period of the
shares.
The transaction intended by the Merger Agreement is NOT a tax-free
transaction, reorganization or exchange, and each holder of Sterling Common
Stock will be subject to federal income tax on the gain represented by the
excess of the Cash Consideration Per Share over such stockholder's basis in
such share.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE U.S. INTERNAL
REVENUE CODE. NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES, IF ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE AND LOCAL
LAWS. STERLING COMMON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX
RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, STATE,
LOCAL AND OTHER APPLICABLE TAX LAWS, AND THE POSSIBLE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
OPINION OF FINANCIAL ADVISOR
On September 18, 1997, Goldman Sachs delivered its oral opinion to the Board
of Directors of Sterling that, as of the date of such opinion, the $21.00 per
share of Common Stock in cash to be received by the holders of shares of
Common Stock pursuant to the Merger Agreement is fair from a financial point
of view to such holders. Such opinion was subsequently confirmed in writing.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED SEPTEMBER 18,
1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
APPENDIX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS OF STERLING ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) Annual Reports to Stockholders and Annual
Reports on Form 10-K of Sterling for the five fiscal years in the period ended
March 29, 1997; (iii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q; (iv) certain other communications from Sterling to its
stockholders; and (v) certain internal financial analyses and forecasts for
Sterling prepared by its management. Goldman Sachs also held discussions with
members of the senior management of Sterling regarding its past and current
business operations, financial condition, and future prospects. In addition,
Goldman Sachs reviewed the reported price and trading activity for the shares
of Common Stock, compared certain financial and stock market information for
Sterling with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the electronics distribution industry and in other
industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
has not made an independent evaluation or appraisal of the assets and
liabilities of Sterling or any of its subsidiaries, and Goldman Sachs has not
been furnished with any such evaluation or appraisal. The advisory services of
Goldman Sachs and its opinion
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referred to herein were provided for the information and assistance of the
Board of Directors of Sterling in connection with its consideration of the
transaction contemplated by the Merger Agreement, and such opinion does not
constitute a recommendation as to how any holder of shares of Common Stock
should vote with respect to such transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to Sterling's Board of
Directors on September 18, 1997.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for Common Stock and the relationship
between movements of such stock and the movements in a composite index of
stock of selected companies in the large systems electronics distribution
industry (the "Large Systems Distributors Composite"), the small systems
electronics distribution industry (the "Small Systems Distributors
Composite") and the S&P 500. The Large Systems Distributors Composite is
composed of the following companies: Avnet, Inc., Arrow Electronics, Inc.
and Bell Microproducts, Inc. The companies comprising the Large Systems
Distributors Composite were chosen because they are publicly-traded
companies with operations that for purposes of analysis may be considered
similar to Sterling. The Small Systems Distributors Composite is composed
of the following companies: Jaco Electronics, Inc., Kent Electronics Corp.,
NU Horizons Electronics Corp., Bell Industries, Inc. and Reptron
Electronics, Inc. The companies comprising the Small Systems Distributors
Composite were chosen because they are publicly-traded companies with
operations that for purposes of analysis may be considered similar to
Sterling. Between September 16, 1996 and September 16, 1997, the trading
price of the Common Stock has generally underperformed both the Large
Systems Distributors Composite and the Small Systems Distributors
Composite, and since approximately April 1997, the trading price of the
Common Stock has underperfomed the S&P 500.
(ii) Analysis of Purchase Price. Goldman Sachs prepared a financial
analysis of the Merger and calculated the equity value, the enterprise
value and various financial multiples based upon the cash consideration of
$21.00 per share of Common Stock. The multiples were as follows: (i)
enterprise value as a multiple of total revenues -- 0.63x, 0.59x, 0.57x,
0.50x, 0.44x, for 1996, 1997, latest twelve months ("LTM"), estimated 1998
and estimated 1999, respectively; (ii) enterprise value as a multiple of
earnings before interest, taxes, depreciation and amortization ("EBITDA")
-- 10.0x, 9.9x, 11.1x, 11.7x, 9.6x, for 1996, 1997, LTM, estimated 1998 and
estimated 1999, respectively; (iii) enterprise value as a multiple of
earnings before interest and taxes ("EBIT") -- 10.7x, 11.1x, 12.9x, 14.0x,
11.3x, for 1996, 1997, LTM, estimated 1998 and estimated 1999,
respectively; and (iv) equity value as a multiple of net income -- 15.1x,
16.1x, 18.5x, 22.2x, 17.9x, for 1996, 1997, LTM, estimated 1998 and
estimated 1999, respectively. Estimates for 1998 and 1999 were based on
management projections.
(iii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Sterling to corresponding
financial information, ratios and public market multiples for four publicly
traded corporations: Arrow Electronics, Inc., Avnet, Inc., Bell
Microproducts, Inc. and Marshall Industries (the "Large Systems Selected
Companies"). The Large Systems Selected Companies were chosen because they
are publicly-traded companies with operations that for purposes of analysis
may be considered similar to Sterling. Goldman Sachs calculated and
compared various financial multiples and ratios. The multiples of Sterling
were calculated using a price of $17.625 per share of Common Stock, the
closing price of the shares of Common Stock on the New York Stock Exchange
on September 17, 1997. The multiples and ratios for Sterling were based on
information provided by Sterling's management and the multiples for each of
the Large Systems Selected Companies were based on the most recent publicly
available information. Estimates for 1997 and 1998 earnings were provided
by Institutional Brokers Estimate System ("IBES"). IBES is a data service
which monitors and publishes a compilation of earnings estimates produced
by selected research analysts on
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companies of interest to investors. With respect to the Large Systems
Selected Companies, Goldman Sachs considered levered market capitalization
(i.e., market value of common equity plus estimated market value of debt
less cash) as a multiple of LTM sales, as a multiple of LTM EBITDA and as a
multiple of LTM EBIT. Goldman Sachs' analyses of the Large Systems Selected
Companies indicated levered multiples of LTM sales, which ranged from a low
of 0.3x to a high of 0.6x, with a mean of 0.5x and a median of 0.6x, LTM
EBITDA, which ranged from a low of 6.9x to a high of 8.9x, with a mean of
8.2x and a median of 8.5x, and LTM EBIT, which ranged from a low of 8.0x to
a high of 10.1x, with a mean of 9.2x and a median of 9.4x, compared to
levered multiples of 0.5x, 8.9x and 10.2x, respectively, for Sterling.
Goldman Sachs also considered for the Large Systems Selected Companies
estimated calendar year 1997 and 1998 price/earnings ratios, which ranged
from a low of 10.7x to a high of 15.5x, with a mean of 13.6x and a median
of 14.1x, for estimated calendar year 1997 and from a low of 8.6x to a high
of 13.6x, with a mean of 11.7x and a median of 12.3x, for estimated
calendar year 1998, compared to 18.2x and 14.6x, respectively, for
Sterling. Goldman Sachs also considered LTM gross margins, LTM EBITDA
margins and LTM EBIT margins for the Large Systems Selected Companies,
which ranged from a low of 11.7% to a high of 18.1%, with a mean of 15.5%
and a median of 16.0%, from a low of 4.1% to a high of 7.0%, with a mean of
5.9% and a median of 6.3%, and from a low of 3.6% to a high of 6.2%, with a
mean of 5.3% and a median of 5.7%, respectively, compared to 21.5%, 5.5%
and 4.7%, respectively, for Sterling.
Goldman Sachs also reviewed and compared certain financial information
relating to Sterling to corresponding financial information, ratios and
public market multiples for five publicly traded corporations: Bell
Industries, Inc., Jaco Electronics, Inc., Kent Electronics Corp., Nu
Horizons Electronics Corp., and Reptron Electronics, Inc. (the "Small
Systems Selected Companies"). The Small Systems Selected Companies were
chosen because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to Sterling. Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples and ratios for each of the Small Systems Selected Companies were
based on the most recent publicly available information. Estimates for 1997
and 1998 earnings were provided by IBES. With respect to the Small Systems
Selected Companies, Goldman Sachs considered levered market capitalization
as a multiple of LTM sales, as a multiple of LTM EBITDA and as a multiple
of EBIT. Goldman Sachs' analyses of the Small Systems Selected Companies
indicated levered multiples of LTM sales, which ranged from a low of 0.3x
to a high of 1.9x, with a mean of 0.7x and a median of 0.4x, LTM EBITDA,
which ranged from a low of 6.6x to a high of 18.3x, with a mean of 9.8x and
a median of 7.9x, and LTM EBIT, which ranged from a low of 7.3x to a high
of 21.7x, with a mean of 11.5x and a median of 9.3x, compared to levered
multiples of 0.5x, 8.9x and 10.2x, respectively, for Sterling. Goldman
Sachs also considered for the Small Systems Selected Companies estimated
calendar year 1997 and 1998 price/earnings ratios, which ranged from a low
of 10.7x to a high of 29.4x, with a mean of 15.7x and a median of 12.4x,
for estimated calendar year 1997 and from a low of 7.7x to a high of 23.3x,
with a mean of 12.4x and a median of 10.2x, for estimated calendar year
1998 compared to 18.2x and 14.6x, respectively, for Sterling. Goldman Sachs
also considered LTM gross margins, LTM EBITDA margins and LTM EBIT margins
for the Small Systems Selected Companies, which ranged from a low of 19.0%
to a high of 22.7%, with a mean of 21.2% and a median of 21.5%, from a low
of 3.8% to a high of 10.2%, with a mean of 6.7% and a median of 6.2% and
from a low of 3.3% to a high of 8.6%, with a mean of 5.7% and a median of
5.6%, respectively, compared to 21.5%, 5.5% and 4.7%, respectively, for
Sterling.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to the following fourteen transactions in the
electronics distribution industry since 1988: Veba AG/Wyle Electronics,
Bell Industries/ Milgray Electronics, Farnell Electronics/Premier
Industrial, Arrow Electronics/Anthem Electronics, Arrow
Electronics/Gates/FA, Hagemeyer NV/Newrey & Eyre Group, Avnet, Inc./Hall-
Mark Electronics, Arrow Electronics/Lex Service (European
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distribution business), Arrow Electronics/Lex Service (North American
distribution business), Farnell Electronics/STC Limited (electronic
component distribution division), Sonepar Distribution/CGE Distribution,
Pioneer-Standard/Lex Electronics (assets), management buyout of Hall-Mark
Electronics, Arrow Electronics/Kierulff Electronics, Ducommun Data Systems
and MTI Systems (collectively, the "Selected Transactions"). The Selected
Transactions were chosen because they are recent business combination
transactions in the electronics distribution industry. Such analysis
indicated that for the Selected Transactions (i) levered aggregate
consideration as a multiple of LTM sales ranged from a low of 0.18x to a
high of 3.51x, with a mean of 0.68x and a median of 0.45x, as compared to
0.57x for the levered aggregate consideration to be received in the Merger,
(ii) levered aggregate consideration as a multiple of LTM EBITDA ranged
from a low of 4.5x to a high of 16.7x, with a mean of 10.1x and a median of
10.1x, as compared to 11.1x for the aggregate consideration to be paid in
the Merger, and (iii) levered aggregate consideration as a multiple of LTM
EBIT ranged from a low of 5.0x to a high of 17.7x, with a mean of 12.0x and
a median of 11.5x, as compared to 12.9x for the aggregate consideration to
be paid in the Merger.
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 Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs did not attribute any particular weight to any
analysis or factor considered by it; rather Goldman Sachs made its
determination as to fairness on the basis of its experience and professional
judgment, after considering the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable
to Sterling or the contemplated transaction. The analyses were prepared solely
for purposes of Goldman Sachs' providing its opinion to the Sterling Board of
Directors as to the fairness from a financial point of view to the holders of
the outstanding shares of Common Stock of the $21.00 per share of Common Stock
in cash to be received by such holders pursuant to the Merger Agreement and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Sterling, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast. As described above, Goldman Sachs' opinion to the Board of Directors
of Sterling was one of many factors taken into consideration by the Sterling
Board of Directors in making its determination to adopt and approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analysis performed by Goldman Sachs and is qualified by reference to
the written opinion of Goldman Sachs set forth in Appendix B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Sterling selected
Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs is familiar with Sterling
having acted as its financial advisor in connection with an unsolicited
acquisition proposal from Bell Industries, Inc. in 1995, and having acted as
its financial advisor in connection with, and having participated in certain
of the negotiations leading to, the Merger Agreement.
Pursuant to a letter agreement dated May 19, 1997 (the "Engagement Letter"),
Sterling engaged Goldman Sachs to act as its financial advisor in connection
with the possible sale of all or a portion
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of Sterling. Pursuant to the terms of the Engagement Letter, Sterling has
agreed to pay Goldman Sachs upon consummation of the Merger a transaction fee
based on 1.5% of the aggregate consideration paid in the Merger. Sterling has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Employment Agreements with Marshall
In considering the recommendation of the Board of Directors of Sterling with
respect to the Merger Agreement, Sterling stockholders should be aware that
two members of the Board, Ronald S. Spolane, Chairman, Chief Executive Officer
and President, and David A. Spolane, Executive Vice President and Chief
Operating Officer, respectively, have interests in the Merger that are in
addition to or different from the interests of Sterling stockholders
generally. Accordingly, Ronald S. Spolane and David A. Spolane abstained from
voting on the Merger Agreement and the Merger after disclosing their potential
conflict of interest relating to the proposed employment agreements (discussed
below) that they would enter into with Marshall in connection with the Merger.
See "The Merger -- Background of the Merger."
Concurrently with the execution of the Merger Agreement, Ronald S. Spolane
and David A. Spolane (each an "Employee" and together the "Employees") entered
into separate employment agreements (the "Employment Agreements") with
Marshall to act as the President and Executive Vice President, respectively,
of Sterling from the Effective Date until May 31, 2001. The Employment
Agreements with Marshall are subject to and become effective upon consummation
of the Merger. The Employment Agreements are in lieu of the current employment
agreements that Ronald S. Spolane and David A. Spolane have with Sterling (see
"-- Existing Employment Agreements with Sterling"). In addition, pursuant to
the Employment Agreements, Ronald S. Spolane and David A. Spolane agree to
release any rights they may have had under their existing employment
agreements with Sterling and to forego receiving any benefits under Sterling's
severance plans.
Under his Employment Agreement, Ronald S. Spolane is to receive a base
salary of (i) $31,250 per month from the Effective Time until May 31, 1998,
(ii) $375,000 from June 1, 1998 until May 31, 1999, (iii) $400,000 from June
1, 1999 until May 31, 2000 and (iv) $425,000 from June 1, 2000 until May 31,
2001. He is also to receive a bonus of $100,000 for the period ending May 31,
1998 and will participate in Marshall's profit sharing plan as to the
operations of Sterling only for the period commencing on June 1, 1998 and
ending May 31, 1999 and as to the consolidated operations of Marshall,
including Sterling, for the period commencing June 1, 1999 and ending May 31,
2001. In addition, he is entitled to a special formula bonus of up to $1.5
million based on the performance of Sterling for the twenty-four month period
ending November 30, 1999 based on (i) savings in selling, general and
administrative expenses of Sterling from December 1, 1998 to November 30, 1999
as compared to a benchmark, (ii) retention of certain suppliers of Sterling
and (iii) achievement of certain gross profit goals for Sterling, with a
minimum guaranteed bonus of $1,000,000 (subject to the termination provisions
of his Employment Agreement referred to below).
Under his Employment Agreement, David A. Spolane is to receive a base salary
of (i) $20,833 per month from the Effective Time until May 31, 1998, (ii)
$250,000 from June 1, 1998 until May 31, 1999, (iii) $275,000 from June 1,
1999 until May 31, 2000 and (iv) $300,000 from June 1, 2000 until May 31,
2001. He is also to receive a bonus of $100,000 for the period ending May 31,
1998 and will participate in Marshall's profit sharing plan as to the
operations of Sterling only for the period commencing on June 1, 1998 and
ending May 31, 1999 and as to the consolidated operations of Marshall,
including Sterling, for the period commencing June 1, 1999 and ending May 31,
2001, provided, however, that he will receive no less than (i) $150,000 under
such profit sharing plan for the
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year ending May 31, 1999, (ii) $225,000 under such profit sharing plan for the
year ending May 31, 2000, and, (iii) $300,000 under such profit sharing plan
for the year ending May 31, 2001. In addition, he is entitled to a special
formula bonus up to $1.2 million based on the performance of Sterling for the
twenty-four month period ending November 30, 1999 based on (i) savings in
selling, general and administrative expenses of Sterling from December 1, 1998
to November 30, 1999 as compared to a benchmark, (ii) retention of certain
suppliers of Sterling and (iii) achievement of certain gross profit goals for
Sterling, with a minimum guaranteed bonus of $900,000 (subject to the
termination provisions of his Employment Agreement referred to below).
Ronald S. Spolane and David A. Spolane are each entitled to certain other
welfare benefits and perquisites pursuant to their respective Employment
Agreements, including a company car or car allowance, in a amount not to
exceed $12,000 per year.
