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SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT x
FILED BY A PARTY OTHER THAN THE REGISTRANT ¨
CHECK THE APPROPRIATE BOX:
¨ PRELIMINARY PROXY STATEMENT
¨ CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
x DEFINITIVE PROXY STATEMENT
¨ DEFINITIVE ADDITIONAL MATERIALS
¨ SOLICITING MATERIAL PURSUANT TO RULE 14A-12
COMPUCOM SYSTEMS, INC.
(Name of registrant as specified in its charter)
(Name of person(s) filing proxy statement, if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
¨ No fee required
x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) | Title of each class of securities to which transaction applies: |
Common Stock, par value $.01 per share, and
Preferred Stock, par value $.01 per share,
of CompuCom Systems, Inc.
(2) | Aggregate number of securities to which transaction applies: |
50,222,574 shares of common stock, 1,500,000 shares of preferred stock and 5,120,643 shares of common stock issuable upon the exercise of outstanding options.
(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): |
The filing fee was determined based upon the sum of: (a) the product of 50,222,574 shares of common stock and the merger consideration therefor of $4.60 per share; (b) the product of 1,500,000 shares of preferred stock and the highest potential merger consideration therefor of $10.00 per share; and (c) the difference between the consideration per share for the common stock of $4.60 per share and the exercise price per share of each of 5,120,643 shares of common stock issuable upon the exercise of outstanding options with an exercise price below $4.60 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, and Rule 0-11 of the rules and regulations promulgated by the Securities and Exchange Commission pursuant to that Act, the filing fee was determined by multiplying the aggregate amount calculated pursuant to the preceding sentence by 0.001267%.
(4) | Proposed maximum aggregate value of transaction: $253,616,000 |
(5) | Total fee paid: $32,133.15 |
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.: |
(3) | Filing Party: |
(4) | Date Filed: |
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COMPUCOM SYSTEMS, INC.
7171 Forest Lane
Dallas, Texas 75230
July 15, 2004
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of CompuCom Systems, Inc. (“CompuCom”) to be held at our headquarters at 7171 Forest Lane, Dallas, Texas 75230 on August 19, 2004 at 1:00 p.m., local time. A notice of the special meeting, a proxy statement and related information and a proxy card are enclosed. All holders of the outstanding shares of our common stock and preferred stock as of July 13, 2004 will be entitled to notice of and to vote at the special meeting. You may vote shares at the special meeting only if you are present in person or represented by proxy.
At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2004, by and among CompuCom, CHR Holding Corporation (“Parent”) and CHR Merger Corporation (“Merger Subsidiary”), a direct wholly owned subsidiary of Parent, and approve the merger of Merger Subsidiary with and into CompuCom, with CompuCom continuing as the surviving corporation, under the terms of the merger agreement, as such may be amended from time to time. Platinum Equity, LLC, an affiliate of Parent, has agreed to cause the performance of, and be responsible and liable for, all of the obligations of Parent and Merger Subsidiary under the merger agreement to be performed on or before the effective time of the merger. If the merger agreement is adopted and the merger is approved, then, at the effective time of the merger:
• | each outstanding share of our common stock will be converted into the right to receive $4.60 in cash; and |
• | each outstanding share of our preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to all accrued and unpaid dividends on each share; |
in each case, without interest and less any applicable withholding taxes and other than shares owned by Parent or Merger Subsidiary or Parent’s subsidiaries, or held by stockholders who perfect their appraisal rights under Delaware law and do not effectively withdraw or lose their right to appraisal. A copy of the merger agreement is attached as Appendix A to the accompanying proxy statement and we urge you to read it in its entirety.
Each of the members of the special committee of our board of directors, consisting of six non-employee members of our board of directors, determined that the merger is advisable and in the best interests of our stockholders and recommended that our board of directors approve the merger agreement and our stockholders adopt the merger agreement and approve the merger. In connection with its evaluation of the merger, the special committee engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) to act as its financial advisor and to advise the special committee with respect to the fairness, from a financial point of view, of the consideration to be paid in the merger to the holders of our common stock other than Safeguard Scientifics, Inc. (“Safeguard”). Houlihan Lokey has given its opinion to the special committee that, as of May 27, 2004, and based upon the assumptions made, matters considered and limitations on the review described in that opinion, the merger consideration was fair from a financial point of view to the non-Safeguard holders of our common stock. You should carefully read the written opinion of Houlihan Lokey that is attached as Appendix D to the accompanying proxy statement.
Each of the members of our board of directors has determined that the merger agreement and the merger are advisable and in the best interests of our stockholders and approved the merger agreement. In connection with its evaluation of the merger, the board of directors engaged Broadview International LLC (which was merged into, and became a division of Jefferies & Company, Inc. on March 1, 2004) (“Broadview”) to act as its financial advisor and to advise the board of directors with respect to the fairness, from a financial point of view, of the consideration to be paid in the merger to the non-Safeguard holders of our common stock. Broadview has given its opinion to our board of directors that, as of May 27, 2004, and based upon the assumptions made, matters considered and limitations on the review described in that opinion, the merger consideration was fair from a
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financial point of view to the non-Safeguard holders of our common stock. You should carefully read the written opinion of Broadview that is attached as Appendix C to the accompanying proxy statement.
BOTH OUR BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS HAVE UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF OUR STOCKHOLDERS. Accordingly, our board of directors has approved the merger agreement and the merger and our board of directors and the special committee recommend that you vote “FOR” adoption of the merger agreement and approval of the merger.
In considering the recommendations of the special committee and our board of directors, you should be aware that many of our directors and executive officers have interests in the merger that may be in addition to, or different from, yours. See “The Merger—Interests of Executive Officers and Directors in the Merger.” Our principal stockholder, Safeguard, also has interests in the merger that are in addition to, or different from, yours, including but not limited to the fact that in accordance with the terms of our preferred stock, Safeguard is to receive $15 million plus an amount equal to the accrued and unpaid dividends at the effective time of the merger in its capacity as the holder of all of our outstanding preferred stock. See “The Merger—Interests of Our Principal Stockholder in the Merger.”
Adoption of the merger agreement and approval of the merger require the affirmative vote of the holders of a majority of the outstanding shares of our common stock and our preferred stock, voting as a single class. Safeguard owns approximately 48.9% of our outstanding common stock as well as all of our outstanding preferred stock which, together, will entitle Safeguard to cast approximately 51.0% of the votes entitled to be cast at the special meeting. Safeguard, Parent and Merger Subsidiary have entered into a Principal Stockholder Agreement under which Safeguard is obligated to vote in favor of the adoption of the merger agreement and the approval of the merger, subject to certain conditions. One of the conditions to Safeguard’s voting obligation is that a majority of the votes cast by Safeguard’s shareholders at the Safeguard special meeting of shareholders to consider the merger shall have approved the vote by Safeguard of its CompuCom shares in favor of the adoption of the merger agreement and approval of the merger at the CompuCom special meeting. If Safeguard votes its shares of CompuCom common stock and preferred stock in favor of the adoption of the merger agreement and the approval of the merger at the special meeting, CompuCom will have received the requisite stockholder approval for the merger agreement and the merger. A copy of the Principal Stockholder Agreement is attached as Appendix B to the accompanying proxy statement and we urge you to read it in its entirety.
In addition, certain of our officers and directors, who collectively owned on the record date approximately 1.3% of our outstanding common stock entitled to vote at the special meeting, have entered into support agreements with Merger Subsidiary in which they have agreed to vote their shares in favor of adoption of the merger agreement and approval of the merger. A copy of the form of the Support Agreement is attached as Appendix E to the accompanying proxy statement and we urge you to read it in its entirety.
Whether or not you plan to attend the special meeting, please complete, sign and date the accompanying proxy card and return it in the enclosed prepaid envelope. Failure to return a properly executed proxy card or to vote at the special meeting will have the same effect as a vote “AGAINST” the adoption of the merger agreement and the approval of the merger. If you attend the special meeting, you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy card. Your prompt cooperation will be greatly appreciated.