The payments to be made to each of Ronald S. Spolane and David A. Spolane
under their Employment Agreements are subject to their continued employment by
Marshall for the term of the Agreement. If the Employee is terminated prior to
the end of the term of his Employment Agreement as a result of death or
Disability (as defined in the Employment Agreement), he will receive the base
salary earned through the date of his termination, a pro rata portion of the
$100,000 first year bonus or the profit sharing payments earned through the
date of termination, as applicable, and a pro rata portion of the special
formula bonus. If the Employee is terminated prior to the end of the term of
his Employment Agreement For Cause (as defined in the Employment Agreement) or
Employee resigns prior to the end of the term of the Agreement, the Employee
will receive the base salary earned through the date of termination and a pro
rata portion of the $100,000 or the profit sharing payments earned through the
date of termination, as applicable. In such event, the Employee shall not be
entitled to any of the special formula bonus. If the Employee is terminated by
Marshall Without Cause (as defined in the Agreement), he will receive: (a) his
full base salary through the entire term of his Employment Agreement; (b) in
the case of Ronald S. Spolane, an amount equal to the product of the average
monthly profit sharing payment paid to him for the period up to the date of
the termination and number of months remaining in the term of his Employment
Agreement, or, in the case of David A. Spolane, the greater of: (x) the
product of the average monthly profit sharing payment paid to him for the
period up to the date of the termination and number of months remaining in the
term of the Employment Agreement; and (y) the unpaid portion of the guaranteed
profit sharing amounts to be paid to him ($100,000, $150,000, $225,000 and
$300,000 in each of the respective years); and (c) the full guaranteed special
formula bonus ($1,500,000 in the case of Ronald S. Spolane and $1,200,000 in
the case of David A. Spolane). In addition, in the event of a termination
Without Cause (as defined in the Employment Agreements), the Employee is
entitled to continued coverage by Marshall at Marshall's expense under, or the
provision to the Employee of insurance coverage no less favorable than
Marshall's existing life, disability, health, dental or any other welfare
benefit plan or program (as in effect on the date of termination) for the
period of the lesser of: (x) the remaining term of the Employment Agreement;
or (y) until the Employee is provided by another employer with benefits
substantially comparable to the benefits provided by such plans or programs.
In addition, the Employment Agreements define certain events as a
"Constructive Termination" allowing Employee to provide written notice of his
intention to terminate employment because of such Constructive Termination and
if such condition is not cured by Marshall within 20 days of receiving such
notice (the "Notice Period"), the Employee may terminate the employment within
2 weeks following such Notice Period. In the event of such termination, the
Employee is treated as though his employment was terminated "Without Cause"
for all purposes of his Employment Agreement.
Pursuant to each of the Employment Agreements, Ronald S. Spolane and David
A. Spolane will each receive at the Effective Time non-qualified stock options
to acquire 50,000 shares of Marshall common stock with an exercise price equal
to the fair market value of Marshall's common stock on the date of the Closing
of the transactions contemplated by the Merger Agreement. The options will
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vest in four equal installments on the first, second and third anniversaries
of the closing of the Merger, with the final installment vesting on May 31,
2001. The options will accelerate to the date of termination in the event that
the Employee is terminated by Marshall Without Cause (as defined in the
Employment Agreement).
The Employment Agreements also include the agreement of each of the
Employees not to compete against Sterling for the periods set forth below:
(i) in the case where the Employee's Employment Agreement expires by its
terms on May 31, 2001 without termination by either party for any other
reason, for a period of one year after the expiration of the Employment
Agreement;
(ii) in the case where the Employee's employment is terminated by
Marshall Without Cause (as defined in the Employment Agreement), for the
period which is the later of: (A) one year after the date of termination
Without Cause; and (B) May 31, 2001; and
(iii) in all other cases, including but not limited to, resignation by
the Employee or termination by Marshall For Cause (as defined in the
Employment Agreement), for a period of two years after the date of such
resignation or termination.
Each Employee is also subject to an anti-solicitation clause that prevents
the Employee for a period of two years after his termination, for any reason,
from calling on or soliciting, with respect to the activities prohibited by
the non-competition provisions of the Employment Agreement, any person, firm
corporation or other entity who or which at the time of such termination, or
within two years prior thereto, was or had been a customer, referral source or
distributor of Marshall or any of its affiliates or soliciting the employment
of any person who was employed by Marshall or any of its affiliates on a full
or part-time basis at the time of the Employee's termination of employment.
Existing Employment Agreements with Sterling
Sterling and Ronald S. Spolane are currently parties to an employment
agreement dated as of September 18, 1995, pursuant to which Ronald S. Spolane
is employed as the Chairman of the Board, President and Chief Executive
Officer of Sterling. The material terms of such employment agreements are set
forth below. However, such employment agreement will be replaced with
Employment Agreement with Marshall (See "-- Employment Agreement With
Marshall") and will terminate on the Effective Time if the Merger is
consummated.
Such agreement has an initial term of 5 years and is subject to automatic
one year extensions on the anniversary date of such agreement unless either
Sterling or Ronald S. Spolane gives written notice that they do not desire to
extend the term of the employment agreement. Pursuant to such agreement,
Ronald S. Spolane will receive (i) a salary of $237,000 per year, (ii) a
formula bonus based on the earnings and results of operations of Sterling,
(iii) a Company car, (iv) medical, dental and prescription drug coverage, and
(iv) inclusion of Ronald S. Spolane in any other benefit plan for senior
employees of Sterling.
Sterling's current employment agreement with Ronald S. Spolane also contains
change of control provisions. If during the thirty-six months following a
"change in control" of Sterling, R. S. Spolane's employment is terminated
other than for cause, then he would be entitled to receive a lump sum
severance benefit equal to three times the sum of (i) his annual salary for
the prior year, (ii) the greater of (X) the bonus that Ronald S. Spolane would
have earned under his bonus formula for the current year annualized, or (Y)
the bonus paid to him for the prior year, and (iii) an amount for the agreed
value of certain employee benefits being provided to Ronald S. Spolane
(currently $38,000). If such amounts are subject to tax (the "Excise Tax")
imposed by Section 4999 and/or 280G of the Internal Revenue Code of 1986 (the
"Code"), then Sterling will also pay to Ronald S. Spolane an amount such
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that the net amount retained by Ronald S. Spolane after deduction of the
Excise Tax shall be equal to the amount Ronald S. Spolane would have been
entitled to receive prior to the imposition of the Excise Tax. The employment
agreement with Ronald S. Spolane defines "change of control" as (i) the
existing directors do not constitute two-thirds of the Board of Directors,
(ii) the acquisition of 25% or more of Sterling's common stock by a person or
group, (iii) any merger or consolidation in which the existing board of
directors of Sterling do not constitute at least two-thirds of the board of
the surviving corporation, and (iv) any other transaction deemed by two-thirds
of Sterling's existing directors to constitute a change of control.
Following a change of control and the termination of Ronald S. Spolane's
employment other than for "cause", all stock options granted to Ronald S.
Spolane will immediately become vested and Ronald S. Spolane will be entitled
to participate in Sterling's employee benefit plans for three years following
such termination.
Pursuant to the current employment agreement, Ronald S. Spolane has agreed
not to compete against Sterling or solicit customers, employees or suppliers
of Sterling for a period of one year following a change of control event, or
two years following a termination for any other cause.
Sterling and David A. Spolane are also currently parties to an employment
agreement dated as of September 18, 1995, pursuant to which David A. Spolane
is employed as an Executive Vice President and Operating Officer of Sterling.
Such employment agreement will terminate on the Effective Time if the Merger
is consummated. Such agreement has an initial term of 5 years and is subject
to automatic one year extensions on the anniversary date of such agreement
unless either Sterling or David A. Spolane gives written notice that they do
not desire to extend the term of the employment agreement. Pursuant to such
agreement, David A. Spolane will receive (i) a salary of $135,000 per year,
(ii) a formula bonus based on the earnings and results of operations of
Sterling, (iii) a Company car, (iv) medical, dental and prescription drug
coverage, and (iv) inclusion of David A. Spolane in any other benefit plan for
senior employees of Sterling.
Sterling's current employment agreement with David A. Spolane also contains
change of control provisions. If during the thirty-six months following a
"change in control" of Sterling, David A. Spolane's employment is terminated
other than for cause, then he would be entitled to receive a lump sum
severance benefit equal to three times the sum of (i) his annual salary for
the prior year, (ii) the greater of (X) the bonus that David A. Spolane would
have earned under his bonus formula for the current year annualized, or (Y)
the bonus paid to him for the prior year, and (iii) an amount for the agreed
value of certain employee benefits being provided to David A. Spolane
(currently $38,000). If such amounts are subject to Excise Tax, then Sterling
will also pay to David A. Spolane an amount such that the net amount retained
by David A. Spolane after deduction of the Excise Tax shall be equal to the
amount David A. Spolane would have been entitled to receive prior to the
imposition of the Excise Tax. The employment agreement with David A. Spolane
defines "change of control" as (i) the existing directors do not constitute
two-thirds of the Board of Directors, (ii) the acquisition of 25% or more of
Sterling's common stock by a person or group, (iii) any merger or
consolidation in which the existing board of directors of Sterling do not
constitute at least two-thirds of the board of the surviving corporation, and
(iv) any other transaction deemed by two-thirds of Sterling's existing
directors to constitute a change of control.
Following a change of control and the termination of David A. Spolane's
employment other than for cause, all stock options granted to David A. Spolane
will immediately become vested and David A. Spolane will be entitled to
participate in Sterling's employee benefit plans for three years following
such termination.
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Pursuant to the current employment agreement, David A. Spolane has agreed
not to compete against Sterling or solicit customers, employees or suppliers
of Sterling for a period of one year following a change of control event, or
two years following a termination for any other cause.
Severance Plans
Upper Management Severance Plan. On November 14, 1995, Sterling adopted its
Upper Management Severance Plan. Such plan covers the senior employees of
Sterling designated by the Chief Executive Officer of Sterling as senior
employees and who have been employed by Sterling for at least six months,
other than an employee who is a party to an employment agreement with change
of control provisions. Ronald S. Spolane and David A. Spolane each have
employment agreements with change of control provisions and, therefore, are
not covered by this plan. There are currently 12 employees covered by this
Plan.
Under Sterling's Upper Management Severance Plan, a severance benefit is
payable if during the twelve month period following any "change of control" a
covered senior employee is terminated other than for "cause". In addition, if
the change of control is "hostile", any termination of employment by a covered
senior employee during the same twelve month period, or if the change of
control is not "hostile", a termination of employment by a covered senior
employee during the same twelve month period after an involuntary demotion or
relocation, triggers a severance benefit. The severance benefit is equal to
the sum of (X) one year salary, and (Y) the greater of such covered senior
employee's last year bonus or the average of such covered senior employee's
bonus for the three prior years. Such severance payment would be paid one-half
within 30 days of such covered senior employee's termination of employment
with Sterling and the balance one year from such termination date. The covered
senior employee's receipt of the severance payment is conditioned on the
covered senior employee agreeing to not compete against Sterling and to not
solicit employees, suppliers or customers of Sterling for a one-year period
following termination. In addition, the covered senior employee must hold in
confidence all of Sterling's confidential information and trade secrets in the
possession of such terminated covered senior employee. Sterling may require
that a terminated covered senior employee sign a written agreement agreeing to
be bound by such provisions as a condition to the receipt of the severance
payment.
Such plan defines change of control in the same manner as in the employment
agreements with Ronald S. Spolane and David A. Spolane. The term "hostile
change of control" refers to any change of control that is not approved by a
majority of Sterling's directors. The Merger is not a "hostile change of
control" under the Upper Management Severance Plan.
In addition, if an employee becomes entitled to benefits under the Upper
Management Severance Plan or the Broad Base Severance Plan (see next
paragraph), such employee will be entitled to full vesting of all benefits
under other employee benefit plans.
Broad Base Severance Plan. On November 14, 1995, Sterling also adopted its
Broad Base Severance Plan. Sterling's Broad Base Severance Plan covers all
employees of Sterling who have been employed by Sterling for at least twelve
months and who are not covered by either Sterling's Upper Management Severance
Plan or an employment agreement with change of control provisions. If during
the twelve month period following any hostile change of control, (i.e. any
change of control that is not approved by a majority of Sterling's directors)
any covered employee is terminated for other than cause or voluntarily quits,
then such covered employee will receive a severance benefit equal to one
week's salary for each full year of employment with Sterling prior to the date
of such termination. Such amount shall be paid to the covered employee in a
lump sum payment within 30 days of such termination. It is a condition of the
receipt of such severance benefit that a covered employee not solicit
Sterling's customers or employees for a period equal to one week for each one
year of employment by Sterling prior to termination. The Merger is not a
"change of control" under
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the Broad Base Severance Plan and it therefore will have no effect upon the
consummation of the Merger.
Executive Salary Continuation Program.
In 1976, Sterling established an Executive Salary Continuation Program for
selected key employees to be funded through life insurance. The program is
voluntary (approximately 16 active employees as of June 2, 1997 participate in
the program) with each participating employee contributing to the program. The
annual benefits, beginning at age 65, depend upon the employee's age and
health at the time of joining the program and the amount of the employee's
monthly contribution to the program. Reduced benefits are also available in
the event of termination of employment prior to age 65. Sterling is the owner
and beneficiary of each participant's insurance policy in this program and is
contractually obligated to pay death or salary continuation benefits.
The principal benefits under this program are paid in 120 equal monthly
installments beginning when the participant attains the age of 65 years.
Messrs. Turner, Ronald S. Spolane and McGinty are participants in the program,
with annual benefit payments beginning at age 65 of $25,312, $81,840 and
$25,207, respectively. Mr. David A. Spolane and Mr. O'Brien are not
participants in the program.
Stock Options
On June 28, 1993, March 10, 1994 and October 15, 1996 each non-employee
director received a non-qualified stock option, issued pursuant to the
Sterling 1993 Employee Stock Option Plan, to purchase 3,307 shares of common
stock at $5.44 per share, 3,307 shares of common stock at $10.43 and 5,250
shares of common stock at $10.95, respectively. Including the above referenced
options, there are a total of 1,034,567 options outstanding as of October 8,
1997 with an average exercise price of $10.20. Pursuant to the Merger
Agreement, such directors, along with Sterling's executive officers (see
"Security Ownership of Certain Beneficial Owners and Management") and all
other option-holders, will be entitled to receive the Merger Consideration Per
Share minus the applicable exercise price per option.
REQUIRED REGULATORY APPROVALS
Sterling is aware of no federal or state regulatory requirements that must
be complied with or other approvals that must be obtained prior to
consummation of the Merger, other than (i) compliance with applicable federal
and state securities laws, (ii) the acceptance for filing of the Articles of
Merger as required under the laws of the State of Nevada and (iii) expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"). See "The Merger Agreement -- Conditions
to the Consummation of the Merger."
DISSENTERS' RIGHTS
Holders of shares of Sterling Common Stock are NOT entitled to dissenters'
or appraisal rights under Nevada law.
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THE MERGER AGREEMENT
THE TERMS AND CONDITIONS OF THE PROPOSED MERGER ARE CONTAINED IN THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT.
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY. THE
DESCRIPTIONS OF THE MATERIAL TERMS AND CONDITIONS OF THE MERGER AGREEMENT ARE
SET FORTH BELOW AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
COMPLETE TEXT OF THE MERGER AGREEMENT.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective at the
time Articles of Merger are duly accepted for filing with the Secretary of
State of the State of Nevada. The time at which the Merger will become
effective is referred to herein as the "Effective Time" and the date on which
the Merger becomes effective is the "Effective Date." Such filing, together
with all other filings or recordings required by the NRS in connection with
the Merger, will be made as soon as practicable after the approval and
adoption by the stockholders of Sterling of the Merger Agreement and the
satisfaction, or to the extent permitted under the Merger Agreement, waiver of
all conditions to the Merger contained in the Merger Agreement.
THE MERGER
At the Effective Time, Subsidiary will be merged with and into Sterling, at
which time the separate existence of Subsidiary will cease and Sterling will
be the surviving corporation (the "Surviving Corporation") and a wholly-owned
subsidiary of Marshall. From and after the Effective Time, the Surviving
Corporation will possess all the assets, rights, privileges, powers and
franchises and be subject to all of the limitations, restrictions,
disabilities and duties of Sterling and Subsidiary, as provided under Nevada
law.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, each share of Sterling Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive $21.00 per share (the "Cash Consideration Per Share") except that any
shares of Sterling Common Stock held by Sterling or Marshall or their wholly-
owned subsidiaries (other than those held in trust) will be cancelled. All
existing stock options will be cancelled and the holders of such options will
be entitled to receive the difference between the current exercise price of
such options and the Cash Consideration Per Share.
SURRENDER OF SHARES AND PAYMENT
At the closing of the Merger, Marshall shall select a bank or trust company
reasonably acceptable to Sterling to act as the paying agent for the Merger
(the "Paying Agent") and will deposit with the Paying Agent an amount equal to
the Cash Consideration Per Share multiplied by the number of shares entitled
to receive the same (the "Payment Fund"). The Payment Fund shall not be used
for any other purpose. The Payment Fund may be invested by the Paying Agent,
as directed by the Surviving Corporation, in (i) obligations of or guaranteed
by the United States, (ii) commercial paper rated A-1, P-1 or A-2, P-2, and
(iii) certificates of deposit, bank repurchase agreements and bankers
acceptances of any bank or trust company organized under federal law or under
the law of any state of the United States or of the District of Columbia that
has capital, surplus and undivided profits of at least $1 billion or in money
market funds which are invested substantially in such investments. Any net
earnings with respect thereto shall be paid to the Surviving Corporation as
and when requested by the Surviving Corporation.
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Each holder of shares of Sterling Common Stock that have been converted into
the right to receive the Cash Consideration Per Share, upon surrender to the
Paying Agent of a certificate or certificates representing such shares of
Sterling Common Stock, together with a properly completed letter of
transmittal (and any other items required by such letter), will be entitled to
receive in exchange for each such share, the Cash Consideration Per Share,
without interest, which such holder has the right to receive pursuant to the
Merger Agreement. Each certificate for shares of Sterling Common Stock so
surrendered shall be canceled. Until so surrendered, each such certificate
will, after the Effective Time, represent for all purposes only the right to
receive the Cash Consideration Per Share without interest. In the event of a
transfer of ownership of shares of Sterling Common Stock which is not
registered in the transfer records of Sterling, the Merger Consideration will
be paid to the transferee only upon the transferee's presentation of the stock
certificate(s) with proper transfer endorsement(s) (or stock transfer
power(s)), payment (or evidence that no payment is necessary) of applicable
transfer taxes and compliance with applicable securities laws. STOCKHOLDERS OF
STERLING ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE PAYING AGENT.
Any amounts deposited with the Paying Agent pursuant to the Merger Agreement
for payment of the Cash Consideration Per Share that remain unclaimed by the
holders of shares of Sterling Common Stock one year after the Effective Time
will, upon request be returned to the Surviving Corporation, and any such
holder who has not exchanged his shares prior to that time will be entitled
thereafter to look only to Marshall and the Surviving Corporation for payment
(subject to applicable abandoned property, escheat and similar laws), without
interest. NO INTEREST WILL BE PAID WITH RESPECT TO THE CASH CONSIDERATION PER
SHARE REGARDLESS OF WHEN A STOCKHOLDER SURRENDERS HIS CERTIFICATES IN EXCHANGE
FOR THE CASH CONSIDERATION PER SHARE.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the parties to effect the Merger are subject
to the fulfillment at or prior to the Effective Date of the following
conditions unless waived by all parties:
Stockholder Approval. The Merger shall have been approved and adopted by
Sterling's stockholders under applicable law.
Approval from Government Entities. All approvals required by any
governmental entity and all other actions required to effect the Merger and
related transactions shall have been obtained. The waiting period under the
HSR Act shall have expired, or early termination of the waiting period under
the HSR Act shall have been granted.
No Injunctions or Restraints. No governmental entity shall have instituted a
proceeding seeking injunctive or other relief in connection with the Merger
and related transactions. There shall not be any judgment, decree, injunction,
ruling or order of any governmental entity that prohibits, restricts, or
delays consummation of the Merger.
The obligations of Marshall and Subsidiary to effect the Merger are subject
to the fulfillment at or prior to the Effective Date of the following
conditions except to the extent waived by Marshall:
Performance of Obligations and Representations and Warranties of Sterling.
Sterling shall have performed in all material respects its agreements
contained in the Merger Agreement required to be performed on or prior to the
Effective Date and the representations and warranties of Sterling contained in
the Merger Agreement shall be true and correct in all material respects on and
as of the date made and on and as of the Effective Date as if made on and as
of such date, and Marshall shall
21
<PAGE>
have received a certificate of the Chief Executive Officer of Sterling dated
as of the Effective Date to that effect.
Comfort Letter. Marshall shall have received from Ernst & Young LLP, the
independent auditors of Sterling, a comfort letter dated the date of the
mailing of this Proxy Statement and a second comfort letter dated the
Effective Date, each in form and substance reasonably satisfactory to
Marshall.
Other Approvals and Consents. All statutory requirements for the valid
consummation by Marshall and Subsidiary of the transactions contemplated by
the Merger Agreement shall have been fulfilled; all authorizations, consents
and approvals of all governmental entities required to be obtained in order to
permit consummation by Marshall and Subsidiary of the transactions
contemplated by the Merger Agreement shall have been obtained.
No Material Adverse Effect. As of the Effective Time, there shall not have
occurred any event which has or is likely to have a material adverse effect on
the business, financial condition, results of operations, prospects,
properties or capitalization of Sterling and its subsidiaries, taken as a
whole (the "Company's Business") (events or changes affecting the entire
electronics components distribution industry generally will not be considered
in making such determination). Without limiting the foregoing, a material
adverse effect on the Company's Business shall include the termination (or
notice of termination) of franchise agreements with suppliers which in the
aggregate accounted for at least seven percent of Sterling's revenues in
fiscal 1997.
Legal Opinions. Marshall shall have received an opinion from Schlanger,
Mills, Mayer & Grossberg, LLP and from Woodburn and Wedge, both counsel to
Sterling in form and substance reasonably satisfactory to Marshall.
Market Conditions. There shall have not occurred (i) any general suspension
of, trading in or limitation on prices for securities on the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., or the National Association
of Securities Dealers Automated Quotation System, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) the commencement of a war,
armed hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation by any
governmental entity on, or any other event that, in the reasonable judgment of
Marshall is substantially likely to materially adversely affect the extension
of credit by banks or other lending institutions, or (v) from the date of the
Merger Agreement through the date immediately prior to the Effective Time, a
decline of at least 25% in the Standard & Poor's 500 Index.
The obligations of Sterling to affect the Merger are subject to the
fulfillment at or prior to the Effective Date of the following Conditions
unless waived by Sterling:
Performance of Obligations and Representations and Warranties of Marshall
and Subsidiary. Marshall and Subsidiary shall have performed in all material
respects their agreements contained in the Merger Agreement required to be
performed on or prior to the Effective Date and the representations and
warranties of Marshall and Subsidiary contained in the Merger Agreement shall
be true and correct in all material respects on and as of the date made and on
and as of the Effective Date as if made on and as of such date, and Sterling
shall have received a certificate of the Chief Executive Officer of Marshall
dated as of the Effective Date to that effect.
Legal Opinions. Sterling shall have received an opinion from O'Melveny &
Myers LLP and McDonald, Carano, Wilson, McCune, Bergin, Frankovich & Hicks
LLP, both counsel for Marshall, in form and substance reasonably satisfactory
to Sterling.
22
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
Sterling relating to, among other things: (i) organization and qualification
to do business; (ii) capitalization of Sterling and its subsidiaries; (iii)
authority to enter into the Merger and valid execution of the Merger
Agreement; (iv) non-contravention of laws, other contracts and governing
documents and necessary governmental and contractual approvals; (v) proper
filing and accuracy of reports and financial statements, (including absence of
undisclosed liabilities); (vi) absence of certain changes or events; (vii)
accuracy of this Proxy Statement; (viii) compliance with law; (ix) taxes; (x)
material contracts; (xi) employee benefit plans and ERISA matters; (xii)
employment agreements and labor matters; (xiii) environmental matters; (xiv)
title to assets; (xv) insurance; (xvi) no brokers; (xvii) related party
transactions; (xviii) lack of dissenters' rights; (xix) bank accounts; (xx)
intangible property; (xxi) receipt of fairness opinion from Goldman Sachs;
(xxii) full disclosure of information; and (xxiii) absence of legal
proceedings.
The Merger Agreement also contains various representations by Marshall and
Subsidiary relating to, among other things: (i) organization and qualification
to do business, (ii) authority to enter into the Merger and valid execution of
the Merger Agreement; (iii) non-contravention of laws, other contracts and
governing documents and necessary government and contractual approvals; (iv)
no brokers; (v) absence of legal proceedings; (vi) accuracy of financial
statements; and (vii) availability of financing.
The representation and warranties made by the parties terminate on the
Effective Date.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Merger Agreement and prior to the
Effective Time or earlier termination of the Merger Agreement, unless Marshall
shall otherwise agree in writing, Sterling shall, and shall cause its
subsidiaries to:
Ordinary Course. Conduct their respective businesses in the ordinary and
usual course of business and consistent with past practice and use its
commercially reasonable efforts to (i) preserve its existing business
organization, insurance coverage, material rights, material licenses or
permits, advantageous business relationships, material agreements and credit
facilities; and (ii) retain its key officers and employees.
Charter Documents; Changes in Stock. Not (i) amend Sterling's Articles of
Incorporation or by-laws, (ii) split, combine or reclassify Sterling's
outstanding capital stock or (iii) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise.
Other Conduct. Not (i) enter into any material transaction or commitment, or
dispose of or acquire any material properties or assets, except purchases and
sales of inventory in the ordinary course of business consistent with past
practices; (ii) implement any new employee benefit plan, or employment,
compensatory or severance agreement; (iii) amend any existing employee benefit
plan or employment agreement except as required by Law or by the Merger
Agreement; (iv) enter into, amend or terminate any contract that is material
to Sterling (including contracts falling into a list of certain types of
contracts, subject to specified exceptions) (each a "Material Contract"); (v)
take any action that would jeopardize the continuance of its material supplier
or customer relationships; (vi) make any material change in the nature of
their businesses and operations; (vii) enter into any transaction or agreement
with any officer, director or affiliate of Sterling or any of its
subsidiaries; (viii) incur or agree to incur any obligation or liability
(absolute or contingent) that individually calls for payment by Sterling or
any of its subsidiaries of more than $100,000 in any specific case or $500,000
in the aggregate, excluding purchases of inventory in the ordinary course of
business; or (ix) make any tax election or make any change in any method or
period of accounting or in any accounting policy, practice or procedure.
23
<PAGE>
Employee Matters. Sterling shall amend, terminate or suspend its 1996
Employee Stock Purchase Plan such that no options will be granted pursuant
thereto after September 30, 1997. Sterling's Board of Directors shall take all
actions necessary or appropriate such that the Merger, the transactions
contemplated by the Merger Agreement and any steps taken in connection
therewith are not deemed to be either (i) a "Change in Control" as such term
is defined in Sterling's Broad Base Severance Plan or (ii) a "Hostile Change
of Control" as such term is defined in Sterling's Upper Management Severance
Plan.
Notification of Defaults and Adverse Events. Sterling will promptly notify
Marshall if, subsequent to the date of the Merger Agreement and prior to the
Effective Date: (i) an event occurs that may materially and adversely affect
the Company's Business, (ii) it receives any notice of default under any
Material Contract, which default would, if not remedied, result in any
material adverse change in Company's Business or which would render incorrect
any representation made in the Merger Agreement, or (iii) any suit, action or
proceeding is instituted or, to the knowledge of Sterling, threatened against
or affecting Sterling or any of its subsidiaries which, if adversely
determined, would result in any material adverse change in Company's Business
or which would render incorrect any representation made in the Merger
Agreement. Each of Sterling and Marshall will promptly notify the other if it
determines it is or will be unable to comply with any of its obligations under
the Merger Agreement or fulfill any conditions under its control.
Indemnification by Sterling. Sterling agrees to indemnify and hold harmless
Marshall, each person who controls Marshall within the meaning of the
Securities Act of 1933, as amended, and each director and officer of Marshall
against any losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and costs of investigation and defense) that are based
on the ground or alleged ground that this Proxy Statement contains any
material misstatement or omission. This indemnification obligation does not,
however, extend to information provided in writing by Marshall expressly for
inclusion in this Proxy Statement.
ACQUISITION TRANSACTION
After the date of the Merger Agreement and prior to the Effective Time or
earlier termination of the Merger Agreement, Sterling shall not directly or
indirectly initiate, solicit, negotiate, encourage, participate in discussions
or negotiations with, or provide any information to any person (other than
Marshall or Subsidiary) concerning, or enter into any agreement providing for,
any merger, sale of material assets, sale of shares of capital stock or tender
offer or exchange (in each case relating to more than 15% of Sterling Common
Stock), liquidation or similar transaction involving Sterling (any such
transactions being referred to herein as an "Acquisition Transaction").
Notwithstanding the foregoing, Sterling may furnish information and may
participate in discussions or negotiations with persons making unsolicited
proposals, if doing so is required to satisfy the fiduciary obligations of the
Board of Directors of Sterling, such determination is made with the written
advice of independent counsel and Sterling provides notice to Marshall. If,
prior to the consummation of the transactions contemplated by the Merger
Agreement, a person shall have made a bona fide proposal for an Acquisition
Transaction that the Board of Directors determines in its good faith judgment
and in the exercise of its fiduciary duties, based as to legal matters on the
written opinion of legal counsel and as to financial matters on the written
opinion of an investment banking firm of national reputation, is more
favorable to Sterling's stockholders than the Merger and that the failure to
terminate the Merger Agreement and accept such alternative proposal would be
inconsistent with the proper exercises of such fiduciary duties under
applicable law, Sterling may terminate the Merger Agreement, subject to
payment of a termination fee described in the following paragraph.
TERMINATION FEE
If the Merger Agreement is terminated pursuant to the provisions described
in the foregoing paragraph (or due to (i) the failure of Sterling's
stockholders to approve and adopt the Merger or (ii)
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<PAGE>
the withdrawal or modification by the Board of Directors of its recommendation
of the Merger to Sterling's stockholders), then Sterling must make a cash
payment to Marshall, upon demand, of $5,000,000 (the "Termination Fee"). The
Termination Fee will be Marshall's sole and exclusive remedy against Sterling
for a termination that gives rise to the payment of the Termination Fee as
described above (but not for any other termination of the Merger Agreement
(see " -- Termination, Amendment and Waiver -- Effect of Termination")) and
Marshall shall not pursue in any manner, directly or indirectly, any claim or
cause of action based upon tortious or other interference with rights under
the Merger Agreement against any person submitting a proposal for an
Acquisition Transaction.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Sterling, Marshall and Subsidiary have
made the following additional agreements.
Access and Information. Sterling shall afford to Marshall and Subsidiary and
their respective accountants, counsel, financial advisors and other
representatives (the "Marshall Representatives") upon reasonable notice, full
access during normal business hours throughout the period prior to the earlier
of the termination of the Merger Agreement or the Effective Time to all of
Sterling's and its subsidiaries' properties, books, records, documents,
personnel, auditors and counsel, and Sterling shall furnish promptly to
Marshall all information concerning Company's Business as Marshall or
Marshall's Representatives may reasonably request, including, without
limitation, true and complete copies of all Material Contracts.
Subject to applicable law and certain specified exceptions, each party (and
its representatives) must maintain the confidentiality of, and must not use in
any way not contemplated by the Merger Agreement, any non-public information
disclosed by any party in connection with the transactions contemplated by, or
the discussions and negotiations preceding, the Merger Agreement. Upon any
termination of the Merger Agreement, each party will collect and deliver to
the other, or certify as to the destruction of, all documents obtained by it
or any of its representatives then in their possession and any copies thereof.
Subject to applicable law, Sterling shall notify Marshall of, and shall
allow Marshall to participate in, any meetings relating to, any examination,
review, investigation, action, suit or proceeding against Sterling by any
governmental entity with respect to the Merger. Upon Marshall's request,
officers of Sterling shall meet with Marshall's potential sources of financing
for the Merger and shall otherwise cooperate as reasonably requested by
Marshall in connection with Marshall's efforts to secure financing. In
addition, Sterling shall provide certain tax information to Marshall.
Stockholder Approval. Sterling shall, as promptly as practicable, submit the
Merger Agreement and the transactions contemplated thereby for the approval of
its stockholders at a meeting of stockholders. Such meeting of stockholders
shall be held as soon as practicable following the date this Proxy Statement
is cleared for mailing by the U.S. Securities and Exchange Commission. Subject
to its fiduciary duties (see "-- Acquisition Transaction"), Sterling's Board
of Directors must recommend to its stockholders the approval of the Merger
Agreement and the transactions contemplated thereby.
Expenses and Fees. Subject to the provisions described in "-- Termination
Fee" above and "-- Termination, Amendment and Waiver -- Effect of Termination"
below, all costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby shall be paid by the party incurring
such expenses.
Public Statements. The parties shall consult with each other prior to
issuing any press release or any written public statement with respect to the
Merger Agreement or the transactions contemplated
25
<PAGE>
thereby and shall not issue any such press release, publicity statements or
other public notice without obtaining the prior consent of the other party
(except as required by law).
Governmental Filings, Consents and Financial Statements. Sterling and
Marshall have agreed to make all governmental filings necessary for the
consummation of the Merger, and to use reasonable efforts to take all actions
contemplated by the Merger Agreement, including without limitation the seeking
of all necessary consents and approvals. Sterling has agreed to provide
monthly and quarterly financial statements to Marshall.
Indemnification. Marshall and Subsidiary have agreed that all rights to
indemnification by Sterling existing in favor of each present and former
director of Sterling as provided in Sterling's Articles of Incorporation and
By-Laws on the date of the Merger Agreement will be continued in full force
and effect for a period of four years from the Effective Date.
Article VIII of Sterling's Amended And Restated Articles of Incorporation
("Article Eight") provides that, with certain exceptions, every director and
officer of Sterling shall be entitled to indemnification by Sterling against
reasonable expenses and any liability paid or incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
civil, criminal, administrative, investigative or other, whether brought by or
in the right of Sterling or otherwise, by reason of such person being or
having been a director or officer of Sterling or serving at the request of
Sterling as a director, officer, employee, fiduciary or other representative
of Sterling or another entity. The indemnification provided in Article Eight
includes the right to have expenses paid in advance by Sterling prior to final
disposition of the action, as permitted by law. Such indemnification shall be
deemed to be a contractual right and shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled, including
that Sterling may purchase and maintain insurance to protect itself and any
person eligible for indemnification against any liability or expenses asserted
against or incurred by such person.