By Order of the Board of Directors,
|
/s/ J. Edward Coleman _________________________________
|
J. Edward Coleman Chairman |
July 15, 2004
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COMPUCOM SYSTEMS, INC.
7171 Forest Lane
Dallas, Texas 75230
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 19, 2004
1:00 p.m.
To the Stockholders of CompuCom Systems, Inc.:
Notice is hereby given that a special meeting of the stockholders of CompuCom Systems, Inc. will be held at our headquarters at 7171 Forest Lane, Dallas, Texas 75230 on August 19, 2004 at 1:00 p.m., local time, to consider and vote upon the following matters:
• | A proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2004, by and among CompuCom Systems, Inc., CHR Holding Corporation (“Parent”) and CHR Merger Corporation, a direct wholly owned subsidiary of Parent (“Merger Subsidiary”), and approve the merger of Merger Subsidiary with and into CompuCom, with CompuCom continuing as the surviving corporation, as a wholly owned subsidiary of Parent, as such merger agreement may be amended from time to time. Pursuant to the merger agreement, at the effective time of the merger: |
• | each outstanding share of our common stock will be converted into the right to receive $4.60 in cash, without interest; and |
• | each outstanding share of our preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to any accrued and unpaid dividends on each share, without interest. |
• | Such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting. |
The board of directors has specified July 13, 2004, at the close of business, as the record date for the purpose of determining the stockholders who are entitled to receive notice of and to vote at the special meeting. A list of the stockholders entitled to vote at the special meeting will be available for examination by any stockholder at the special meeting. For 10 days prior to the special meeting, this stockholder list will also be available for inspection by stockholders at our corporate offices at 7171 Forest Lane, Dallas, Texas 75230, during ordinary business hours.
Please read the proxy statement and other materials concerning CompuCom Systems, Inc. and the merger, which are mailed with this notice, for a more complete statement regarding the proposals to be acted upon at the special meeting. This notice also constitutes notice of appraisal rights under Delaware law in connection with the merger, as described in the proxy statement and Appendix F to the proxy statement.
BOTH OUR BOARD OF DIRECTORS AND A SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS COMPOSED OF INDEPENDENT DIRECTORS HAVE UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE AND IN THE BEST INTERESTS OF OUR STOCKHOLDERS. Accordingly, our board of directors has approved the merger agreement and the merger and our board of directors recommends that you vote “FOR” adoption of the merger agreement and approval of the merger.
We cannot complete the merger unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the shares of our common stock and preferred stock outstanding at the close of business on the record date, voting as a single class.
Under Delaware law, holders of our common stock and holders of our preferred stock who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they submit a written demand for an appraisal prior to the vote on the merger agreement and only if they comply with the Delaware
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law procedures explained in the accompanying proxy statement. See “The Merger—Appraisal Rights” on page 46. Safeguard Scientifics, Inc., the holder of 48.9% of our common stock and the sole holder of our preferred stock, has waived its appraisal rights.
Whether or not you plan to attend the special meeting, please sign, date and return the enclosed proxy card. Executed proxies with no instructions indicated thereon will be voted “FOR” the adoption of the merger agreement and approval of the merger. Even if you have returned your proxy, you may still vote in person if you attend the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain from the record holder a proxy issued in your name. If you fail to return your proxy or to vote in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting, and will effectively be counted as a vote against the adoption of the merger agreement and approval of the merger.
By Order of the Board of Directors
|
/s/ M. Lazane Smith __________________________________
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M. Lazane Smith Secretary |
This proxy statement is dated July 15, 2004 and is first being mailed to stockholders on or about July 22, 2004.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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REASONS FOR THE MERGER AND THE RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS | 25 | |
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DIRECTORS’ AND OFFICERS’ INDEMNIFICATION, ADVANCEMENT OF EXPENSES, EXCULPATION AND INSURANCE | 42 | |
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS | 43 | |
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PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF STOCK CERTIFICATES | 45 | |
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REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY | 53 | |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 65 | |
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APPENDIX A | AGREEMENT AND PLAN OF MERGER | A-1 | ||
APPENDIX B | PRINCIPAL STOCKHOLDER AGREEMENT | B-1 | ||
APPENDIX C | OPINION OF BROADVIEW | C-1 | ||
APPENDIX D | OPINION OF HOULIHAN LOKEY | D-1 | ||
APPENDIX E | FORM OF SUPPORT AGREEMENT | E-1 | ||
APPENDIX F | SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE | F-1 |
This document incorporates important business and financial information about CompuCom from documents filed with the Securities and Exchange Commission that are not included in, or delivered with, this document. This information is available without charge, at the Securities and Exchange Commission’s website at www.sec.gov, as well as from other sources. See “Available Information.”
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This summary term sheet highlights material information from this proxy statement relating to the proposed merger and the meeting and does not contain all of the information that is important to you. To understand fully the merger and the other matters to be considered at the special meeting, you should read carefully this entire proxy statement, including the information incorporated by reference, the appendices and the additional documents referred to in this proxy statement.
CompuCom
CompuCom Systems, Inc., 7171 Forest Lane, Dallas, Texas 75230, Telephone: (972) 856-3600. CompuCom Systems, Inc. is a Delaware corporation founded in 1987. In this proxy statement, we refer to CompuCom Systems, Inc., together with our subsidiaries, as “CompuCom,” the “Company” or “we.” CompuCom is a national leader in helping companies plan, implement and manage multi-vendor, industry standard computing environments. Our clients include Fortune 1000 and medium-sized businesses, federal, state and local governments, technology providers and system integrators.
During the planning phase of client engagements, we help clients assess the current state of their information technology (“IT”) environment, identify specific needs and requirements, evaluate alternative solutions, prepare the justification for the selected alternative and develop the project implementation schedule. In helping clients implement projects, we assist clients in acquiring the necessary technology, designing and developing applications and customizing and deploying systems. In assisting clients in securing and managing their computing environment, we maintain, monitor, operate and secure infrastructure and application systems, as well as provide support to the users of those systems.
We define our operations as two distinct businesses: (1) product, which primarily consists of multi-vendor procurement services and support for a wide array of technologies, including personal computer products, certain Unix-based systems, servers, networking and storage products, peripherals, software-related products and licenses, and mobile and wireless computing devices; and (2) service, which is comprised of various service offerings, including IT outsourcing, IT consulting and other offerings such as complex configuration and imaging, vendor warranty contracts, software license management and support, and services provided in support of certain manufacturers’ direct fulfillment initiatives.
Platinum
Platinum Equity Capital Partners, L.P. and certain of its affiliates are collectively the 100% owner of Parent, and Parent is the parent corporation of CHR Merger Corporation. In this proxy statement we refer to such entities collectively as “Platinum.”
Platinum Equity, LLC, 2049 Century Park East, Suite 2700, Los Angeles, California 90067, Telephone: (310) 712-1850. Platinum Equity, LLC, a Delaware limited liability company founded in 1995, is an affiliate of Parent, which is the 100% owner of Merger Subsidiary. Platinum Equity has guaranteed the obligations and liabilities of Parent and Merger Subsidiary under the merger agreement until the merger becomes effective. In this proxy statement we refer to Platinum Equity, LLC as “Platinum Equity.”
Platinum Equity is a global M&A&OSM firm specialized in the merger, acquisition and operation of mission-critical services and solutions companies. Since its founding in 1995, Platinum Equity has completed more than 40 transactions, building a portfolio of 18 market–leading companies with more than 32,000 employees, more than 600,000 customer sites and revenues approaching $5.5 billion.
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CHR Holding Corporation, 2049 Century Park East, Suite 2700, Los Angeles, California 90067, Telephone: (310) 712-1850. CHR Holding Corporation is a Delaware corporation formed in 2004 solely for the purpose of facilitating our acquisition by Platinum. In this proxy statement we sometimes refer to CHR Holding Corporation as “Parent.” Parent is a wholly-owned subsidiary of Platinum.