Notwithstanding the provisions of Sterling's Articles of Incorporation and
By-laws as described above, Section 78.751 of the NRS requires Sterling to
indemnify a director, officer, employee or agent of Sterling, to the extent
such director, officer, employee or agent has been successful on the merits or
otherwise in defense of a proceeding, for expenses, including attorneys fees,
actually and reasonably incurred in the proceeding if the director, officer,
employee or agent was a party to the proceeding because he or she was a
director, officer, employee or agent of Sterling. Further, NRS Section 78.751
provides that Sterling may indemnify any person who was, is or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of that person's status or former status as a director,
officer, employee or agent of Sterling, if such director, officer, employee or
agent acted in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of Sterling and, with respect to
any criminal action or proceeding, the person had no reasonable cause to
believe the conduct was unlawful. The indemnification provided under NRS
Section 78.751, unless ordered by a court, may only be made in accordance with
a determination that discretionary indemnification is proper by either (a) the
stockholders; (b) the board of directors by majority vote of a quorum of
directors who were not parties to the action, suit or proceeding; or (c) if a
majority vote of a quorum consisting of directors who were not parties to the
action, suit, or proceeding so orders, or a quorum of such directors cannot be
obtained, by independent legal counsel in a written opinion. However,
indemnification pursuant to NRS Section 78.751 may not be made to or on behalf
of (1) any director or officer if a final adjudication establishes that such
person's actions or omissions involved intentional misconduct, fraud or a
knowing violation of the law and was material to the cause of action or (2)
any director, officer, employee or agent who as adjudged by a court, after
exhaustive appeals, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless the court determines that in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity.
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<PAGE>
For a period of three years after the Effective Date, Marshall shall cause
to be maintained officers' and directors' liability insurance covering
Sterling's existing officers and directors who are currently covered in such
capacities by Company's existing officers' and directors' liability insurance
policies on terms substantially no less advantageous to such officers and
directors than such existing insurance; provided, however, that Marshall shall
not be required in order to maintain or procure such coverage to pay an annual
premium in excess of two times the current annual premium paid by Company for
its existing coverage (the "D&O Cap") and provided further that if equivalent
coverage cannot be obtained, or can be obtained only by paying an annual
premium in excess of such amount, Marshall shall only be required to obtain as
much coverage as can be obtained by paying an annual premium equal to the D&O
Cap.
GOVERNING LAW
The Merger Agreement is governed by California Law.
TERMINATION, AMENDMENT AND WAIVER
Termination. The Merger Agreement may be terminated (a) by the written
mutual written consent of Sterling, Marshall and the Subsidiary, if the Board
of Directors of each so determines by a vote of a majority of the members of
its entire Board of Directors; (b) by any of Subsidiary, Marshall or Sterling
upon written notice to the other parties if any governmental entity of
competent jurisdiction shall have issued a final nonappealable order denying,
enjoining or otherwise prohibiting the consummation of any of the transactions
contemplated by the Merger Agreement; (c) by any of Subsidiary, Marshall or
Sterling if the Merger shall not have been consummated on or before
January 31, 1998, unless the failure of the Merger to occur by such date shall
be due to the failure of the party seeking to terminate the Merger Agreement
to perform or observe in any material respect the covenants and agreements of
such party set forth therein; (d) by Sterling or Marshall if any approval of
the stockholders of Sterling required for the consummation of the Merger shall
not have been obtained by reason of the failure to obtain the required vote at
a duly held meeting of stockholders or at any adjournment or postponement
thereof; (e) by any of Subsidiary, Marshall or Sterling (so long as the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement) if
there shall have been a breach of any of the representations or warranties set
forth in the Merger Agreement on the part of the other party; (f) by any of
Subsidiary, Marshall or Company (so long as the terminating party is not then
in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement) if there shall have been a breach
of any of the covenants or agreements or conditions or obligations set forth
in the Merger Agreement on the part of the other party, which breach shall not
have been cured within ten days following receipt by the breaching party of
written notice of such breach from the other party or which breach, by its
nature, cannot be cured prior to the Effective Time; (g) by Sterling if, prior
to the consummation of the transactions contemplated by the Merger Agreement,
a person shall have made a bona fide proposal for a Acquisition Transaction
that the Board of Directors of Company determines in its good faith judgment
and in the exercise of its fiduciary duties, based as to legal matters on the
written opinion of legal counsel and as to financial matters on the written
opinion of an investment banking firm of national reputation, is more
favorable to Sterling's stockholders than the Merger and that the failure to
terminate the Merger Agreement and accept such alternative proposal would be
inconsistent with the proper exercise of such fiduciary duties under
applicable law (see "-- Acquisition Transaction"); and (h) by Subsidiary and
Marshall prior to the consummation of the transactions contemplated if the
Board of Directors of Sterling shall have withdrawn its approval or modified
its approval or recommendation of the Merger Agreement or shall have
recommended another offer for the purchase of Sterling Common Stock.
Effect of Termination. In the event of termination of the Merger Agreement
by either Sterling or Marshall as provided above, the Merger Agreement shall
forthwith become void and there shall be no
27
<PAGE>
further obligation on the part of any of the parties to the Merger Agreement
with respect to obligations existing thereunder prior to the termination
(except with respect to the payment of fees and expenses, if applicable, and
the parties' obligations relating to information, which shall survive the
termination). See "-- Termination Fee." If Marshall terminates the Merger
Agreement because Sterling breaches a material representation or warranty or
fails to perform a material covenant contained herein, and Marshall has not
breached any material representation or warranty or failed to perform a
material covenant, Sterling shall reimburse Marshall and its affiliates (not
later than five business days after submission of statements therefor) for all
out-of-pocket fees and expenses actually and reasonably incurred by any of
them or on their behalf in connection with the Merger Agreement and the
transactions contemplated hereby (including, without limitation, fees payable
to investment bankers, commercial bankers, counsel, consultants and
accountants) in an amount not to exceed $2,000,000.
Amendment. The Merger Agreement may be amended by the parties thereto at any
time before or after approval thereof by Sterling's stockholders, but, after
any such approval, no amendment may be made which would have a material
adverse effect on Sterling's stockholders without the further approval of such
stockholders.
Waiver. At any time prior to the Effective Date, the parties to the Merger
Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other parties to the Merger Agreement; (b)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto; and (c) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. Any agreement on the part of a party to the Merger Agreement to any
such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party. To the extent material provisions or
conditions are waived, Sterling may be obligated to amend this Proxy Statement
and resolicit stockholders to the extent required by applicable law.
MARKET PRICE OF AND DIVIDENDS ON STERLING COMMON STOCK
Sterling Common Stock is traded on the New York Stock Exchange under the
symbol "SEC". On September 18, 1997, the last full trading day prior to the
public announcement of the proposed Merger, the closing price of Sterling
Common Stock was $18.0625 per share. On such date, the high and low sale price
of Sterling Common Stock was $18.0625 per share and $17.625 per share,
respectively. On September 12, 1997 (one week prior to the public announcement
of the Merger) and August 19, 1997 (one month prior to the public announcement
of the Merger), the closing price of Sterling Common Stock was $16.125 per
share and $14.125 per share, respectively. Stockholders are urged to obtain
current market quotations for Sterling Common Stock.
Sterling paid five percent common stock dividends to shareholders of record
as of January 11, 1996 and December 9, 1996. Sterling has not paid a cash
dividend to its stockholders since 1990.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information regarding the beneficial ownership of
Common Stock of Sterling as of October 8, 1997 by (i) each person known by
Sterling to own beneficially more than five percent of the outstanding Common
Stock of Sterling; (ii) each director of Sterling; and (ii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES
NAME POSITION HELD(A) PERCENTAGE
---- -------- ------- ----------
<S> <C> <C> <C>
JAY H. GOLDING.......... Director 37,627 *
1616 Voss, Suite 800,
Houston, TX 77057
S.M. LAMBERT, Ph.D...... Director 12,966 *
2016 Wing Point,
Plano, TX 75075
HERSCHEL G. MALTZ....... Director 13,990 *
4265 San Felipe,
Suite 1100,
Houston, TX 77019
DAVID A . SPOLANE(b).... Executive Vice President 178,222 2.5%
4201 Southwest Freeway,
Houston, TX 77027
RONALD S. SPOLANE(b).... President and Chief Executive Officer 221,871 3.1%
4201 Southwest Freeway,
Houston, TX 77027
DAVID R. TOOMIM......... Director 19,862 *
5847 San Felipe,
Suite 1700,
Houston, TX 77057
RON BARNARD............. Senior Vice President 36,745 *
4201 Southwest Freeway,
Houston, TX 77022
DAVE GOFORTH............ Senior Vice President 18,467 *
4201 Southwest Freeway,
Houston, TX 77022
JACK KILLOREN........... Senior Vice President 35,780 *
4201 Southwest Freeway,
Houston, TX 77022
JIM McCONKEY............ Senior Vice President 9,535 *
4201 Southwest Freeway,
Houston, TX 77022
MAC McCONNELL........... Vice President--Finance & Chief Financial Officer 26,103 *
4201 Southwest Freeway,
Houston, TX 77022
TOM McGINTY............. Senior Vice President 50,207 *
4201 Southwest Freeway,
Houston, TX 77022
CHRIS O'BRIEN........... Senior Vice President 28,342 *
4201 Southwest Freeway,
Houston, TX 77022
BYRON TURNER............ Senior VIce President 51,565 *
4201 Southwest Freeway,
Houston, TX 77022
LEON WEBB, JR. Vice President--Secretary & Treasurer 11,747 *
4201 Southwest Freeway,
Houston, TX 77022
MELLON BANK
CORPORATION(c)......... 364,000 5.17%
ALL DIRECTORS AND
EXECUTIVE OFFICERS AS A
GROUP (15 PERSONS)..... 576,676 8.0%
</TABLE>
- --------
*Represents less than 1%.
(a) Includes shares which may be acquired from the Company within 60 days upon
exercise of options as follows: Jay H. Golding -- 11,864 shares, S.M.
Lambert -- 11,864 shares, Herschel G. Maltz -- 11,864 shares, D.A.
Spolane -- 70,246 shares, R.S. Spolane -- 140,700 shares, David R. Toomim
-- 11,864 shares, Ron Barnard -- 5,553 shares, Dave Goforth-- 8,135
shares, Jack Killoren -- 21,398 shares, Jim McConkey -- 8,310 shares, Mac
McConnell -- 20,910 shares, Tom McGinty -- 9,013 shares, Chris O'Brien --
14,643 shares, Byron Turner -- 8,313 shares and Leon Webb, Jr. -- 5,932
shares.
(b) Mr. David A. Spolane and Mr. Ronald S. Spolane are brothers.
(c) Pursuant to a Schedule 13F dated February 4, 1997 and filed with the
Securities and Exchange Commission, Mellon Bank Corporation reported
beneficial ownership of over 5% of Sterling's Common Stock.
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<PAGE>
1998 ANNUAL MEETING OF STOCKHOLDERS
The Company does not plan to hold an annual meeting of its stockholders
during 1998 unless the Merger is not consummated. If the Merger is not
consummated, it is presently anticipated that the next Annual Meeting of
Stockholders of Sterling will be held on or about August , 1998. Any
proposal of a stockholder to be presented at the Annual Meeting of
Stockholders in 1998 must be received by the Secretary of Sterling at its
principal offices, prior to 5:00 p.m., Houston, Texas, on May 1, 1998, in
order to be considered for inclusion in Sterling's 1998 proxy materials. Any
such proposal must be in writing and signed by the stockholder.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matters that will be presented at the Special
Meeting other than the adoption and approval of the Merger and Merger
Agreement. If any other matters arise at the Special Meeting, it is intended
that the shares represented by the proxies in the accompanying form will be
voted in accordance with the judgment of the persons named in the proxy.
INDEPENDENT AUDITORS
The consolidated financial statements and financial statement schedule of
Sterling Electronics Corporation as of March 29, 1997 and March 30, 1996 and
for each of the three fiscal years in the period ended March 29, 1997,
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 29, 1997 and incorporated herein by reference, have been audited by
Ernst & Young LLP, independent auditors, as stated in their reports thereon
included therein.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other
information with the SEC relating to its business, financial statements and
other matters.
The reports, proxy and information statements and other information filed
with the SEC by the Company pursuant to the Exchange Act may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at Citicorp Center, 500 Madison Street,
Suite 1400, Chicago, Illinois 60661, and at Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates by addressing written requests for such copies to the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Sterling Common Stock is quoted for trading on New York Stock
Exchange, Inc. and reports, proxy or information statements and other
information concerning the Company may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
herein by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year ended
March 29, 1997;
2. the Company's Quarterly Report on Form 10-Q for the quarter ended June
28, 1997; and
3. the Company's Quarterly Report on Form 10-Q for the quarter ended
September 27, 1997
4. the Company's Proxy Statement for its Annual Meeting of Shareholders
held on August 26, 1997.
All reports and definitive proxy or information statements filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Proxy Statement and prior to the date of the Special
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement and to be part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modified or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
The documents incorporated into this Proxy Statement by reference (without
exhibits, unless such exhibits are specifically incorporated by reference into
the information that this Proxy Statement incorporates by reference herein)
are available without charge to each person, including each beneficial owner,
to whom a copy of this Proxy Statement is delivered upon written or oral
request address to Sterling Electronics Corporation, 4201 Southwest Freeway,
Houston, TX 77027. The Company's telephone number is (713) 627-9800.
By Order of the Board of Directors,
Ronald S. Spolane,
Chairman of the Board
Houston, Texas
November , 1997
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APPENDIX A
AGREEMENT
AND
PLAN OF MERGER
dated as of
September 18, 1997
by and among
MARSHALL INDUSTRIES,
MI HOLDINGS NEVADA, INC.
and
STERLING ELECTRONICS CORPORATION
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER.......................................................... 1
1.1 The Merger.......................................................... 1
1.2 Closing............................................................. 2
1.3 Effective Time...................................................... 2
1.4 Articles of Incorporation........................................... 2
1.5 By-Laws............................................................. 2
1.6 Officers and Directors.............................................. 2
1.7 Conversion of Shares................................................ 2
1.8 Delivery of Merger Consideration.................................... 3
1.9 Company Options..................................................... 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY........................... 4
2.1 Organization; Subsidiaries.......................................... 4
2.2 Capitalization...................................................... 5
2.3 Authority; Validity................................................. 6
2.4 No Conflict......................................................... 6
2.5 Consents............................................................ 7
2.6 Financial Statements; SEC Filings................................... 7
2.7 Tax Matters......................................................... 8
2.8 Absence of Certain Changes or Events................................ 8
2.9 Material Contracts.................................................. 9
2.10 Title and Related Matters........................................... 9
2.11 Employee Benefit Plans.............................................. 10
2.12 Employment Agreements............................................... 12
2.13 Legal Proceedings................................................... 12
2.14 Compliance with Law................................................. 12
2.15 Accuracy of Proxy Statement and Other Information................... 12
2.16 Related Party Transactions.......................................... 13
2.17 Insurance........................................................... 13
2.18 No Brokers or Finders............................................... 13
2.19 Dissenters' Rights.................................................. 13
2.20 Environmental Matters............................................... 13
2.21 Bank Accounts, Powers, etc.......................................... 14
2.22 Intangible Property................................................. 14
2.23 Fairness Opinion.................................................... 14
2.24 Full Disclosure..................................................... 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUBSIDIARY.............. 14
3.1 Organization......................................................... 14
3.2 Authority; Validity................................................. 15
3.3 No Conflict......................................................... 15
3.4 Consents............................................................ 15
3.5 No Brokers or Finders............................................... 15
3.6 Legal Proceedings................................................... 15
3.7 Financial Statements................................................ 15
3.8 Buyer's Financing................................................... 16
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ARTICLE IV
COVENANTS........................................................... 16
4.2 Governmental Filings................................................ 17
4.3 Consents and Approvals.............................................. 17
4.4 Stockholders' Meeting............................................... 18
4.5 Conduct of Business................................................. 18
4.6 Publicity........................................................... 19
4.7 Financial Statements................................................ 19
4.8 Notification of Defaults and Adverse Events......................... 19
4.9 Indemnification by Company.......................................... 20
4.10 Commercially Reasonable Efforts..................................... 20
4.11 Buyer's Undertaking Regarding Subsidiary............................ 20
4.13 No Solicitation..................................................... 20
4.15 Anti-takeover Statutes.............................................. 21
4.16 Indemnification; Insurance.......................................... 21
ARTICLE V
CONDITIONS.......................................................... 22
5.1 Conditions to Obligations of Company and Buyer....................... 22
5.2 Conditions to Obligations of Buyer.................................. 22
5.3 Conditions to Obligations of Company................................ 24
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER................................... 24
6.1 Termination and Abandonment.......................................... 24
6.2 Effect of Termination............................................... 25
6.3 Amendment........................................................... 25
6.4 Extension; Waiver................................................... 25
ARTICLE VII
MISCELLANEOUS....................................................... 26
7.1 Termination of Representations and Warranties........................ 26
7.2 Expenses............................................................ 26
7.3 Remedies............................................................ 26
7.4 Notices............................................................. 26
7.5 Further Assurances.................................................. 27
7.6 Assignability....................................................... 27
7.7 Governing Law....................................................... 27
7.8 Interpretation...................................................... 27
7.9 Counterparts........................................................ 27
7.10 Integration......................................................... 28
ARTICLE VIII
DEFINITIONS......................................................... 28
8.1 Definitions.......................................................... 28
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT (this "Agreement") is entered into as of September 18, 1997
by and among Marshall Industries, a California corporation having its
principal place of business at 9320 Telstar Avenue, El Monte, California 91731
("Buyer"), MI Holdings Nevada, Inc., a Nevada corporation and a wholly owned
subsidiary of Buyer having its principal place of business at 9320 Telstar
Avenue, El Monte, California 91731 ("Subsidiary"), and Sterling Electronics
Corporation, a Nevada corporation having its principal place of business at
4201 Southwest Freeway, Houston, Texas 77027 ("Company"; for purposes of this
Agreement, and unless the context otherwise requires, the term "Company" shall
include Company and all of its subsidiaries).
RECITALS
WHEREAS, the Board of Directors of Buyer and the Board of Directors of
Company have each determined that it is in the respective best interests of
Buyer and Company for Buyer to acquire Company through the merger of
Subsidiary with and into Company upon the terms and subject to the conditions
set forth herein; and
WHEREAS, Buyer, Company and Subsidiary desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement and prescribe various conditions to the Merger (as such term is
defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined below) Subsidiary shall be merged with and into
Company and the separate corporate existence of Subsidiary shall thereupon
cease (the "Merger"). Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and shall
continue to be governed by the Laws of the State of Nevada. The separate
corporate existence of Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger and Company
shall succeed, without other transfer, to all of the rights and properties of
Subsidiary and shall be subject to all of the debts and liabilities of
Subsidiary. The Merger shall have the effects specified in the NRS.
1.2 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place (i) at the offices of O'Melveny & Myers LLP, 400
South Hope Street, Los Angeles, California at 10:00 A.M., Los Angeles time on
the second business day after the day on which the last of the conditions set
forth in Article V hereof shall be fulfilled or waived in accordance with this
Agreement or (ii) at such other place and time or on such other date as Buyer
and Company may agree.
1.3 Effective Time. As soon as practicable following the Closing, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article VI hereof, the Surviving Corporation shall file Articles of Merger
which contain all information required by Section 92A.200 of the NRS and are
executed in accordance with Section 92A.230 of the NRS with the Secretary of
State
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of the State of Nevada. The Merger shall thereupon become effective in
accordance with the NRS; the time of such effectiveness is hereinafter
referred to as the "Effective Time;" and the date of such effectiveness is
hereinafter referred to as the "Effective Date."
1.4 Articles of Incorporation. The Articles of Incorporation of Subsidiary
in effect at the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until duly amended in accordance with the terms thereof
and the applicable provisions of the NRS, except that the name of the
Surviving Corporation shall be Sterling Electronics Corporation.
1.5 By-Laws. The By-Laws of Subsidiary in effect at the Effective Time shall
be the By-Laws of the Surviving Corporation until duly amended in accordance
with the terms thereof and the applicable provisions of the NRS.
1.6 Officers and Directors. The officers and directors of the Surviving
Corporation shall be as set forth on Schedule 1.6. The directors and officers
so determined shall remain as such until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Articles of
Incorporation and By-Laws.
1.7 Conversion of Shares. At the Effective Time, each outstanding share of
common stock, par value $0.50 per share, of Company (the "Company Common
Stock") will be converted into the right to receive $21.00 in cash (the
"Merger Consideration"), except that any shares of Company Common Stock held
by Company or Buyer or their wholly-owned subsidiaries (other than shares held
in trust) will be cancelled (the "Cancelled Shares"). After the Effective Time
and until surrendered for payment, each certificate representing Company
Common Stock (each a "Certificate") will represent only the right to receive
the Merger Consideration (without interest). Buyer and Subsidiary will be
entitled to rely on Company's stock records at the Effective Time. At the
Effective Time, each issued and outstanding share of common stock, no par
value, of Subsidiary shall be converted into and become one fully paid and
non-assessable share of common stock, par value $0.50 per share, of the
Surviving Corporation.
1.8 Delivery of Merger Consideration.
(a) Buyer shall select a bank or trust company reasonably acceptable to
Company to act as the paying agent for the Merger (the "Paying Agent"). At or
prior to the Effective Time, Buyer shall deposit or cause to be deposited in
trust (the "Payment Fund") with the Paying Agent an amount equal to the
product of (i) the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (excluding the Cancelled
Shares) multiplied by (ii) the Merger Consideration. Out of the Payment Fund,
the Paying Agent shall, pursuant to irrevocable instructions, make the
payments referred to in Section 1.8(c) below. The Payment Fund shall not be
used for any other purpose. The Payment Fund may be invested by the Paying
Agent, as directed by the Surviving Corporation, in (i) obligations of or
guaranteed by the United States, (ii) commercial paper rated A-1, P-1 or A-2,
P-2, and (iii) certificates of deposit, bank repurchase agreements and bankers
acceptances of any bank or trust company organized under federal law or under
the law of any state of the United States or of the District of Columbia that
has capital, surplus and undivided profits of at least $1 billion or in money
market funds which are invested substantially in such investments. Any net
earnings with respect thereto shall be paid to the Surviving Corporation as
and when requested by the Surviving Corporation.
(b) As soon as reasonably practicable after the Effective Time, Paying Agent
shall mail to each holder of record as of the Effective Time of a Certificate
a transmittal letter for return to the Paying Agent (the "Paying Agent
Letter"): (i) notifying of the effectiveness of the Merger, (ii) providing
instructions for effecting the surrender and exchange of the Certificates for
the Merger Consideration, (iii) specifying that delivery shall be effected,
and risk of loss and title to the Certificates shall pass,
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only upon delivery of the Certificates to Paying Agent, and (iv) including
such other provisions as Buyer and Company may mutually agree.
(c) Buyer and the Surviving Corporation shall cause the Paying Agent to pay
to the holders of a Certificate, as soon as practicable after receipt of any
Certificate (or in lieu of such Certificate an affidavit of lost share
certificates (including a customary indemnity against loss) in form and
substance reasonably satisfactory to Buyer) together with the Paying Agent
Letter, duly executed, and any other items specified by the Paying Agent
Letter, an amount equal to the product of (i) the number of shares of Company
Common Stock represented by the Certificate so surrendered multiplied by (ii)
the Merger Consideration, less any applicable withholding Taxes. No interest
shall be paid or accrued on any cash payable upon the surrender of any
Certificate. Each Certificate surrendered in accordance with the provisions of
this Section 1.8(c) shall be cancelled forthwith.
(d) In the event of a transfer of ownership of shares of Company Common
Stock which is not registered in the transfer records of Company, the Merger
Consideration may be paid to the transferee only if (i) the Certificate
representing such shares of Company Common Stock surrendered to the Paying
Agent in accordance with Section 1.8(c) hereof is properly endorsed for
transfer or is accompanied by appropriate and properly endorsed stock powers
and is otherwise in proper form to effect such transfer, (ii) the Person
requesting such transfer pays to the Paying Agent any transfer or other taxes
payable by reason of such transfer or establishes to the satisfaction of the
Paying Agent that such taxes have been paid or are not required to be paid,
and (iii) such Person establishes to the satisfaction of Buyer that such
transfer would not violate any applicable federal or state securities laws.
(e) At and after the Effective Time, each holder of a Certificate that
represented issued and outstanding shares of Company Common Stock immediately
prior to the Effective Time shall cease to have any rights as a stockholder of
Company, except for the right to surrender his or her Certificate in exchange
for the Merger Consideration and except as otherwise provided by applicable
law, and no transfer of shares of Company Common Stock shall be made on the
stock transfer books of the Surviving Corporation.
(f) Any portion of the Payment Fund (including any interest received with
respect thereto) which remains unclaimed for one year after the Effective Time
shall be paid to the Surviving Corporation upon demand. Any holders of
Certificates who have not theretofore complied with this Section 1.8 shall
thereafter look only to the Surviving Corporation and Buyer for payment
(subject to applicable abandoned property, escheat and similar laws) of their
claim for the Merger Consideration, without interest thereon. Notwithstanding
the foregoing, neither Buyer, the Surviving Corporation nor the Paying Agent
shall be liable to a holder of a Certificate for the Merger Consideration
properly delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.9 Company Options. At the Effective Time, all outstanding Company Options
shall terminate, and the holders thereof shall be entitled to receive from
Buyer or the Surviving Corporation an amount equal to the product of (i) the
Merger Consideration minus the exercise price of the Company Options held by
him/her multiplied by (ii) the number of shares of Company Common Stock
covered by such Company Options, less any applicable withholding taxes, and
without interest paid thereon.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Buyer and Subsidiary that:
2.1 Organization; Subsidiaries.
(a) Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and each of its subsidiaries is
either a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation or a limited
partnership duly formed and validly existing under the laws of the State of
Texas, and each of the foregoing is in good standing as a foreign corporation
or limited partnership, as the case may be, qualified to business in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it require such qualification, except for such failure to so
qualify or be in such good standing, which, when taken together with all other
such failures, is not reasonably likely to have a material adverse effect on
the business, financial condition, results of operations, prospects,
properties or capitalization of Company and its subsidiaries, taken as a whole
("Company's Business"). Each of Company and each of its subsidiaries has the
requisite corporate or partnership power and authority to carry on its
respective businesses as they are now being conducted and as described in
Company's Annual Report on Form 10-K for the fiscal year ended March 29, 1997.
(b) Schedule 2.1(b) lists all subsidiaries of Company and correctly sets
forth the capitalization of each such subsidiary, the jurisdiction in which
Company and each such subsidiary is organized or formed and each jurisdiction
in which Company and each such subsidiary is qualified or licensed to do
business as a foreign corporation or limited partnership. Schedule 2.1(b)
correctly lists the current directors and executive officers of Company and of
each of its subsidiaries. True, correct and complete copies of the respective
charter documents of Company and each of its subsidiaries as in effect on the
date hereof have been delivered to Buyer.
(c) All outstanding securities or other ownership interests in each of
Company's subsidiaries listed on Schedule 2.1(b): (i) are owned of record and
beneficially by Company or another of Company's wholly-owned subsidiaries,
subject to no lien, claim, charge or encumbrance, and Company has full power
to transfer such shares without obtaining the consent or approval of any
Governmental Entity or any other Person; and (ii) have been duly authorized,
are validly issued, fully paid and nonassessable. Company does not directly or
indirectly own or hold any interest in any corporation, association or
business entity other than those listed on Schedule 2.1(b).
(d) The minute books of Company and each of its corporate subsidiaries have
been made available to Buyer and its Representatives and contain true and
complete records of all meetings and consents in lieu of meetings of the Board
of Directors (and committees thereof) of each of Company and its corporate
subsidiaries and of their respective stockholders.
2.2 Capitalization.
(a) The authorized capital stock of Company consists of (i) 2,000,000 shares
of Cumulative Convertible Preferred Stock and 2,000,000 shares of Preferred
Stock, none of which are issued and outstanding; and (ii) 20,000,000 shares of
Common Stock, 7,187,704 shares of which are issued and outstanding as of
August 31, 1997. All of such outstanding shares and any shares outstanding at
the Effective Time have or will have been duly authorized, are validly issued,
fully paid and nonassessable, free of preemptive rights, and were issued in
compliance with all applicable Laws. Schedule 2.2(a) lists all outstanding
Company Options, warrants and other rights to purchase shares of Company
Common Stock as of August 31, 1997.
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(b) As of August 31, 1997, Company has reserved for issuance shares of its
Common Stock as follows: (i) 1,902,685 shares upon exercise of Company Options
granted or reserved for future grant; (ii) 145,078 shares for stock grants
under incentive bonus plans; (iii) 266,979 shares for sales to employees under
Company's employee stock purchase plan; and (iv) 44,164 shares for Company's
401(k) matching contributions. Since August 31, 1997: (A) no Company Options,
warrants, or other rights to purchase shares of Company Common Stock have been
granted; and (B) no shares of Company Common Stock have been issued except for
those issued pursuant to the exercise of outstanding Company Options and
grants under Company's 401(k) matching contributions and incentive bonus
plans, in each case in the ordinary course of business.
(c) Except as set forth in paragraphs (a) and (b) above and on Schedule
2.2(a), Company does not have any shares of its capital stock issued or
outstanding and does not have any outstanding subscriptions, options,
warrants, convertible securities, rights or other agreements or commitments
obligating Company to issue shares of its capital stock or other securities of
Company or any of its subsidiaries. Any equity securities which were issued
and reacquired by Company were so reacquired in compliance with all applicable
Laws, and Company does not have any obligation or liability with respect
thereto.
2.3 Authority; Validity. Company has the corporate power and authority to
execute and deliver this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Company's Board
of Directors. Company's Board of Directors has directed that this Agreement
and the transactions contemplated hereby be submitted to Company's
stockholders for consideration at a meeting of such stockholders and, except
for the approval of its stockholders, no other corporate proceedings on the
part of Company are necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. Upon
execution and delivery hereof (assuming that this Agreement is the legal,
valid and binding obligation of Buyer and Subsidiary), this Agreement will be
the valid and binding obligation of Company enforceable against Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors rights generally.
2.4 No Conflict. Except as set forth on Schedule 2.4, neither Company nor
any of its subsidiaries nor any of its or their assets is subject to or
obligated under any charter, bylaw, Contract, lease or other instrument or any
license, franchise or permit, or subject to any law, statute, rule,
regulation, judgment, order, decree or award, which would be defaulted,
breached, terminated, forfeited or violated by or in conflict with (or upon
the failure to give notice or the lapse of time, or both, would result in a
default, breach, termination, forfeiture or conflict) Company's execution,
delivery and performance under this Agreement and the transactions
contemplated hereby. Except as set forth on Schedule 2.4 and except for
compliance with the HSR Act, Company's execution, delivery and performance
under this Agreement and the transactions contemplated hereby will not result
in the creation of a lien, pledge, security interest or any other encumbrance
on the assets of Company or any of its subsidiaries or result in any change in
the rights or obligations of any party under or the acceleration of (with or
without the giving of notice or the lapse of time), any provision of any
Material Contract of Company or any of its subsidiaries or any change in the
rights or obligations of Company or any of its subsidiaries under any law,
statute, rule, regulation, judgment, order, decree or award or permit or
license to which the Company or any of its subsidiaries is subject.
2.5 Consents. Except as set forth on Schedule 2.4, no consent of any Person
not a party to this Agreement, nor consent of or filing with (including any
waiting period) any Governmental Entity is required to be obtained or
performed on the part of Company to permit the Merger and the other
transactions contemplated hereby or to permit the continuation by Company of
the business activities of Company as conducted prior to the date hereof
without material adverse change.
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2.6 Financial Statements; SEC Filings.
(a) Company has delivered copies of the following financial statements to
Buyer: (i) the consolidated balance sheet of Company at March 29, 1997 and the
consolidated statements of income, stockholders' equity and changes in
financial position for the two years ended March 29, 1997, in each case
including the notes thereto and the related report of Ernst & Young LLP,
independent certified public accountants, and (ii) the unaudited consolidated
statements of financial position of Company and its subsidiaries at June 28,
1997 and the unaudited consolidated statements of stockholders' equity and
changes in financial position for the thirteen-week period ended June 28,
1997, and the unaudited consolidated statements of income for the thirteen-
week period ended June 28, 1997, in each case including any notes thereto.
(b) All such financial statements delivered pursuant to Section 2.6(a)
hereof are in accordance with the books and records of Company and have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated. Such consolidated
balance sheets present fairly in all material respects the financial position
of Company as of the dates thereof. Except as and to the extent reflected or
reserved against in such consolidated balance sheets (including the notes
thereto), Company does not have any liabilities or obligations (absolute or
contingent) of a nature required to be or customarily reflected in a
consolidated balance sheet (or the notes thereto) prepared in accordance with
generally accepted accounting principles consistently applied. The
consolidated statements of income present fairly in all material respects the
results of operations of Company for the periods indicated.
(c) Since April 2, 1994, Company has filed with the SEC all material forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it under the Securities Act, the
Exchange Act and the respective rules and regulations thereunder, all of which
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder (such forms,
statements, reports and documents are collectively referred to as the "SEC
Filings"). Company has delivered or made available to Buyer accurate and
complete copies of all of its SEC Filings since March 29, 1997. Company will
promptly deliver any future SEC Filings to Buyer.
(d) As of their respective dates, (i) each of Company's past SEC Filings
was, and each of its future SEC Filings will be, prepared in compliance in all
material respects with the laws, regulations and forms governing such SEC
Filing; and (ii) none of its past SEC Filings did, and none of its future SEC
Filings will, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.7 Tax Matters.
(a) Company has timely filed all Tax Returns required of it and, except for
Taxes which in the aggregate do not exceed $100,000 or which are being
contested in good faith, has paid all Taxes due for all periods or portions of
periods ending on or before March 29, 1997. Adequate provision has been made
in the books and records of Company and, in the financial statements referred
to in Section 2.6 above, for all Taxes whether or not due and payable and
whether or not disputed to the extent not paid.
(b) Neither Company nor any of its subsidiaries has elected to be treated as
a consenting corporation under Section 341(f) of the IRC.