CHR Merger Corporation, 2049 Century Park East, Suite 2700, Los Angeles, California 90067, Telephone: (310) 712-1850. CHR Merger Corporation is a Delaware corporation formed in 2004 solely for the purpose of facilitating our acquisition by Platinum. In this proxy statement, we sometimes refer to CHR Merger Corporation as “Merger Subsidiary.” Merger Subsidiary is a wholly-owned subsidiary of Parent and an indirect wholly-owned subsidiary of Platinum.
Safeguard
Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087, Telephone: (610) 293-0600. Safeguard Scientifics, Inc., a Pennsylvania corporation, seeks to create long-term value by developing its companies through superior operations and management. Safeguard typically acquires controlling interests in companies and focuses primarily on businesses in the “time-to-volume” stage of development that currently provide business decision solutions and healthcare life sciences software-based product and service solutions. Safeguard’s strategic subsidiaries focus on the following vertical markets: financial services, healthcare and pharmaceutical, manufacturing, retail and distribution, and telecommunications. Safeguard owns 24,540,881 shares of our common stock (representing approximately 48.9% of the outstanding shares of our common stock) and 1,500,000 shares of our preferred stock (representing all of our outstanding preferred stock).
Date, Time, Place and Proposals to Be Considered (See p. 12)
The special meeting of stockholders of CompuCom will be held at our headquarters at 7171 Forest Lane, Dallas, Texas 75230 onAugust 19, 2004 at 1:00 p.m., local time. At the special meeting, stockholders will consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2004, by and among CompuCom, Parent and Merger Subsidiary and to approve the merger of Merger Subsidiary with and into CompuCom, as such merger agreement may be amended from time to time. A copy of the merger agreement is attached as Appendix A to this proxy statement. For additional information regarding the proposal to be considered at the special meeting, see “Introduction—Proposal to be Considered at the Special Meeting.”
Record Date for Voting (see p. 12)
Only holders of record of our common stock and preferred stock at the close of business onJuly 13, 2004 are entitled to notice of and to vote at the special meeting. On that date, there were678 holders of record of our common stock and50,344,325 shares of our common stock outstanding, and one holder of our preferred stock with 1,500,000 shares of our preferred stock outstanding. For additional information regarding the record date for voting, see “Introduction—Record Date; Voting Rights; Vote Required for Approval.”
Vote Required for Approval (see p. 12)
Adoption of the merger agreement and approval of the merger require the affirmative vote of the holders of a majority of the shares of our common stock and our preferred stock outstanding on the record date, voting as a single class. A failure to return a properly executed proxy card or to vote at the special meeting, including abstentions and broker non-votes will have the effect of a vote “AGAINST” the adoption of the merger agreement and approval of the merger. Safeguard owns approximately 48.9% of our outstanding common stock as well as all of our outstanding preferred stock which, together, will entitle Safeguard to cast approximately 51.0% of the votes entitled to be cast at our special meeting. Safeguard, Parent and Merger Subsidiary have
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entered into a principal stockholder agreement under which Safeguard is obligated to vote in favor of the adoption of the merger agreement and the approval of the merger, subject to certain conditions. One of the conditions to Safeguard’s voting obligation is that a majority of the votes cast by Safeguard’s shareholders at the Safeguard special meeting of shareholders to consider the merger shall have approved the vote by Safeguard of its CompuCom shares in favor of the adoption of the merger agreement and approval of the merger at our special meeting. If Safeguard votes its shares of our common stock and preferred stock in favor of the adoption of the merger agreement and the approval of the merger at our special meeting, we will have received the requisite stockholder approval for the merger agreement and the merger. In addition, certain of our officers and directors who collectively owned on the record date approximately 1.3% of our outstanding common stock entitled to vote at the special meeting have entered into support agreements in which they have agreed to vote their shares in favor of adoption of the merger agreement and approval of the merger.
Merger Consideration (see p. 50)
Pursuant to the merger agreement, at the effective time of the merger:
• | each outstanding share of our common stock will be converted into the right to receive $4.60 in cash; and |
• | each outstanding share of our preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to accrued and unpaid dividends on each share; |
in each case, without interest and less any applicable withholding taxes and other than shares held by Parent, Merger Subsidiary or Parent’s subsidiaries, or held by stockholders who perfect their appraisal rights under Delaware law and do not effectively withdraw or lose their appraisal rights. You will not have any interest in CompuCom after completion of the merger.
Treatment of Stock Options (see p. 50)
In the merger, all outstanding options, whether vested or unvested, to purchase our common stock will be canceled and converted into the right to receive a cash payment, without interest, equal to the excess, if any, of $4.60 over the per share exercise price of the option, multiplied by the number of shares of common stock subject to the option, less any applicable withholding taxes.
Reasons for Engaging in the Merger (see p. 25)
A special committee of our board of directors and our board of directors have each determined that the merger agreement and the merger are advisable and in the best interests of our stockholders. The special committee and our board of directors considered a number of factors and reasons in reaching their determinations. See “The Merger—Reasons for the Merger and the Recommendations of the Special Committee and Our Board of Directors.”
Recommendations of the Special Committee and Our Board of Directors (see p. 25)
A special committee of our board of directors has unanimously recommended that our board of directors approve the merger agreement and that our board recommend that our stockholders adopt the merger agreement and approve the merger. After receiving and considering the recommendation of the special committee, our board of directors has unanimously determined that the merger agreement and the merger are advisable and in the best interests of our stockholders and approved the merger agreement and the merger. Accordingly, our board of directors and the special committee recommend that you vote “FOR” the proposal to adopt the merger agreement and approve the merger. For a discussion of the material factors considered by the special committee and our board of directors in reaching their recommendations, see “The Merger—Reasons for the Merger and the Recommendations of the Special Committee and Our Board of Directors.”
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Opinion of Financial Advisors (see pp. 27, 33)
In connection with the merger, the special committee and our board of directors considered the opinions of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) and Broadview International LLC (which was merged into, and became a division of, Jefferies & Company, Inc. on March 1, 2004) (“Broadview”), respectively, as to the fairness of the merger consideration, from a financial point of view, to the non-Safeguard holders of our common stock. Houlihan Lokey rendered an oral opinion on May 27, 2004, subsequently confirmed in writing on that date, to the special committee stating that, as of that date, based upon the assumptions made, matters considered and limitations on the review described in the written opinion, the merger consideration was fair from a financial point of view to the non-Safeguard holders of our common stock. Houlihan Lokey expressed no opinion as to the fairness of the merger or the merger consideration to Safeguard. Houlihan Lokey’s opinion was provided for the information of the special committee and does not constitute a recommendation to any stockholder with respect to any matter relating to the proposed merger. See “The Merger—Opinion of Houlihan Lokey.” Broadview rendered an oral opinion on May 27, 2004, subsequently confirmed in writing on that date, to our board of directors stating that, as of that date, based upon the assumptions made, matters considered and limitations on the review described in the written opinion, the merger consideration was fair from a financial point of view to the non-Safeguard holders of our common stock. Broadview expressed no opinion as to the fairness of the merger or the merger consideration to Safeguard. Broadview’s opinion was provided for the information of our board of directors and does not constitute a recommendation to any stockholder with respect to any matter relating to the proposed merger. See “The Merger—Opinion of Broadview.”
The full text of Broadview’s written opinion is attached as Appendix C and the full text of Houlihan Lokey’s written opinion is attached as Appendix D to this proxy statement. We encourage you to read each of Broadview’s and Houlihan Lokey’s opinions in their entirety for a description of the assumptions made, matters considered and limitations on the review undertaken.