(c) Schedule 2.7 lists the date or dates through which the IRS and any other
Governmental Entity have examined the United States federal income tax returns
and any other Tax Returns of Company and its subsidiaries. Except as set forth
on Schedule 2.7: (i) no Governmental Entity has examined or
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is in the process of examining any Tax Returns of Company or any of its
subsidiaries; (ii) no Governmental Entity has proposed in writing any
deficiency, assessment or claim for Taxes and there is no basis for any such
deficiency, assessment or claim; and (iii) no waiver of the statute of
limitations with respect to Tax Returns of Company has been given by or
requested from Company.
(d) As a result of the transactions contemplated hereby, Company will not be
obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual" as such terms are defined in IRC
Section 280G.
2.8 Absence of Certain Changes or Events. Except as set forth on Schedule
2.8, since March 29, 1997, there has not been (a) any event which has or is
likely to have a material adverse effect on Company's Business; (b) any
damage, destruction or loss, whether covered by insurance or not, materially
and adversely affecting Company's Business; (c) any declaration, setting aside
or payment of any dividend (whether in cash, stock or property) in respect of
the capital stock of Company, or any redemption or other acquisition of such
stock by Company; (d) any increase in the compensation payable or to become
payable by Company to its officers or key employees, except those occurring in
the ordinary course of business, or any material increase in any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officers or key employees; (e) any labor dispute,
other than routine matters, none of which is material to Company's Business;
(f) any borrowing or lending of money or guarantee of any obligation by
Company; (g) any amendment to or termination of any Material Contract (as such
term is defined below); (h) any adoption or amendment of any employee benefit
plan or arrangement of Company; (i) any disposition of any material properties
or assets used in Company's Business; (j) any engagement by Company in
activities outside the ordinary course of Company's Business as conducted on
the date hereof; or (k) the incurring of any liability (absolute or
contingent) except liabilities incurred in the ordinary course of business.
2.9 Material Contracts. Schedule 2.9 lists each of the following Contracts
to which Company or any of its subsidiaries is a party or to which Company,
any of its subsidiaries or any of their respective properties is subject or by
which any thereof is bound (each of which shall be deemed to be Material
Contracts): any Contract that (a) relates to indebtedness for money borrowed
(other than trade payables in the ordinary and usual course of business),
including, but not limited to, letters of credit, guaranties and swap and
similar agreements in excess of $100,000, (b) would be required by Rule
601(b)(10) of SEC Regulation S-K to be filed as an exhibit to an Annual Report
on Form 10-K (other than any Benefit Plan), (c) Company's Business is
substantially dependent upon or which is otherwise material to Company's
Business including, without limitation, any agreement with a supplier whose
products accounted for more than three percent of Company's revenues in fiscal
1997, (d) provides for an extension of credit by Company or any of its
subsidiaries (other than standard payment terms for customers), (e) limits or
restricts the ability of Company or any of its subsidiaries to compete or
otherwise to conduct its business in any manner or place (other than
confidentiality provisions entered into in the ordinary course of business)
(f) grants to a third party a right of first refusal or (g) provides for the
purchase of products from a supplier (which products account for more than
$500,000 of Company's inventory at June 28, 1997) and does not obligate such
supplier to repurchase the Company's inventory of such products upon
termination of the Contract by the supplier. Each Material Contract is valid,
binding and in full force and effect in all material respects, and, to the
best of Company's knowledge, is valid, binding and enforceable by Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors rights generally.
Company or the applicable subsidiary has duly performed all its obligations
under each Material Contract to the extent that such obligations to perform
have accrued; and, except as set forth on Schedule 2.9, no material breach or
default, alleged material breach or default, or event which would (with the
passage of time, notice or both) constitute a material breach or default
thereunder by
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Company or any of its subsidiaries, as the case may be, or, to Company's
knowledge, any other party or obligor with respect thereto, has occurred or as
a result of this Agreement or performance of any transactions contemplated
hereby will occur. To Company's knowledge, no party to any Material Contract
intends to cancel, withdraw, modify or amend such Material Contract.
2.10 Title and Related Matters. Company has good and indefeasible title to
all of its properties, interests in properties and assets, real and personal,
reflected in Company's March 29, 1997 consolidated balance sheet or acquired
after March 29, 1997 or necessary to conduct its business as now conducted
(except properties, interests on properties and assets sold or otherwise
disposed of since March 29, 1997 in the ordinary course of business), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (a) the lien of current taxes not yet due and payable, (b)
liens for mechanics', carriers', workmens', repairmens', landlord, statutory
or common law liens either not delinquent or being contested in good faith,
(c) such imperfections of title, liens, restrictions, variances and easements
as do not materially detract from the value of or interfere with the value or
the present or presently contemplated future use of the properties subject
thereto or affected thereby, or otherwise materially impair the present or
presently contemplated future business operations at such properties and (d)
liens securing debt which is reflected on Company's March 29, 1997
consolidated balance sheet. The plants and equipment of Company that are
necessary to the operation of Company's Business are in good operating
condition and repair. Other than Company's distribution facility in Grapevine,
Texas, all properties material to the operations of Company are reflected in
Company's March 29, 1997 consolidated balance sheet to the extent generally
accepted accounting principles require the same to be reflected.
2.11 Employee Benefit Plans.
(a) Schedule 2.11(a) lists all employee benefit plans, programs, agreements
and commitments covering any employee or former employee, or the beneficiary
of either, of Company or any entity which would be aggregated at any relevant
time with Company pursuant to Section 414(b), (c), (m), or (o) of the IRC
(referred to herein as an "ERISA Affiliate"), providing benefits in the nature
of pension, profit sharing, deferred compensation, retirement, severance,
bonus, incentive compensation, stock option, stock bonus, stock purchase,
health, medical, life, disability, sick leave, vacation, or other welfare or
fringe benefits, including, without limitation, all employee benefit plans (as
defined in Section 3(3) of ERISA (referred to herein as the "ERISA Plans"),
and fringe benefit plans (as defined in IRC Section 6039D) (collectively
referred to herein as the "Benefit Plans"). Except as set forth on Schedule
2.11(a), neither Company nor any ERISA Affiliate has ever contributed to, or
been obligated to contribute to, (i) a multiemployer plan (as defined in
Section 3(37) of ERISA) or (ii) a Benefit Plan subject to Title IV of ERISA.
(b) Each Benefit Plan is currently, and has been in the past, operated and
administered in compliance in all material respects with its terms and with
the requirements of all applicable Laws, including, without limitation, ERISA,
the IRC and the Family and Medical Leave Act of 1993. Each Benefit Plan which
is, or was, intended to qualify under IRC Section 401(a) (referred to herein
as a "Qualified Plan") is, or was, so qualified and either (i) has been
determined by the IRS to be so qualified by the issuance of a favorable
determination letter a copy of which has been furnished to Buyer, which
remains in effect as of the date hereof and, to Company's knowledge, nothing
has occurred since the date of such letter to cause such letter to be no
longer valid, or (ii) is within the "remedial amendment period" as defined in
IRC Section 401(b) and the regulations thereunder. Except as set forth on
Schedule 2.11(b), all reports, notices and other documents required to be
filed with any Governmental Entity or furnished to employees or participants
with respect to the Benefit Plans have (to the best knowledge of Company with
respect to items other than Form 5500) been timely filed or furnished. With
respect to the most recent Form 5500 regarding each funded Benefit Plan, such
liabilities do not exceed assets, and no material adverse change has occurred
with respect to the financial materials covered thereby since the last Form
5500.
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(c) Except as set forth on Schedule 2.11(c), all contributions required to
be paid on or prior to the date hereof to or with respect to any Benefit Plan
by its terms or applicable law have been timely paid in full and proper form.
(d) Except as set forth on Schedule 2.11(d), the transactions contemplated
by this Agreement (i) do not constitute or result in a severance or
termination of employment under any Benefit Plan for which severance or
termination benefits may be payable with respect to any employee covered
thereby, (ii) accelerate the time of payment or vesting or increase the amount
of benefits due under any Benefit Plan or compensation to any employee of
Company, or (iii) result in any payments (including parachute payments) under
any Benefit Plan or Law becoming due to any such employee or result in any
obligation or liability of Buyer to any employee of Company or any ERISA
Affiliate.
(e) Neither Company nor any ERISA Affiliate, nor to Company's knowledge any
other "disqualified person" or "party in interest" (as defined in IRC Section
4975 and Section 3(14) of ERISA, respectively) with respect to any ERISA Plan
has engaged in any transaction in violation of Section 406 of ERISA for which
no class, individual or statutory exemption exists or any "prohibited
transaction" (as defined in IRC Section 4975(c)(1)) for which no class,
individual or statutory exemption exists under IRC Section 4975(c)(2) or (d),
nor has any "fiduciary" (as defined in Section 3(21) of ERISA) of any ERISA
Plan breached or participated in the breach of any fiduciary obligation
imposed pursuant to Part 4 of Title I of ERISA.
(f) There are no actions, suits, disputes or claims pending or, to Company's
knowledge, threatened (other than routine claims for benefits) or legal,
administrative or other proceedings or governmental investigations pending or,
to Company's knowledge, threatened, against or with respect to any Benefit
Plan or the assets of any Benefit Plan.
(g) Except as set forth on Schedule 2.11(g), no Benefit Plan provides or
provided health or medical benefits (whether or not insured) with respect to
current or former employees of Company or its subsidiaries beyond their
retirement or other termination of service (other than coverage mandated by
statutory law).
(h) Each ERISA Plan that is an "employee welfare benefit plan" as that term
is defined in Section 3(1) of ERISA is either (as identified on Schedule
2.11(a)): (i) funded through an insurance company contract, (ii) funded
throughout a tax-exempt "VEBA" trust or (iii) unfunded. Except as set forth on
Schedule 2.11(h), there is no liability in the nature of a retroactive rate
adjustment or loss-sharing or similar arrangement, with respect to any ERISA
Plan which is an employee welfare benefit plan.
(i) Company has provided to Buyer true and complete copies of the following
with respect to each of the Benefit Plans: (i) each plan document and summary
plan description if any; (ii) each trust agreement, insurance policy or other
instrument relating to the funding thereof; (iii) the most recent Annual
Report (Form 5500 series) and associated schedules filed with the IRS or the
United States Department of Labor; (iv) the most recent audited financial
statement report; (v) the most recent actuarial report if any; and (vi) a
description of each unwritten Benefit Plan and the individuals covered
thereby.
2.12 Employment Agreements. Except as set forth on Schedule 2.12, none of
Company or any of its subsidiaries is a party to any employment, consulting,
non-competition, severance, or indemnification agreement with any current or
former executive officer or director of Company or any of its subsidiaries.
True and complete copies of the agreements set forth on Schedule 2.12 have
been furnished to Buyer prior to the date hereof. Neither Company nor any of
its subsidiaries is a party to any collective bargaining agreement.
2.13 Legal Proceedings. (a) There is no pending or threatened judicial or
administrative proceeding or investigation affecting Company or any of its
subsidiaries that (i) if resolved adversely
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to it would: (A) have a material adverse effect on Company's Business or (b)
require Company or any of its subsidiaries to pay damages in excess of
$50,000, or (ii) could reasonably be expected to impair its ability to
consummate the Merger; and (b) Company is not aware of any judicial or
administrative decision affecting it or any of its subsidiaries that could
reasonably be expected to impair its ability to consummate the Merger.
2.14 Compliance with Law. Except as set forth on Schedule 2.14, all
licenses, franchises, permits and other governmental authorizations held by
Company that are material in connection with Company's Business are valid and
sufficient for all business presently carried on by Company. No suspension,
cancellation or termination of any such licenses, franchises, permits and
other governmental authorizations is threatened or imminent. Except as set
forth on Schedule 2.14, Company's Business is not being conducted in violation
of any Law, except for violations which either individually or in the
aggregate do not and will not have a material adverse effect on Company's
Business.
2.15 Accuracy of Proxy Statement and Other Information. On the date on which
Company mails to its stockholders its proxy materials relating to the Merger
(the "Proxy Statement"), on the date its stockholder meeting is held, and on
the Effective Date, the Proxy Statement will contain all material statements
concerning Company which are required to be set forth therein in accordance
with the Exchange Act; and at such respective times, the Proxy Statement will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The information concerning Company set
forth in the Schedules hereto and the copies of the documents furnished by
Company to Buyer in accordance herewith, are complete and accurate.
2.16 Related Party Transactions. No director or officer of Company or any
subsidiary of Company and no Person related to any of them has any interest in
(i) any equipment or other property, real or personal, tangible or intangible,
including, but without limitation, any item of intellectual property, used in
connection with or pertaining to Company's Business, or (ii) any creditor,
supplier, customer, manufacturer, agent, representative, or distributor of
products of Company; provided, however, that (A) no such director or officer
or other Person shall be deemed to have such an interest solely by virtue of
the ownership of less than 5% of the outstanding voting stock or debt
securities of any publicly-held company, the stock or debt securities of which
are traded on a recognized stock exchange or quoted on the National
Association of Securities Dealers Automated Quotation System, and (B) no such
director or officer or other Person shall be deemed to have such an interest
solely by virtue of the ownership by a partnership in which he is a partner of
less than 10% of the outstanding voting stock or debt securities of any
privately held company.
2.17 Insurance. All material properties of Company and its subsidiaries are
insured for their respective benefits, in amounts customary and reasonable for
the line of business of Company and against all risks usually insured against
by Persons operating similar properties in the localities where such
properties are located under valid and enforceable policies issued by insurers
of recognized responsibility. Neither Company nor any of its subsidiaries is
in default under any such policy or bond, and all such policies are in full
force and effect, with all premiums due thereon paid. Company and its
subsidiaries have timely filed claims with their respective insurers with
respect to all matters and occurrences for which they believe they have
coverage except for such failures as will not have a material adverse effect
on Company's Business.
2.18 No Brokers or Finders. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by Company directly
with Buyer and without the intervention of any Person, either as a result of
the act of Company, or, to the knowledge of Company, otherwise, in such a
manner as to give rise to any valid claim against any of the parties for a
finder's fee, broker's commission or other similar payment, other than that of
Goldman Sachs & Co.
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2.19 Dissenters' Rights. The effectiveness of the Merger will not give rise
to any holder of the Company Common Stock having dissenters' rights pursuant
to the NRS.
2.20 Environmental Matters. Except as set forth on Schedule 2.20, to
Company's knowledge, neither Company nor any of its subsidiaries has disposed
of any Hazardous Substances on or about any properties at any time owned,
leased or occupied by Company or any of its present or former subsidiaries. To
Company's knowledge, neither Company nor any of its present or former
subsidiaries has disposed of any materials at any site being investigated or
remediated for contamination or possible contamination of the environment.
Except as set forth on Schedule 2.20, to Company's knowledge, Company and each
of its present and former subsidiaries have conducted their respective
businesses in accordance with all applicable Environmental Regulation. Except
as set forth on Schedule 2.20, to Company's knowledge, Company has not
received any notice of any investigation, claim or proceeding against Company
or any of its present or former subsidiaries relating to Hazardous Substances
and Company is not aware of any fact or circumstance which could involve
Company or any of its present or former subsidiaries in any environmental
litigation, proceeding, investigation or claim or impose any environmental
liability upon Company or any of its present or former subsidiaries.
2.21 Bank Accounts, Powers, etc. Schedule 2.21 lists each bank, trust
company, savings institution, brokerage firm, mutual fund or other financial
institution with which Company or any of its subsidiaries has an account or
safe deposit box and the names and identification of all Persons authorized to
draw thereon or to have access thereto.
2.22 Intangible Property. Schedule 2.22 lists all Marks used by Company or
any of its subsidiaries in connection with the Company's Business and denotes
whether such Marks are owned or licensed by Company or any of its
subsidiaries, and, if licensed, the payments required to be made to others
with respect thereto. Company and its subsidiaries own or have valid, binding,
enforceable and adequate rights to use all Intangible Property used or held
for use in connection with Company's Business, without any conflict with the
rights of others. Neither Company nor any of its subsidiaries has received any
notice from any other Person pertaining to or challenging the right of Company
or any such subsidiary to use any Intangible Property owned or used by or
licensed to Company or such Subsidiary.
2.23 Fairness Opinion. Company has received from Goldman, Sachs & Co. an
opinion, dated the date hereof, to the effect that the Merger Consideration is
fair, from a financial point of view, to the stockholders of Company.
2.24 Full Disclosure. No statements by Company contained in this Agreement
and the Schedules attached hereto and any written statement or certificate
furnished or to be furnished to Buyer pursuant hereto or in connection with
the transactions contemplated hereby (when read together) contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUBSIDIARY
Each of Buyer and Subsidiary hereby represents and warrants to Company as
follows:
3.1 Organization. Each of Buyer and Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and Nevada, respectively, and has corporate power to carry on
its business as it is now being conducted.
3.2 Authority; Validity. Each of Buyer and Subsidiary has all corporate
power and authority to execute and deliver this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by Buyer's and Subsidiary's Boards of Directors, respectively, and by Buyer as
the sole stockholder of Subsidiary, and no other corporate proceedings on the
part of Buyer or Subsidiary are necessary to authorize this Agreement and the
transactions contemplated hereby. Upon execution and delivery hereof (assuming
that this Agreement is the legal, valid and binding obligation of Company),
this Agreement will be the valid and binding obligation of Buyer and
Subsidiary enforceable against each in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally.
3.3 No Conflict. Neither Buyer nor Subsidiary is subject to or obligated
under any charter, bylaw, Contract, lease or other instrument or any license,
franchise or permit, or subject to any statute, rule, order or decree, which
would be materially defaulted, materially breached, terminated, forfeited or
materially violated by or in material conflict (or upon the failure to give
notice or the lapse of time, or both, would result in a material default,
material breach, termination, forfeiture or material conflict) with its
executing and carrying out this Agreement and the transactions contemplated
hereunder.
3.4 Consents. Except as contemplated by this Agreement or set forth on
Schedule 3.4, no consent of any Person not a party to this Agreement, nor
consent of or filing with (including any waiting period) any Governmental
Entity, is required to be obtained on the part of Buyer or Subsidiary to
permit the Merger.
3.5 No Brokers or Finders. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by Buyer directly
with Company and without the intervention of any Person, either as a result of
the act of Buyer or, to the knowledge of Buyer, otherwise, in such a manner as
to give rise to any valid claim against any of the parties for a finder's fee,
broker's commission or other similar payment, other than DLJ.
3.6 Legal Proceedings. There is no pending or threatened judicial or
administrative proceeding or investigation affecting Buyer or Subsidiary that
if resolved adversely to either or them could reasonably be expected to impair
their ability to consummate the Merger. Buyer is not aware of any judicial or
administrative decision affecting it or Subsidiary that could reasonably be
expected to impair the ability of Buyer or Subsidiary to consummate the
Merger.
3.7 Financial Statements. The financial statements contained in Buyer's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997 are in
accordance with the books and records of Buyer, have been prepared in
accordance with generally accepted accounting principles consistently applied
and present fairly in all material respects the financial position of Buyer as
of such date and the results of operations of Buyer for the periods indicated
therein.
3.8 Buyer's Financing. Buyer has received separate signed commitment letters
from two of the ten largest banks in the United States to provide financing in
amounts sufficient to pay the Aggregate Merger Consideration pursuant to this
Agreement.
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ARTICLE IV
COVENANTS
4.1 Access and Information.
(a) Subject to applicable laws and regulations, upon reasonable notice
during the period from the date hereof through the Effective Time, Company
will give to Buyer and Buyer's Representatives full access during normal
business hours to all of its and its subsidiaries' properties, books,
records, documents (including, without limitation, tax returns for all
periods open under the applicable statute of limitations), personnel,
auditors and counsel, and Company shall (and shall cause its subsidiaries
to) furnish promptly to Buyer all information concerning Company's Business
as Buyer or Buyer's Representatives may reasonably request, including,
without limitation true and complete copies of all Material Contracts,
including all amendments and supplements thereto.
(b) In addition to Buyer's obligations under the Letter Agreement, all
non-public information disclosed by any party (or its Representatives)
whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations
preceding, this Agreement to any other party (or its Representatives) shall
be kept confidential by such other party and its Representatives and shall
not be used by any such Persons other than as contemplated by this
Agreement. Subject to the requirements of applicable Law, Buyer and Company
will keep confidential, and each will cause their respective
Representatives to keep confidential, all such non-public information and
documents unless such information (i) was already known to Buyer or
Company, as the case may be, (ii) becomes available to Buyer or Company, as
the case may be, from other sources not known by Buyer or Company,
respectively, to be bound by a confidentiality obligation, (iii) is
independently acquired by Buyer or Company, as the case may be, as a result
of work carried out by any Representative of Buyer or Company,
respectively, to whom no disclosure of such information has been made, (iv)
is disclosed with the prior written approval of Company or Buyer, as the
case may be, or (v) is or becomes readily ascertainable from publicly
available information. Upon any termination of this Agreement, each party
hereto will collect and deliver to the other, or certify as to the
destruction of, all documents obtained by it or any of its Representatives
then in their possession and any copies thereof.
(c) Subject to applicable Law, if between the date hereof and the
Effective Date any Governmental Entity shall commence any examination,
review, investigation, action, suit or proceeding against Company with
respect to the Merger, Company shall (i) give Buyer prompt notice thereof,
(ii) keep Buyer informed as to the status thereof and (iii) permit Buyer to
observe and be present at each meeting, conference or other proceeding and
have access to and be consulted in connection with any document filed or
provided to such Governmental Entity in connection with such examination,
review, investigation, action, suit or proceeding.
(d) Upon Buyer's request, officers of Company shall meet with Buyer's
potential sources of financing for the Merger and shall otherwise cooperate
as reasonably requested by Buyer in connection with Buyer's efforts to
secure financing.
(e) Prior to October 6, 1997, Company shall make available to Buyer data
confirming the tax basis of Company's assets, and the amount of
consolidated net operating losses, net capital losses, foreign Tax credits
and investment and other Tax credits of the Company allocable to Company
and its subsidiaries under Treasury Regulation 1.1502-79.
4.2 Governmental Filings. Subject to the terms and conditions herein
provided, Company and Buyer shall: (a) promptly make their respective filings
and thereafter make any other required
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submissions under the HSR Act with respect to the Merger; (b) use all
reasonable efforts to cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from, any Governmental Entity in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations; and
(c) use all reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement.
4.3 Consents and Approvals.
(a) Company shall use its commercially reasonable efforts to obtain any
and all consents from other parties to all Material Contracts, if necessary
or appropriate to allow the consummation of the Merger and the continuation
of Company's Business in the ordinary course after consummation of the
Merger. Each party hereto shall use its commercially reasonable efforts to
obtain any and all permits or approvals of any Governmental Entity required
by such party for the lawful consummation of the Merger.
(b) Buyer and Company shall, upon request, furnish each other with all
information concerning themselves, their respective subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Proxy Statement or
any other statement, filing, notice or application made by or on behalf of
Buyer or Company to any Governmental Entity in connection with the Merger
and the other transactions contemplated hereby.
(c) Buyer and Company shall promptly furnish each other with copies of
all written communications received by Buyer or Company, as the case may
be, or any of their respective subsidiaries from, or delivered by any of
the foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
4.4 Stockholders' Meeting. Company shall take all steps necessary to duly
call, give notice of, convene and hold a meeting of its stockholders to be
held as soon as is reasonably practicable after the date on which the Proxy
Statement has been cleared by the SEC for the purpose of voting on the
approval of this Agreement and the transactions contemplated hereby, including
the Merger. Company will, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the transactions contemplated
hereby, including the Merger, and such other matters as may be submitted to
its stockholders in connection with this Agreement; provided, however, that
nothing contained in this Section 4.4 shall prohibit Company's Board of
Directors from failing to make such recommendation or modifying or withdrawing
its recommendation, if it shall have concluded in good faith based upon the
written advice of independent legal counsel which may be Company's regular
counsel (i.e. Schlanger, Mills, Mayer & Grossberg LLP) that such action is
required to prevent it from breaching its fiduciary duties to the stockholders
of Company under applicable Law.
4.5 Conduct of Business. Company covenants and agrees that after the date
hereof and prior to the Effective Time (unless Buyer shall have agreed in
writing):
(a) Ordinary Course. Company will, and will cause its subsidiaries to,
operate Company's Business only in the ordinary course of business
consistent with past practices and use its commercially reasonable efforts
to (i) preserve its existing business organization, insurance coverage,
material rights, material licenses or permits, advantageous business
relationships, material agreements and credit facilities; and (ii) retain
its key officers and employees. Company and its subsidiaries will not: (A)
enter into any material transaction or commitment, or dispose of or acquire
any material properties or assets, except purchases and sales of inventory
in the ordinary course of business consistent with past practices; (B)
implement any new employee
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benefit plan, or employment, compensatory or severance agreement; (C) amend
any existing employee benefit plan or employment agreement except as
required by Law or by this Agreement; (D) enter into, amend or terminate
any Material Contract, other than the consulting agreement with Jacob Weber
(but only upon substantially the same terms as are contained in the draft
revised agreement provided to Buyer prior to the date hereof); (E) take any
action that would jeopardize the continuance of its material supplier or
customer relationships; (F) make any material change in the nature of their
businesses and operations; (G) enter into any transaction or agreement with
any officer, director or affiliate of Company or any of its subsidiaries;
(H) incur or agree to incur any obligation or liability (absolute or
contingent) that individually calls for payment by Company or any of its
subsidiaries of more than $100,000 in any specific case or $500,000 in the
aggregate, excluding purchases of inventory in the ordinary course of
business; or (I) make any Tax election or make any change in any method or
period of accounting or in any accounting policy, practice or procedure.
(b) Charter Documents. Company will not amend its Articles of
Incorporation or By-Laws.
(c) Dividends. Company will not declare or pay any dividend or make any
other distribution in respect of its capital stock.
(d) Stock. Company will not split, combine or reclassify any shares of
its capital stock, or issue, redeem or acquire (or agree to do so) any of
its equity securities, options, warrants, or convertible instruments,
except (i) pursuant to existing obligations under Benefit Plans; or (ii)
pursuant to the existing commitments or conversion rights listed on
Schedule 2.2(a). Company will not grant any Company Options.
4.6 Publicity. The initial press release with respect to the Merger shall be
a joint press release. Thereafter, Company and Buyer shall coordinate all
publicity relating to the transactions contemplated by this Agreement and no
party shall issue any press release, publicity statement or other public
notice relating to this Agreement, or the transactions contemplated by this
Agreement, without obtaining the prior consent of both Company and Buyer,
except to the extent that the disclosing party is advised by its counsel that
such action is required by applicable Law, and then, if practicable, only
after consultation with the other party. Company shall obtain the prior
consent of Buyer to the form and content of any application or report made to
any Governmental Entity which relates to this Agreement.
4.7 Financial Statements. Company will deliver to Buyer, as soon as
reasonably practicable after the end of each fiscal month and each fiscal
quarter prior to the Effective Date, beginning with the periods included in
the second fiscal quarter of 1998, an unaudited balance sheet as of such date
and related unaudited statements of income and changes in stockholders' equity
for the period then ended. Such financial statements will be prepared in
accordance with generally accepted accounting principles consistently applied
and will fairly reflect Company's consolidated financial condition and the
consolidated results of its operations for the periods then ended, subject, in
the case of unaudited interim statements, to the absence of notes and to
normal year-end adjustments. Company will also deliver to Buyer the related
consolidating statements for each such period.
4.8 Notification of Defaults and Adverse Events. Company will promptly
notify Buyer if, subsequent to the date of this Agreement and prior to the
Effective Date: (i) an event occurs that may materially and adversely affect
Company's Business, (ii) it receives any notice of default under any Material
Contract, which default would, if not remedied, result in any material adverse
change in Company's Business or which would render incorrect any
representation made herein, or (iii) any suit, action or proceeding is
instituted or, to the knowledge of Company, threatened against or affecting
Company or any of its subsidiaries which, if adversely determined, would
result in any material adverse change in Company's Business or which would
render incorrect any representation made herein. Each of Company and Buyer
will promptly notify the other if it determines it is or will be unable to
comply with any of its obligations under this Agreement or fulfill any
conditions under its control.
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4.9 Indemnification by Company. Company agrees to indemnify and hold
harmless Buyer, each Person who controls Buyer within the meaning of the
Securities Act, and each director and officer of the Buyer against any losses,
claims, damages, liabilities or expenses (including reasonable counsel fees
and costs of investigation and defense) that are based on the ground or
alleged ground that the Proxy Statement contains any material misstatement or
omission. This indemnification obligation does not, however, extend to
information provided in writing by Buyer expressly for inclusion in the Proxy
Statement.
4.10 Commercially Reasonable Efforts. Buyer and Company shall each use its
commercially reasonable efforts to cause all conditions to Closing to be
satisfied.
4.11 Buyer's Undertaking Regarding Subsidiary. Buyer covenants and agrees
with Company that, subject to the terms and conditions of this Agreement,
Buyer shall take all actions as may be necessary to cause Subsidiary to
consummate the Merger.
4.12 Employee Matters.
(a) Company shall amend, terminate or suspend its 1996 Employee Stock
Purchase Plan such that no options will be granted pursuant thereto after
September 30, 1997.
(b) Company's Board of Directors shall take all actions necessary or
appropriate such that the Merger, the transactions contemplated by this
Agreement and any steps taken in connection therewith are not deemed to be
either (i) a "Change in Control" as such term is defined in the Company
Broad Base Severance Plan or (ii) a "Hostile Change of Control" as such
term is defined in the Company Upper Management Severance Plan.
4.13 No Solicitation. Company will, and will cause its subsidiaries and
their respective Representatives to, immediately cease any discussions or
negotiations with any Persons that may be ongoing with respect to any
Acquisition Proposal. The Company will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any of its Representatives
to, directly, or indirectly, (a) solicit or initiate, or knowingly encourage
the submission of, any Acquisition Proposal or (b) participate in any
discussions or negotiations regarding, or furnish to any Person any
information with respect to any proposal that constitutes, or may reasonably
be expected to lead to, an Acquisition Proposal; provided, however, that,
notwithstanding the foregoing, if, prior to the Closing, Company's Board of
Directors determines in good faith, based upon written advice of independent
counsel, which may be the Company's regularly engaged outside counsel, that
not to do so would be inconsistent with the Board of Directors' fiduciary
duties to the Company's stockholders under applicable Law, the Company may, in
response to an unsolicited Acquisition Proposal and so long as it provides
notice to Buyer of its receipt of such unsolicited Acquisition Proposal, (i)
furnish information with respect to the Company pursuant to a customary
confidentiality and standstill agreement (which is substantially similar to
the agreement with Buyer) and (ii) participate in discussions or negotiations
regarding such Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the previous
sentence by any subsidiary of Company or any of Company's Representatives,
whether or not such Person is purporting to act on behalf of Company or any of
its subsidiaries or otherwise, shall be deemed to be a breach of this Section
4.13 by Company.
4.14 Termination Fee. If this Agreement is terminated (a) by Subsidiary
and/or Buyer pursuant to Section 6.1(d) or Section 6.1(h) hereof, or (b) by
Company pursuant to Section 6.1(d) or Section 6.1(g), then Company shall pay
to Buyer, upon demand, a fee, to be paid in cash, of $5,000,000 (the
"Termination Fee"). The Termination Fee will be Buyer's sole and exclusive
remedy against Company for a termination pursuant to such Sections and Buyer
shall not pursue in any manner, directly or indirectly, any claim or cause of
action based upon tortious or other interference with rights under this
Agreement against any Person submitting an Acquisition Proposal.
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4.15 Anti-takeover Statutes. If any anti-takeover or similar statute is
applicable to the transactions contemplated hereby, Company represents that it
has and will grant such approvals and take such actions as are necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate
the effects of such takeover statute on the transactions contemplated hereby.
4.16 Indemnification; Insurance.
(a) Buyer and Subsidiary agree that all rights to indemnification by
Company existing in favor of each present and former director of Company
(the "Company Indemnified Parties") as provided in Company's Articles of
Incorporation and By-Laws on the date hereof shall survive the Merger and
shall continue in full force and effect for a period of four years from the
Effective Date. Without limiting the foregoing, in the event that any
claim, action, suit, proceeding or investigation is brought against any
Company Indemnified Party, the Surviving Corporation shall have the right
to assume the defense of any such action or proceeding (using counsel
reasonably satisfactory to the Company Indemnified Party) and to settle, in
its sole discretion, any such action or proceeding. Neither Buyer nor the
Surviving Corporation shall be liable for any settlement of any claim
effected without its written consent. Subject to the foregoing, upon
assumption by the Surviving Corporation of the defense of any such action
or proceeding, the Company Indemnified Party may participate in such
defense, but neither the Surviving Corporation nor Buyer shall have any
liability to the Company Indemnified Party for any legal fees or expenses
subsequently incurred by the Company Indemnified Party in connection with
such defense. Any Company Indemnified Party wishing to claim
indemnification under this Section 4.16(a), upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly notify the
Surviving Corporation of the same (but the failure to so notify the
Surviving Corporation shall not relieve it or Buyer from any liability
which it may have under this Section 4.16(a) except to the extent that such
failure prejudices the Surviving Corporation or Buyer).
(b) For a period of three years after the Effective Date, Buyer shall
cause to be maintained officers' and directors' liability insurance
covering the Company's existing officers and directors who are currently
covered in such capacities by Company's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to
such officers and directors than such existing insurance; provided,
however, that Buyer shall not be required in order to maintain or procure
such coverage to pay an annual premium in excess of two times the current
annual premium paid by Company for its existing coverage (the "D&O Cap")
and provided further that if equivalent coverage cannot be obtained, or can
be obtained only by paying an annual premium in excess of such amount,
Buyer shall only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to the D&O Cap.
ARTICLE V
CONDITIONS
5.1 Conditions to Obligations of Company and Buyer. The respective
obligations of the parties to effect the Merger are subject to the fulfillment
at or prior to the Effective Date of the following conditions unless waived in
writing by all parties:
(a) Corporate Approval. All corporate actions necessary to authorize the
execution, delivery and performance of this Agreement and the Merger shall
have been duly and validly taken by the other parties. The stockholders of
Company shall have approved the Merger in accordance with applicable Law.
(b) Approval from Government Entities. All approvals required by any
Governmental Entity and all other actions required to effect the Merger and
related transactions shall have been
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obtained. The waiting period under the HSR Act shall have expired, or early
termination of the waiting period under the HSR Act shall have been
granted.
(c) Absence of Governmental Litigation. No Governmental Entity shall have
instituted a proceeding seeking injunctive or other relief in connection
with the Merger and related transactions. There shall not be any judgment,
decree, injunction, ruling or order of any Governmental Entity that
prohibits, restricts, or delays consummation of the Merger.