Interests of Our Directors and Executive Officers in the Merger (see p. 40)
In considering the recommendation of the special committee and our board of directors regarding the merger agreement and the merger, you should be aware that our executive officers and members of our board of directors have interests in the merger that may be in addition to, or different from, the interests of our stockholders generally and include the following:
• | Our executive officers and certain of our directors have options to purchase our common stock that will be cancelled at the effective time of the merger and converted into the right to receive a cash payment, without interest, equal to the excess, if any, of $4.60 over the per share exercise price of the option multiplied by the number of shares subject to the option, less any applicable withholding taxes. |
• | Our President and Chief Executive Officer, J. Edward Coleman, will receive $1,765,500 as a result of the change of control of CompuCom, which will be paid upon the closing of the merger, and will also receive additional compensation, including a stay bonus of $1,765,500 which will be paid ninety days after the closing of the merger if Mr. Coleman remains employed by us as of such date, or prior to such date is terminated without due cause or resigns for good reason. |
• | Our executives, M. Lazane Smith, John F. McKenna and David A. Loeser will receive $700,000, $500,000 and $420,000, respectively, as a result of the change of control of CompuCom, which will be paid upon the closing of the merger, and will also receive additional compensation, including a stay bonus of $700,000, $500,000 and $420,000, respectively, ninety days after the closing of the merger if they remain employed by us as of such date, or prior to such date are terminated without due cause or resign for good reason. |
• | Our executives, J. Edward Coleman, M. Lazane Smith, John F. McKenna and David A. Loeser, along with other members of CompuCom’s management, will be offered the opportunity to participate in a phantom equity plan of Parent on the occurrence of a liquidity event. |
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• | Subject to specified limitations, Platinum will cause CompuCom to continue the indemnification arrangements and directors’ and officers’ liability insurance for our past and present directors and officers following the merger. |
• | The members of the CompuCom special committee receive separate compensation for serving on the committee. This compensation consists of payments of $500 per meeting to each of Michael J. Emmi, Richard F. Ford, John D. Loewenberg, Anthony J. Paoni and Edward N. Patrone as CompuCom special committee members, and a payment of $1,000 per meeting to Edwin L. Harper for serving as chairman of the CompuCom special committee. |
See “The Merger—Interests of Executive Officers and Directors in the Merger.”
Interests of our Principal Stockholder in the Merger (see p. 42)
In considering the recommendation of the CompuCom special committee and our board of directors regarding the merger agreement and the merger, you should be aware that our principal stockholder has interests in the merger that are in addition to, or different from, the interests of our stockholders generally, including, but not limited to the fact that in accordance with the terms of the preferred stock held by it, Safeguard will receive $15,000,000, plus an amount equal to the accrued and unpaid dividends for such preferred stock. Also, Safeguard has agreed to provide to the landlord under our Dallas headquarters lease, Comp Delaware LP, a subsidiary of W.P. Carey & Co. LLC (“W.P. Carey”), a letter of credit in an amount equal to $6,336,198, after the effective date of the merger, in order to facilitate CompuCom obtaining the consent required under the Lease Agreement, dated as of March 31, 1999, between Delaware Comp LLC and CompuCom. The letter of credit will expire on March 31, 2019 and CompuCom will reimburse Safeguard for all fees and expenses incurred by Safeguard in order to obtain and maintain this letter of credit. This reimbursement may not exceed 1.5% of the aggregate principal amount of the Safeguard letter of credit per annum.
See “The Merger—Interests of Our Principal Stockholder in the Merger.”
Conditions to the Merger
The obligations of Parent and Merger Subsidiary to effect the merger are subject to Parent or Merger Subsidiary obtaining no less than $35 million in gross proceeds from the senior subordinated financing contemplated by the highly confident letter issued by Jefferies & Company, Inc. (“Jefferies”). In addition, at the effective time of the merger, the sum of the following amounts, determined as of the close of business on the business day immediately preceding the effective date, must be equal to or greater than $215 million: (a) the gross proceeds of the senior subordinated note financing; (b) the amount by which CompuCom’s unrestricted cash exceeds $20 million; and (c) an amount equal to the lesser of (i) 85% of CompuCom’s eligible receivables under its receivables financing facility and (ii) 65% of CompuCom’s gross trade receivables.
The obligations of Parent and Merger Subsidiary, on the one hand, and CompuCom, on the other hand, to effect the merger are subject to the satisfaction or waiver of various additional conditions. In addition to customary conditions relating to compliance with the merger agreement by Parent and Merger Subsidiary, on the one hand, and CompuCom, on the other hand, and other customary conditions described elsewhere in this document, the following material conditions must also be satisfied:
• | the merger agreement must be adopted by the requisite percentages of CompuCom’s common and preferred stockholders; and |
• | the waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 must expire or be terminated, which occurred on June 29, 2004. |
For additional information regarding the conditions of each party’s obligation to effect the merger, see “The Merger Agreement—Conditions to the Merger.”
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No Solicitation
The merger agreement contains detailed provisions prohibiting CompuCom from seeking an alternative transaction to the merger. These “no solicitation” provisions prohibit CompuCom from taking any action to initiate or solicit an acquisition proposal from a third party. The merger agreement does not, however, prohibit CompuCom, CompuCom’s board of directors or its special committee from considering and potentially approving and recommending an unsolicited superior proposal from a third party, if CompuCom, CompuCom’s board of directors and its special committee comply with the appropriate provisions of the merger agreement. For additional information regarding these “no solicitation” provisions, see “The Merger Agreement—No Solicitation.”
Termination of Merger Agreement
The merger agreement may be terminated at any time prior to the effective time of the merger, regardless of whether CompuCom’s stockholders have adopted the merger agreement, by mutual written consent of Parent and CompuCom; by either Parent or CompuCom upon the occurrence of certain events; or automatically by no action on the part of the parties if the principal stockholder agreement is terminated.
For additional information regarding the ability of the parties to terminate the merger agreement, see “The Merger Agreement—Termination of the Merger Agreement.”
CompuCom’s Termination Fees
The merger agreement generally provides that each party will pay its own fees and expenses in connection with the merger agreement, whether or not the merger is completed.
CompuCom must pay Parent a break-up fee of $8,880,000 if certain events occur and if Parent and Merger Subsidiary are not in material breach of their representations, warranties, covenants or other agreements contained in the merger agreement at the time of termination.
CompuCom must pay up to $4,000,000 of Parent’s and Merger Subsidiary’s fees and expenses actually incurred in this transaction with non-affiliates if the merger agreement is terminated by Parent or CompuCom because either the Safeguard shareholders or the CompuCom stockholders do not approve the merger at their respective meetings. These expenses will only be payable to Parent if Parent and Merger Subsidiary are not in material breach of their representations, warranties, covenants or other agreements contained in the merger agreement at the time of termination.
Additionally, under certain circumstances, if a change of control transaction occurs within 225 days after the termination of the merger agreement, then in addition to Parent’s and Merger Subsidiary’s expenses, CompuCom must also pay an alternate transaction fee of 50% of the amount by which the total consideration to be paid to CompuCom’s stockholders in the other transaction exceeds the total amount which was to be paid to CompuCom’s stockholders in this merger transaction, subject to a cap.
CompuCom’s obligation to pay fees and expenses to Parent cannot exceed $8,880,000 in any event.
For additional information regarding the termination fee, the alternate transaction fee and the payment of expenses and the circumstances under which they are payable, see “The Merger Agreement—Termination Fees.”
Purchases of Securities Held by Safeguard
Safeguard owns 24,540,881 shares of our common stock and 1,500,000 shares of our preferred stock. If the merger is consummated, then at the effective time of the merger Safeguard’s holdings of CompuCom preferred and common stock will be converted into the right to receive an aggregate amount of approximately $128 million in cash.
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Principal Stockholder Agreement (see p. 60)
Safeguard determined that the conversion into cash of Safeguard’s holdings of our common stock and preferred stock in the merger may constitute a transaction for which approval of Safeguard’s shareholders is required under applicable Pennsylvania law. Accordingly, in order to induce Parent to enter into the merger agreement, Safeguard has entered into a principal stockholder agreement pursuant to which Safeguard has agreed to call a meeting of the Safeguard shareholders for the purpose of voting on a proposal that Safeguard vote at our stockholder’s meeting in favor of the merger and adoption of the merger agreement. Subject to receiving the approval of a majority of the votes cast by Safeguard shareholders at the Safeguard shareholders meeting, Safeguard has agreed to vote its shares of our common stock and preferred stock (i) in favor of the merger and the adoption of the merger agreement at our stockholders meeting and (ii) against any acquisition proposal and any other action that may reasonably be expected to impede, interfere with, delay, postpone, attempt to discourage or have a material adverse effect on the consummation of the merger or result in a breach in any material respect of any of our covenants, representations, warranties or other obligations and agreements contained in the merger agreement. If Safeguard votes its shares of our common stock and preferred stock in favor of the adoption of the merger agreement and approval of the merger at our special meeting, we will have received the requisite stockholder approval for the merger agreement and the merger.
Additionally, Safeguard has agreed to restrictions on the transferability of its shares of our common stock and preferred stock, waived its appraisal rights in respect of its holdings of our capital stock and agreed to refrain from taking certain actions with respect to acquisition proposals for us. At any time prior to the time that Safeguard’s shareholders approve of Safeguard voting in favor of the merger and to adopt the merger agreement, Safeguard may engage in negotiations with a third party with respect to an acquisition proposal that is a “superior proposal” if certain procedures are followed. See “The Principal Stockholder Agreement.”
Safeguard Termination Fees
Under the principal stockholder agreement, Safeguard may owe termination fees under certain circumstances to Platinum in the event the merger agreement or principal stockholder agreement is terminated. See “The Principal Stockholder Agreement—Termination Fees.”
Safeguard Special Meeting
Safeguard has advised us that since the common stock and preferred stock Safeguard owns in CompuCom constitutes substantially all of Safeguard’s assets under the Pennsylvania Business Corporation Law, its shareholders must approve a proposal for Safeguard to vote our shares owned by it in favor of the merger and to adopt the merger agreement. The special meeting of shareholders of Safeguard to consider a proposal that Safeguard vote in favor of the merger and to adopt the merger agreement is expected to take place before, but on the same day as, our special meeting of stockholders. If such proposal is approved at the Safeguard special meeting of shareholders, Safeguard will vote its CompuCom shares in favor of the proposal to approve the merger and adopt the merger agreement at our special meeting. Safeguard has distributed to its shareholders a proxy statement related to the Safeguard special meeting of shareholders. Copies of the proxy statement are available at Safeguard’s website (www.safeguard.com) and the Securities and Exchange Commission’s website (www.sec.gov). That proxy statement contains information which is relevant to the merger and our stockholders may wish to review that proxy statement.
Financing of the Merger (see p. 46)
The merger consideration to be paid to CompuCom’s stockholders and optionholders will be paid entirely in cash. Platinum intends to pay the merger consideration from a combination of equity from its private equity fund, available cash at CompuCom, a senior secured revolving line of credit from a financial institution, a supplemental senior secured revolving line of credit from either Platinum or another financial institution and
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proceeds from a $35 million senior subordinated note placement (the “Note Financing”). Platinum Equity on behalf of Merger Subsidiary has obtained a commitment letter from Bank of America and Wells Fargo Foothill providing for a senior secured revolving line of credit up to $175 million based upon the eligible accounts receivables of CompuCom. The obligations of Parent and Merger Subsidiary to effect the merger are subject to completion of the Note Financing. Platinum has received a letter from Jefferies stating that Jefferies is highly confident that, subject to certain terms and conditions, it will be able to arrange the placement of the Note Financing to be completed concurrently with the closing of the merger. There can be no assurance that the Note Financing will be consummated, and should it not be consummated, Platinum will not be obligated to consummate the merger.
For additional information regarding the financing of the merger, see “The Merger—Financing of the Merger” and “Note Financing.”
Appraisal Rights (see p. 46)
Holders of our common stock may elect to pursue their appraisal rights to receive the judicially determined “fair value” of their shares, which could be more or less than, or the same as, the per share merger consideration for their stock, but only if they comply with the procedures required under Delaware law. To qualify for these rights, you must (1) not vote in favor of the adoption of the merger agreement or the approval of the merger, (2) make a written demand for appraisal prior to the taking of the vote on the adoption of the merger agreement and the approval of the merger at the special meeting and (3) otherwise comply with the Delaware law procedures for exercising appraisal rights. For a summary of these Delaware law procedures, see “The Merger—Appraisal Rights.” An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted for adoption of the merger agreement and approval of the merger and will disqualify the stockholder submitting that proxy from demanding appraisal rights. Safeguard, our principal stockholder, has waived the appraisal rights to which it would otherwise be entitled in this transaction.
Regulatory Approvals (see p. 49)
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which prohibits the completion of certain transactions until required information and materials are furnished to the Antitrust Division of the Department of Justice and the Federal Trade Commission and various waiting periods end or expire. Safeguard and Platinum each filed a notification form under the Hart-Scott-Rodino Act with the Federal Trade Commission and the Department of Justice on June 21, 2004. On June 29, 2004, Safeguard and Platinum were notified that they had been granted early termination of the waiting period under the Hart-Scott-Rodino Act. For additional information regarding regulatory approvals, see “The Merger—Regulatory Approvals.”
Material U.S. Federal Income Tax Consequences (see p. 43)
The receipt of cash in exchange for stock surrendered pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. For U.S. federal income tax purposes, a stockholder generally will recognize taxable gain or loss as a result of the merger measured by the difference, if any, between the merger consideration received for such shares and the stockholder’s adjusted tax basis in such shares. For additional information regarding material U.S. federal income tax consequences of the merger to our stockholders, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to our Stockholders.”
Accounting Consequences
Because the expected consideration to be paid to the holders of our preferred and common stock in the merger is below our total current stockholders’ equity, we will need to complete an impairment review in accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets.” We expect to record a significant impairment charge related to this review in the second quarter of 2004. In addition, professional fees and expenses incurred relating to the proposed transaction will be recorded in the second quarter of 2004.
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE MEETING
Q: | What is the date, time and place of the special meeting? |
A: | The special meeting of our stockholders will be held at our headquarters at 7171 Forest Lane, Dallas, Texas 75230 onAugust 19, 2004 at 1:00 p.m., local time, to consider and vote upon the proposal to adopt the merger agreement and approve the merger. |
Q: | What is the proposed merger? |
A: | Platinum will acquire us through the merger of Merger Subsidiary, an affiliate of Platinum and a direct wholly-owned subsidiary of Parent, with and into us, with CompuCom continuing as the surviving corporation as a direct wholly-owned subsidiary of Parent. |
Q: | What will stockholders be entitled to receive in the merger? |
A: | If the merger is completed, at the effective time of the merger: |
• | each outstanding share of our common stock will be converted into the right to receive $4.60 in cash; and |
• | each outstanding share of our preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to all accrued and unpaid dividends on each share; |
in each case, without interest and less any applicable withholding taxes and other than shares held by Parent, Merger Subsidiary or Parent’s subsidiaries, or held by stockholders who perfect their appraisal rights under Delaware law and do not effectively withdraw or lose their appraisal rights. You will not have any interest in CompuCom after completion of the merger.