5.2 Conditions to Obligations of Buyer. The obligations of Buyer and
Subsidiary to effect the Merger are subject to the fulfillment at or prior to
the Effective Date of the following conditions except to the extent waived in
writing by Buyer:
(a) Representations and Compliance. The representations and warranties of
Company in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and on the Effective Date with
the same effect as though made on and as of such date, except for any
changes contemplated by this Agreement; Company shall have complied in all
material respects with all covenants requiring compliance by it prior to
the Effective Date; and Buyer shall have received an officer's certificate
signed by the Chief Executive Officer of Company certifying as to each of
the foregoing.
(b) Comfort Letter. Buyer shall have received from Ernst & Young LLP, the
independent auditors of Company, a comfort letter dated the date of the
mailing of the Proxy Statement and a second comfort letter dated the
Effective Date, each in form and substance reasonably satisfactory to
Buyer.
(c) Opinion of Counsel. Buyer shall have received from Schlanger, Mills,
Mayer & Grossberg LLP, counsel to Company, an opinion in form and substance
reasonably satisfactory to Buyer.
(d) Governmental Approvals. All statutory requirements for the valid
consummation by Buyer and Subsidiary of the transactions contemplated by
this Agreement shall have been fulfilled; all authorizations, consents and
approvals of all Governmental Entities required to be obtained in order to
permit consummation by Buyer and Subsidiary of the transactions
contemplated by this Agreement shall have been obtained.
(e) No Material Adverse Change. From the date hereof, there shall not
have occurred any event which has or is likely to have a material adverse
effect on Company's Business (it being understood that events or changes
affecting the entire electronics components distribution industry generally
will not be considered in making such determination). Without limiting the
foregoing, a material adverse effect on Company's Business shall include
the termination (or notice of termination) of franchise agreements with
suppliers which in the aggregate accounted for at least seven percent of
Company's revenues in fiscal 1997.
(f) Material Contracts. All consents from other parties to the Material
Contracts listed on Schedule 5.2(f), if necessary or appropriate to allow
the consummation of the Merger and the continuation of Company's Business
in the ordinary course after consummation of the Merger, shall have been
received.
(g) Market Conditions. There shall have not occurred (i) any general
suspension of, trading in or limitation on prices for securities on the New
York Stock Exchange Inc., the American Stock Exchange, Inc., or the
National Association of Securities Dealers Automated Quotation System, (ii)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (iii) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (iv) any
limitation by any Governmental Entity on, or any other event that, in the
reasonable judgment of Buyer is substantially likely to materially
adversely affect the extension of credit by banks or other lending
institutions, or (v) from the date of this Agreement through the date
immediately prior to the Effective Time, a decline of at least 25% in the
Standard & Poor's 500 Index.
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5.3 Conditions to Obligations of Company. The obligations of Company to
effect the Merger are subject to the fulfillment at or prior to the Effective
Date of the following conditions unless waived in writing by Company:
(a) Representations and Compliance. The representations and warranties of
Buyer in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and on the Effective Date with the same
effect as though made on and as of such date, except for any changes
contemplated by this Agreement; Buyer shall have complied in all material
respects with all covenants requiring compliance by it prior to the
Effective Date; and Company shall have received an officer's certificate
signed by the Chief Executive Officer of Buyer certifying as to each of the
foregoing.
(b) Opinion of Counsel. Company shall have received from O'Melveny &
Myers LLP, counsel for Buyer, an opinion in form and substance reasonably
satisfactory to Company.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 Termination and Abandonment. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval by the stockholders of Company:
(a) by mutual consent of Subsidiary, Buyer and Company in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board of Directors;
(b) by any of Subsidiary, Buyer or Company upon written notice to the
other parties if any Governmental Entity of competent jurisdiction shall
have issued a final nonappealable order denying, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by
this Agreement;
(c) by any of Subsidiary, Buyer or Company if the Merger shall not have
been consummated on or before January 31, 1998, unless the failure of the
Merger to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe in any material
respect the covenants and agreements of such party set forth herein;
(d) by Company or Buyer if any approval of the stockholders of Company
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof;
(e) by any of Subsidiary, Buyer or Company (so long as the terminating
party is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been a
breach of any of the representations or warranties set forth in this
Agreement on the part of the other party;
(f) by any of Subsidiary, Buyer or Company (so long as the terminating
party is not then in material breach of any representation, warranty,
covenant or other agreement contained herein) if there shall have been a
breach of any of the covenants or agreements or conditions or obligations
set forth in this Agreement on the part of the other party, which breach
shall not have been cured within ten days following receipt by the
breaching party of written notice of such breach from the other party
hereto or which breach, by its nature, cannot be cured prior to the
Effective Time;
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(g) by Company if, prior to the consummation of the transactions
contemplated hereby, a Person shall have made a bona fide Acquisition
Proposal that the Board of Directors of Company determines in its good
faith judgment and in the exercise of its fiduciary duties, based as to
legal matters on the written opinion of legal counsel and as to financial
matters on the written opinion of an investment banking firm of national
reputation, is more favorable to Company's stockholders than the Merger and
that the failure to terminate this Agreement and accept such alternative
Acquisition Proposal would be inconsistent with the proper exercise of such
fiduciary duties under applicable Law; and
(h) by Subsidiary and Buyer prior to the consummation of the transactions
contemplated hereby if the Board of Directors of Company shall have
withdrawn its approval or modified its approval or recommendation of this
Agreement or shall have recommended another offer for the purchase of
Company Common Stock.
6.2 Effect of Termination. Except as provided in Section 4.14 and Section
7.2 hereof with respect to expenses and fees (including the Termination Fee),
and except as provided in Section 4.1(b) hereof with respect to information
obtained in connection with the transactions contemplated hereby, in the event
of the termination of this Agreement and the abandonment of the Merger, this
Agreement shall thereafter become null and void and have no effect, and no
party hereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, and each party shall
be responsible for its own expenses, except that nothing herein shall relieve
any party for liability for any willful breach hereof.
6.3 Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval hereof by the stockholders of Company, but,
after any such approval, no amendment shall be made which would have a
material adverse effect on the stockholders of Company without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
6.4 Extension; Waiver. At any time prior to the Effective Date, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VII
MISCELLANEOUS
7.1 Termination of Representations and Warranties. The representations and
warranties of each party will terminate on the Effective Date.
7.2 Expenses. Subject to Section 4.14, each party will pay its own expenses
relating to this Agreement and the transactions contemplated hereby; provided,
however that following any termination of this Agreement by Buyer pursuant to
Section 6.1(e) or 6.1(f), Company shall reimburse Buyer and its affiliates
(not later than five business days after submission of statements therefor)
for all out-of-pocket fees and expenses actually and reasonably incurred by
any of them or on their behalf in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees payable
to investment bankers, commercial bankers, counsel, consultants and
accountants) in an amount not to exceed $2,000,000.
7.3 Remedies. If, in accordance with the terms of the proviso contained in
Section 4.4, Company's Board of Directors fails to recommend this Agreement
(and the transactions
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contemplated hereby, including the Merger) to Company's stockholders, or
modifies or withdraws its recommendation thereof to Company's stockholders,
Buyer's sole remedy in connection therewith shall be Company's payment of the
Termination Fee to Buyer pursuant to Section 4.14. This Section 7.3 shall not
be deemed to preclude or otherwise limit in any way Buyer's exercise of any
rights or pursuit of any remedies, including, without limitation, any legal or
equitable remedies, with respect to any breach by Company of any of its
obligations under this Agreement, including, without limitation, those
contained in Section 4.13 hereof.
7.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered in person, sent by registered
or certified mail (return receipt requested), or telexed or telecopied to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Buyer or Subsidiary:
Marshall Industries
9320 Telstar Avenue
El Monte, California 91731
Attention: Henry W. Chin
Telecopy: (626) 307-6348
with a copy to:
O'Melveny & Myers LLP
400 S. Hope St.
Los Angeles, California 90071-2899
Telecopy: (213) 669-6407
Attention: D. Stephen Antion, Esq.
if to Company:
Sterling Electronics Corporation
4201 Southwest Freeway
Houston, Texas 77027
Attention: Ronald Spolane
Telecopy: (713) 629-3949
with a copy to:
Schlanger, Mills, Mayer & Grossberg LLP
5847 San Felipe, Suite 1700
Houston, Texas 77057
Telecopy: (713) 785-2091
Attention: Steven Lerner, Esq.
7.5 Further Assurances. Buyer, Subsidiary and Company each agree to execute
and deliver such other documents, certificates, agreements and other writings
and to take such other actions as may be reasonably necessary or desirable in
order to expeditiously consummate or implement the transactions contemplated
by this Agreement.
7.6 Assignability. Neither this Agreement nor any rights or obligations
under it are assignable.
7.7 Governing Law. This Agreement will be governed by the laws of the State
of California except to extent that the certain matters are governed as a
matter of controlling law by the law of the jurisdiction of incorporation of
Company.
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7.8 Interpretation. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 Integration. This Agreement and the Letter Agreement constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
ARTICLE VIII
DEFINITIONS
8.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article VIII have the meaning assigned to them in this Article
VIII and include the plural as well as the singular; (b) all accounting terms
not otherwise defined herein have the meanings assigned under generally
accepted accounting principles; (c) all references in this Agreement to
designated "Articles," "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of the body of this Agreement; (d)
pronouns of either gender or neuter shall include, as appropriate, the other
pronoun forms; and (e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as whole and not to any
particular Article, Section nor other subdivision.
As used in this Agreement and the Schedules delivered pursuant to this
Agreement, the following definitions shall apply.
"Acquisition Proposal" means any proposal or offer from any Person relating
to any direct or indirect acquisition or purchase of all or a substantial part
of the assets of the Company or any of its subsidiaries or of over 15% of any
class of equity securities of the Company or any of its subsidiaries, any
tender offer or exchange offer that if consummated would result in any Person
beneficially owning 15% or more of any class of equity securities of the
Company or any of its subsidiaries, any merger, consolidation, business
combination, sale of all or substantially all of the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
of its subsidiaries, other than the transactions contemplated by this
Agreement.
"Aggregate Merger Consideration" means an amount equal to the sum of (i) the
amount required to be deposited with the Paying Agent pursuant to Section
1.8(a) plus (ii) the aggregate amount to be paid to holders of Company Options
pursuant to Section 1.9.
"Benefit Plans" has the meaning set forth in Section 2.11(a).
"Buyer" has the meaning set forth in the first paragraph hereof.
"Cancelled Shares" has the meaning set forth in Section 1.7.
"Certificates" has the meaning set forth in Section 1.7.
"Closing" has the meaning set forth in Section 1.2.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Common Stock" has the meaning set forth in Section 1.7.
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"Company Indemnified Parties" has the meaning set forth in Section 4.16(a).
"Company Options" means any option granted by Company to purchase shares of
Company Common Stock pursuant to the Company's 1967 Stock Option Plan, 1968
Stock Option Plan, 1992 Incentive Stock Option Plan, 1993 Directors' Non-
Qualified Stock Option Plan, 1994 Stock Option Plan and 1997 Stock Option
Plan, and any individual option grant made prior to the date hereof.
"Company's Business" has the meaning set forth in Section 2.1(a).
"Contract" means any agreement, arrangement, bond, commitment, franchise,
indemnity, indenture, instrument, lease, license or understanding, whether or
not in writing.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"D&O Cap" has the meaning set forth in Section 4.16(b).
"Effective Date" has the meaning set forth in Section 1.3.
"Effective Time" has the meaning set forth in Section 1.3.
"Environmental Regulation" means, collectively, all Laws, regulations,
orders and other requirements of any Governmental Entity relating to Hazardous
Substances and the use, storage, treatment, disposal, transport, generation,
release of, and exposure of others to, Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" has the meaning set forth in Section 2.11(a).
"ERISA Plans" has the meaning set forth in Section 2.11(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Entity" means any governmental agency, district, bureau,
board, commission, court, department, official political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Hazardous Substances" means (but shall not be limited to) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or
"toxic substances," or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude
oil, natural gas or geothermal energy.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Intangible Property" means any trade secret, secret process or other
confidential information or know-how and any and all Marks.
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRS" means the Internal Revenue Service.
"Laws" means any constitutional provision, statute, ordinance, or other law,
code, rule, regulation or interpretation of any Governmental Entity and any
decree, injunction, judgment, award, order, ruling, assessment or writ.
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"Letter Agreement" means that certain letter agreement between Buyer and
Company dated June 3, 1997.
"Marks" means any brand name, copyright, patent, service mark, trademark,
trade name, and all registrations or applications for registration of any of
the foregoing.
"Merger" has the meaning set forth in Section 1.1.
"Merger Consideration" has the meaning set forth in Section 1.7.
"NRS" means the Nevada Revised Statutes.
"Paying Agent" has the meaning set forth in Section 1.8(a).
"Paying Agent Letter" has the meaning set forth in Section 1.8(b).
"Payment Fund" has the meaning set forth in Section 1.8(a).
"Person" means any individual, partnership, joint venture, corporation,
bank, trust, unincorporated organization or other entity.
"Proxy Statement" has the meaning set forth in Section 2.15.
"Qualified Plans" has the meaning set forth in Section 2.11(b).
"Representatives" means a Person's officers, directors, employees,
consultants, investment bankers, accountants, attorneys and other advisors,
representatives and agents.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"SEC Filings" has the meaning set forth in Section 2.6(c).
"Subsidiary" has the meaning set forth in the first paragraph hereof.
"Surviving Corporation has the meaning set forth in Section 1.1.
"Tax" means any foreign, federal, state, county or local income, sales, use,
excise, franchise, ad valorem, real and personal property, transfer, gross
receipt, stamp, premium, profits, customs, duties, windfall profits, capital
stock, production, business and occupation, disability, employment, payroll,
severance or withholding taxes, fees, assessments or charges of any kind
whatever imposed by any Governmental Entity, and interest and penalties (civil
or criminal), additions to tax, payments in lieu of taxes or additional
amounts related thereto or to the nonpayment thereof, and any loss in
connection with the determination, settlement or litigation of any Tax
liability.
"Tax Return" means a declaration, statement report, return or other document
or information required to be filed or supplied with respect to Taxes,
including, where permitted or required, combined or consolidated returns for
any group of entities that includes the Company or any of its subsidiaries.
"Termination Fee" has the meaning set forth in Section 4.14.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
MARSHALL INDUSTRIES
/s/ Robert Rodin
-------------------------------------
Robert Rodin
President and Chief Executive
Officer
MI HOLDINGS NEVADA, INC.
/s/ Robert Rodin
-------------------------------------
Robert Rodin
President
STERLING ELECTRONICS CORPORATION
/s/ Ronald S. Spolane
-------------------------------------
Ronald S. Spolane
Chairman, President and Chief
Executive Officer
A-28
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APPENDIX B
B-1
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PROXY
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF STERLING.
STERLING ELECTRONICS CORPORATION
4201 SOUTHWEST FREEWAY, HOUSTON, TEXAS 77027
The undersigned stockholder hereby appoints Ronald S. Spolane and David A.
Spolane, and each of them or either of them with full power to act without the
other and with full power of substitution, as time and lawful attorneys and
proxies, for the undersigned, to appear and vote all of the shares of Common
Stock of Sterling Electronics Corporation, a Nevada corporation ("Sterling"),
which the undersigned would be entitled to vote if personally present, and
otherwise act with the same force and effect as the undersigned, at the
Special Meeting of Stockholders of Sterling to be held at the offices of
Sterling's counsel, Schlanger, Mills, Mayer & Grossberg, LLP, 5847 San Felipe,
Suite 1700, Houston, Texas 77057, on November , 1997, at 9:00 A.M. and at
any adjournments thereof, and to take action on the proposal set forth below
and any other business that may lawfully come before the meeting.
Unless a contrary direction is indicated, this proxy will be voted "FOR" the
proposal set forth below. If specific instructions are indicated, this proxy
will be voted in accordance therewith. In his discretion, each proxy holder is
authorized to vote upon such other business as may properly come before the
meeting or any adjournments or postponements thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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Please mark
your votes as X
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE PROPOSAL SET FORTH BELOW.
(1) To approve and adopt an Agreement and Plan of FOR AGAINST ABSTAIN
Merger dated as of September 18, 1997 by and among
Sterling, Marshall Industries, a California [ ] [ ] [ ]
corporation ("Marshall") and MI Holdings Nevada,
Inc., a Nevada corporation and a wholly-owned
subsidiary of Marshall, and the merger
contemplated thereby. A copy of the Merger
Agreement is attached as Appendix A to, and is
summarized in, the accompanying Proxy Statement.
The undersigned hereby revokes any proxies
heretofore given to vote or act in respect of any
shares of stock of Sterling and acknowledges
receipt of the Notice of Special Meeting of
Stockholders. This proxy is revocable; however, it
will remain valid until canceled by a writing
delivered to Sterling. The shares represented by
this proxy will be voted as directed by the
stockholder. If no direction is given when the
duly executed proxy is returned, such shares will
be voted "FOR" the approval and adoption of the
Merger Agreement.
Signature(s) ___________________________ Date ______________________________
NOTE: Please sign exactly as your name is printed above. When signing as
attorney, executor, administrator, trustee, guardian, partner or corporate
officer, please sign your full title as such. Each joint tenant or tenant-in-
common should also sign. Please sign and send in your proxy in the enclosed
envelope promptly. No postage required if mailed in the United States.