Q: | What do our board of directors and the special committee of our board of directors recommend? |
A: | BOTH OUR BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE “FOR” ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. Our board of directors and the special committee of our board of directors unanimously determined that the merger agreement and the merger are advisable and in the best interests of our stockholders. To review the background of, and reasons for, the merger, see “The Merger—Background of the Merger” and “The Merger—Reasons for the Merger and the Recommendations of the Special Committee and Our Board of Directors.” In considering the recommendations of the special committee and of our board of directors, you should be aware that certain of our directors and executive officers and our principal stockholder have interests in the merger that may be different from, and in addition to, yours. See “The Merger—Interests of Executive Officers and Directors in the Merger” and “The Merger—Interests of Our Principal Stockholder in the Merger.” |
Q: | What function did the special committee serve with respect to the merger and who are its members? |
A: | The principal function of the special committee of independent directors with respect to the merger was to protect your interests from potential conflicts of interest of our executive officers, management directors and principal stockholder in evaluating and negotiating the merger agreement and considering other strategic alternatives available to us. The special committee is composed of independent directors Edwin L. Harper (Chairman), Michael J. Emmi, Richard F. Ford, John D. Loewenberg, Anthony J. Paoni and Edward N. Patrone, none of whom is an employee of CompuCom or an employee, director or partner of Parent, Merger Subsidiary or our principal stockholder. The special committee independently selected and retained legal and financial advisors to assist it. For more information regarding the special committee and its evaluation and negotiation of the merger, see “The Merger—Background of the Merger.” |
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Q: | When do you expect the merger to be completed? Is the merger subject to the fulfillment of any conditions? |
A: | We are working to complete the merger as soon as possible. The merger is subject to Parent obtaining no less than $35 million in gross proceeds from the Note Financing to be placed by Jefferies, the receipt of governmental approvals and other conditions, and the adoption of the merger agreement and the approval of the merger by the holders of our common stock and preferred stock, which consequently requires that the majority of the votes cast by Safeguard’s shareholders at the Safeguard special meeting of shareholders to consider the merger shall have approved the vote by Safeguard of its CompuCom shares in favor of adoption of the merger agreement and approval of the merger at the CompuCom special meeting. We expect to complete the merger as soon as practicable after these conditions have been met or, when permitted under the merger agreement, waived. See “The Merger—Regulatory Approvals” and “The Merger Agreement—Conditions to the Merger.” |
Q: | What are the U.S. federal income tax consequences of the merger to me? |
A: | The receipt of cash in exchange for stock surrendered pursuant to the merger will constitute a taxable transaction for U.S. federal income tax purposes. In general, a stockholder who surrenders shares of stock in the merger will recognize a gain or loss equal to the difference, if any, between the merger consideration received for those shares and the stockholder’s adjusted tax basis in those shares. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES THAT MAY RESULT FROM YOUR INDIVIDUAL CIRCUMSTANCES, AS WELL AS THE FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF SHARES IN THE MERGER. To review a summary of the material tax considerations of the merger, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to Our Stockholders.” |
Q: | What if I oppose the merger? Do I have appraisal rights? |
A: | Holders of our common stock and preferred stock may elect to pursue their appraisal rights to receive the judicially determined “fair value” of their shares but only if they comply with the procedures required under Delaware law. Safeguard, as the holder of 48.9% of our common stock and as the holder of all of our preferred stock, has waived these rights in connection with this transaction. If one or more of the stockholders exercising appraisal rights litigates to conclusion an appraisal proceeding in the Delaware Court of Chancery, then all stockholders who properly perfected their appraisal rights will receive the “fair value” of their shares instead of the common stock merger consideration, which amount could be more or less than or equal to the merger consideration. To properly perfect appraisal rights, you must (1) not vote in favor of the adoption of the merger agreement and the approval of the merger, (2) make a written demand for appraisal prior to the taking of the vote on the adoption of the merger agreement and the approval of the merger at the special meeting and (3) otherwise comply with the Delaware law procedures for exercising appraisal rights. For a summary of these Delaware law procedures, see “The Merger—Appraisal Rights.” An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted for adoption of the merger agreement and approval of the merger and will disqualify the stockholder submitting that proxy from demanding appraisal rights. |
Q: | Who is soliciting my proxy? |
A: | CompuCom’s board of directors is soliciting proxies to be voted at the special meeting. |
Q: | What vote is required to adopt the merger agreement and approve the merger? |
A: | The affirmative vote of the holders of a majority of the outstanding shares of our common stock and preferred stock on the record date, voting as a single class, is required to adopt the merger agreement and approve the merger. See “Introduction—Record Date; Voting Rights; Vote Required for Approval.” Safeguard owns approximately 48.9% of our outstanding common stock as well as all of our outstanding |
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preferred stock which, together, will entitle Safeguard to cast approximately 51.0% of the votes entitled to be cast at the special meeting. Safeguard, Parent and Merger Subsidiary have entered into a principal stockholder agreement under which Safeguard is obligated to vote in favor of the adoption of the merger agreement and the approval of the merger, subject to certain conditions. One of the conditions to Safeguard’s voting obligation is that a majority of the votes cast by Safeguard’s shareholders at the Safeguard special meeting of shareholders to consider the merger shall have approved Safeguard’s voting its CompuCom shares in favor of adoption of the merger agreement and approval of the merger at the CompuCom special meeting. If Safeguard votes its shares of CompuCom common stock and preferred stock in favor of the adoption of the merger agreement and approval of the merger at the special meeting, CompuCom will have received the requisite stockholder approval for the merger agreement and the merger. In addition, certain officers and directors of CompuCom who collectively owned on the record date approximately 1.3% of our outstanding common stock entitled to vote at the special meeting have entered into support agreements in which they have agreed to vote their shares in favor of the adoption of the merger agreement and approval of the merger. |
Q: | What should I do now? How do I vote? |
A: | After you read and consider carefully the information contained in this proxy statement, please fill out, sign and date your proxy card and mail your signed proxy card in the enclosed return envelope as soon as possible so that your shares may be represented at the special meeting. Failure to return your proxy or vote in person at the meeting will have the same effect as a vote against the adoption of the merger agreement and approval of the merger. See “Introduction—Voting and Revocation of Proxies.” |
Q: | If my shares are held in “street name” by my broker, will my broker vote my shares for me? |
A: | Yes, but only if you provide instructions to your broker on how to vote. You should fill out, sign, date and return the proxy card and otherwise follow the directions provided by your broker regarding how to instruct your broker to vote your shares. See “Introduction—Voting and Revocation of Proxies.” |
Q: | Can I change my vote or revoke my proxy after I have mailed my signed proxy card? |
A: | Yes, you can change your vote at any time before your shares are voted at the special meeting. You can do this in one of three ways. First, you can deliver to our corporate secretary, on or before the business day prior to the special meeting, a written revocation of the proxy or later dated, signed proxy card. Second, you can deliver a written revocation or a later dated, signed proxy card to us at the special meeting prior to the taking of the vote on the matters to be considered at the special meeting. Third, you can attend the special meeting and vote in person. Simply attending the meeting, however, will not revoke your proxy; you must vote at the meeting. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote. See “Introduction—Voting and Revocation of Proxies.” |
Q: | Should I send in my stock certificates now? |
A: | No. If the merger is completed, shortly thereafter you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the exchange agent. You should use the letter of transmittal to exchange stock certificates for the merger consideration to which you are entitled as a result of the merger. YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. You should follow the procedures described in “The Merger—Payment of Merger Consideration and Surrender of Stock Certificates.” |
Q: | Who can help answer my other questions? |
A: | If you have more questions about the merger, you should contact Dottie Tabor at CompuCom Systems, Inc., 7171 Forest Lane, Dallas, Texas 75230, Telephone: (972) 856-3600. |
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This proxy statement is furnished in connection with the solicitation of proxies by our board of directors for a special meeting of our stockholders to be held at our headquarters at 7171 Forest Lane, Dallas, Texas 75230 on August 19, 2004 at 1:00 p.m., local time or at any adjournment or postponement of the special meeting. Shares of our common stock and preferred stock represented by properly executed proxies timely received by us will be voted at the special meeting or any adjournment or postponement of the special meeting under the terms of those proxies, unless revoked.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2004, by and among CompuCom, Parent and Merger Subsidiary, as such merger agreement may be amended from time to time, and to approve the merger of Merger Subsidiary with and into CompuCom.
At the effective time of the merger, the separate corporate existence of Merger Subsidiary will cease, and CompuCom will be the surviving corporation and a direct wholly-owned subsidiary of Parent and an affiliate of Platinum. Pursuant to the merger agreement, at the effective time of the merger:
• | each outstanding share of our common stock will be converted into the right to receive $4.60 in cash; and |
• | each outstanding share of our preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to accrued and unpaid dividends on each share; |
in each case, without interest and less any applicable withholding taxes and other than shares owned by Parent, Merger Subsidiary or Parent’s subsidiaries, or held by stockholders who perfect their appraisal rights under Delaware law and do not effectively withdraw or lose their right to appraisal.
Also under the merger agreement:
• | all outstanding options to purchase our common stock, whether vested or unvested, will be canceled and will represent the right to receive a cash payment, without interest, less any applicable withholding taxes, equal to the excess, if any, of (a) the common stock merger consideration described above over (b) the per share exercise price of the option, multiplied by the number of shares of common stock subject to the option; and |
• | each outstanding share of common stock of Merger Subsidiary will be converted into one share of common stock of the surviving corporation. |
Stockholders who perfect their appraisal rights under Delaware law will be entitled to receive from the surviving corporation, instead of the merger consideration described above, a cash payment in the amount of the “fair value” of their shares, determined under Delaware law. After the merger, these shares will not represent any interest in the surviving corporation other than the right to receive this cash payment. See “The Merger—Appraisal Rights.”
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Only holders of record of our common stock and preferred stock at the close of business on July 13, 2004, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting. On that date there were 678 holders of record of our common stock and 50,344,325 shares of our common stock outstanding, of which 629,331 shares, or approximately 1.3% of our outstanding common stock on that date, were held by our directors and executive officers. On that date there was one holder of record of our preferred stock and 1,500,000 shares of preferred stock outstanding.
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Any stockholder entitled to vote may vote either in person or by properly executed proxy. The presence, in person or by proxy, of the holders of a majority in voting power of the shares of our common stock and preferred stock outstanding on the record date is necessary to constitute a quorum at the special meeting. Abstentions and broker non-votes are counted for the purpose of establishing a quorum at the special meeting. Holders of record of common stock on the record date are entitled to one vote per share at the special meeting on the proposal to adopt the merger agreement and approve the merger.
The merger agreement must be adopted and the merger must be approved by the holders of at least a majority of our common stock and preferred stock outstanding on the record date, voting together as a single class. Failure to return a properly executed proxy card or to vote at the special meeting, including abstentions and broker non-votes will have the effect of a vote “AGAINST” the adoption of the merger agreement and approval of the merger.
If the special meeting is adjourned for any reason, the adoption of the merger agreement may be considered and voted upon by our stockholders at a subsequent reconvened meeting. All proxies will be voted in the same manner as they would have been voted at the original meeting, except for any proxies that have been properly withdrawn or revoked.
Safeguard holds all of our outstanding preferred stock and 24,540,881 shares of our outstanding common stock. Safeguard and Platinum have entered into a principal stockholder agreement under which Safeguard is obligated to vote in favor of the adoption of the merger agreement and the approval of the merger, subject to certain conditions. One of the conditions to Safeguard’s voting obligation is that a majority of the votes cast by Safeguard’s shareholders at the Safeguard special meeting of shareholders to consider the merger shall have approved the vote by Safeguard of its CompuCom shares in favor of the adoption of the merger agreement and approval of the merger at the CompuCom special meeting. If Safeguard votes its shares of CompuCom common stock and preferred stock in favor of the adoption of the merger agreement and approval of the merger at the special meeting, CompuCom will have received the requisite stockholder approval for the merger agreement and the merger. See “The Principal Stockholder Agreement.” In addition, executive officers and directors of CompuCom who collectively owned on the record date approximately 1.3% of our outstanding common stock entitled to vote at the special meeting have entered into support agreements in which they have agreed to vote their shares in favor of the adoption of the merger agreement and approval of the merger. See “The Merger—Interests of Executive Officers and Directors in the Merger.”
VOTING AND REVOCATION OF PROXIES
All shares of our common stock and preferred stock represented by properly executed proxies received prior to or at the special meeting and not revoked will be voted in accordance with the instructions indicated in those proxies. If no instructions are indicated, the proxies will be voted “FOR” the proposal to adopt the merger agreement and approve the merger.
A stockholder giving the proxy may revoke it by:
• | delivering to our corporate secretary at our corporate offices at 7171 Forest Lane, Dallas, Texas 75230, attention: Corporate Secretary, on or before the business day prior to the special meeting, a written revocation of the proxy or a later dated, signed proxy card; |
• | delivering a written revocation or a later dated, signed proxy card to us at the special meeting prior to the taking of the vote on the matters to be considered at the special meeting; |
• | attending the special meeting and voting in person; or |
• | if you have instructed a broker to vote your shares, following the directions received from your broker to change those instructions. |
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Revocation of the proxy will not affect any vote previously taken. Attendance at the special meeting will not in itself constitute the revocation of a proxy; you must vote in person at the special meeting to revoke a previously delivered proxy.
Our board of directors is not currently aware of any business to be brought before the special meeting other than that described in this proxy statement. However, if other matters are properly presented, the persons named as proxies will vote using their judgment on those matters.
SOLICITATION OF PROXIES; EXPENSES OF SOLICITATION
We will bear the expenses in connection with the solicitation of proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to the beneficial owners of shares which those persons hold of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other permitted means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services, but will be reimbursed for any expenses incurred by them in rendering these services.
We are mailing this proxy statement to stockholders on or aboutJuly 22, 2004.
We have never declared a dividend on our common stock. Under the merger agreement, we have agreed not to declare or pay any dividends on our common stock or preferred stock prior to the closing of the merger or the earlier termination of the merger agreement except with the consent of Parent, except we may pay regular accrued dividends on the preferred stock as they become due.
For a number of years, CompuCom’s strategic plan was to grow its services business both organically and through acquisition. In 2001, CompuCom completed four acquisitions and considered an acquisition strategy central to its future growth objectives. Accordingly, management wanted to gain access to additional information about companies in the industry that were attractive acquisition targets from a strategic and economic perspective. As a result, in late 2001, our management interviewed several investment bankers, including representatives from Broadview, an investment bank focused exclusively on the technology industry. We began working with Broadview in December 2001. Initially Broadview’s role related to assisting CompuCom in identifying potential acquisition targets but later its role expanded after CompuCom decided to review all of its strategic alternatives.
In October 2001, Anthony L. Craig was appointed Chief Executive Officer of Safeguard. At the direction of the new Chief Executive Officer, Safeguard embarked on an analysis of its strategic alternatives for its various subsidiaries and affiliates, including an analysis of whether to buy, sell or hold each company in which Safeguard held an ownership interest, including CompuCom. In late 2001, Safeguard management reviewed various potential strategic alternatives available to Safeguard for its ownership interest in CompuCom and Safeguard management’s plan to consider CompuCom’s role as part of the refinement of Safeguard’s strategy under the direction of its new Chief Executive Officer. Based on that investigation, Safeguard determined to not seek to acquire the remaining capital stock of CompuCom that Safeguard did not already own and to explore further whether it wanted to hold or sell its CompuCom shares. In January 2002, Safeguard concluded that CompuCom did not fit with Safeguard’s strategic plan to focus primarily on entities earlier in their value-creation cycle, referred to as companies in the “time-to-volume” stage of development. As a result, Safeguard determined that it might be willing to sell its position in CompuCom if an attractive offer were received.
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Throughout the period from mid 2001 to early 2002, several parties made unsolicited inquiries to CompuCom and Safeguard regarding possible transactions with CompuCom, including an acquisition of all or part of CompuCom. Only one of these inquiries included an indicative transaction price, indicating a price of $3.50 per share of our common stock. CompuCom’s preliminary discussions relating to these unsolicited inquiries ultimately did not result in any other party submitting an indication of interest with an indicative price.
In light of the unsolicited inquiries, and Safeguard’s interest in exploring a potential sale of its holdings in CompuCom, in February 2002, CompuCom’s board of directors asked Broadview to evaluate all strategic alternatives available to CompuCom to maximize value for all stockholders. The alternatives considered and presented to the CompuCom board of directors included remaining a stand-alone public company, repurchasing Safeguard’s holdings in CompuCom, distributing cash to existing stockholders, splitting the businesses and spinning them off to CompuCom stockholders, breaking up the businesses and selling the parts, divesting the product business and keeping the services business, divesting the services business and keeping the product business, and selling the entire business. To further its evaluation, the CompuCom board of directors determined that gathering information through a privately conducted process of exploring strategic alternatives was appropriate and in the best interest of CompuCom’s stockholders.
During the spring of 2002, Broadview, with the assistance of CompuCom’s management and board of directors, identified potential strategic and financial buyers that might be interested in participating in this process. Starting in late April 2002, Broadview contacted 19 potential strategic buyers and 15 potential financial buyers to discern potential interest in a transaction with CompuCom. Of the 34 parties contacted, 20 indicated potential interest, executed non-disclosure agreements and received a confidential information memorandum relating to CompuCom. Each of the other parties that had previously indicated an interest in a transaction with CompuCom were contacted, and two of these entities indicated their interest in response to these contacts. During May, June and July 2002, potential buyers, including Platinum, reviewed confidential due diligence materials, received supplemental due diligence materials and had discussions with CompuCom’s management.
In late July 2002, five potential acquirors, including Platinum, submitted initial indications of interest. All but one of the potential buyers were financial buyers, and all but one potential buyer were interested in acquiring all of CompuCom. The preliminary indications of price from the potential financial buyers ranged from $4.00 to $5.00 per outstanding share of CompuCom common stock. One strategic bidder submitted an indication of interest for CompuCom’s services business only, for a total price that ranged between $75 and $100 million.
On August 1, 2002, in connection with its review of the preliminary indications of interest, CompuCom’s board of directors appointed a special committee of four disinterested directors to, among other tasks, review and evaluate the indications of interest received from potential acquirors, review CompuCom’s strategic alternatives and make a recommendation to the full board of directors. The CompuCom special committee at that time consisted of Richard F. Ford, Edwin L. Harper, Edward N. Patrone and Anthony J. Paoni. On August 17, 2002, at the first meeting of the CompuCom special committee, the special committee engaged Montgomery, McCracken, Walker and Rhoads, LLP (“Montgomery McCracken”) as independent legal counsel to represent the special committee.
From August 2002 through October 2002, CompuCom continued to negotiate with the potential acquirors who had submitted indications of interest, focusing primarily on three indications of interest, one of which was submitted by Platinum. Following the withdrawal of one bidder in mid-August and another in early September 2002, discussions continued with Platinum. Ultimately, CompuCom was unable to reach an agreement at this time with Platinum and, on October 14, 2002, the special committee decided to recommend to CompuCom’s board of directors that CompuCom discontinue discussions with Platinum. CompuCom’s board of directors adopted this recommendation on October 30, 2002.
Also, in October 2002, an additional financial bidder contacted Broadview and submitted an initial indication of interest at a price range of $4.50 to $5.00 per share of CompuCom common stock. The price range was subsequently revised to $4.65 to $4.75 following this party’s receipt of preliminary due diligence
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information on CompuCom. As this potential buyer’s indication of interest was subject to further due diligence, and included a requirement that CompuCom pay the potential buyer’s expenses related to its due diligence, the CompuCom special committee recommended to the board of directors that discussions with this potential buyer be terminated. The board of directors adopted the recommendation and discussions were halted shortly after October 30, 2002.
During the period from November 2002 through January 2003, CompuCom and Safeguard discussed various options that would result in Safeguard completely disposing of or reducing its stake in CompuCom. Discussions regarding a possible repurchase by CompuCom of Safeguard’s holdings were ultimately unsuccessful, due to the parties’ inability to agree on mutually satisfactory terms and concerns regarding CompuCom’s ability to finance any such repurchase.
On February 5, 2003, Platinum contacted Broadview and indicated that it was still interested in a potential transaction with CompuCom. From February 2003 through early June 2003, negotiations among CompuCom, Safeguard, Platinum and their respective financial and legal advisors were held, including negotiation of a merger agreement, principal stockholder agreement, employment agreements for Messrs. Coleman, Loeser and McKenna and Ms. Smith, the support agreements and various financing documents. Throughout these discussions, the CompuCom special committee was kept informed on a regular basis and provided guidance on issues of importance to the interests of the CompuCom minority stockholders in connection with these discussions. On April 8, 2003, the CompuCom special committee hired Houlihan Lokey as its special financial advisor to render a fairness opinion to the CompuCom special committee on any proposed transaction. At a meeting of the CompuCom special committee on June 2, 2003, Houlihan Lokey provided an opinion as to the fairness, from a financial point of view, of the proposed transaction under discussion with Platinum at that time to the non-Safeguard holders of CompuCom common stock and the CompuCom special committee determined to recommend that the board of directors approve the merger and adopt the merger agreement. Similarly, at a meeting of the CompuCom board of directors on June 3, 2003, Broadview provided an opinion as to the fairness, from a financial point of view, of the proposed transaction; however, as several material issues remained unresolved at that time, the board did not take action on approving or rejecting the merger.
Again, the parties were ultimately unable to reach agreement on mutually satisfactory terms due in part to the unavailability of $50 million of senior subordinated financing on terms acceptable to Platinum from financing sources contacted at that time. Platinum then asked that Safeguard provide this financing. The inability to reach final agreement on the terms under which Safeguard would agree to provide this financing, as well as other concerns regarding the value to be received, which was $4.50 per share of common stock and $8 million for the preferred stock, in addition to concerns raised by Platinum relating to CompuCom’s cash and borrowing capacity and its relationship to the amount of the transaction price that needed to be financed, ultimately led the board of directors of CompuCom, including each of the members of its special committee, to elect to discontinue negotiations with Platinum on August 7, 2003.
During the period in which these discussions with Platinum were ongoing, the financial bidder that had submitted an indication of interest in October 2002 expressed renewed interest in acquiring CompuCom and provided to Broadview a verbal indication of interest at a price of $5.00 per share for CompuCom’s common stock. This indication of interest was subsequently revised downward in May 2003 to $4.20 per share due to the party’s likely inability to finance the potential transaction at a higher price. Discussions with this bidder were terminated upon this reduction in the indicated price.
During the period in which these discussions with Platinum were ongoing, at board meetings held on February 26, 2003, June 3, 2003, and July 30, 2003, Safeguard’s board of directors was kept apprised of discussions between Platinum and CompuCom and discussed Safeguard’s strategic alternatives with respect to its CompuCom holdings. At its July 30, 2003 meeting, Safeguard’s board of directors appointed a special transactions committee, consisting of Robert Ripp, Andrew E. Lietz, Jack L. Messman and John J. Roberts, to evaluate Safeguard’s strategy and its strategic relationship with CompuCom.
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During the period from July 2003 through November 2003, CompuCom engaged in discussions with a potential strategic buyer which, after contacting CompuCom and conducting preliminary due diligence, submitted an indication of interest indicating that the consideration to be delivered in the potential transaction would be a combination of stock and cash with a combined value in the range of $5.75 to $6.50 per CompuCom common share. However, on November 7, 2003, this potential buyer informed CompuCom that due to CompuCom’s third quarter financial results, it was unwilling to continue to pursue the possible transaction at that time. After full year results were reported in February 2004, CompuCom held follow-up discussions with this potential buyer to determine if there was renewed interest. CompuCom was told at this time that this potential buyer had no interest in further pursuing a transaction with CompuCom.
On November 20, 2003, representatives of CompuCom again met with representatives of Safeguard to discuss CompuCom’s operations and financial performance as well as the merits of a possible acquisition by Safeguard of the outstanding minority equity in CompuCom not then owned by Safeguard. At a follow-up meeting on December 15, 2003, Safeguard indicated it was not interested in pursuing the acquisition of the remaining outstanding shares of CompuCom.
On December 16, 2003, J. Edward Coleman, CompuCom’s Chairman, President and Chief Executive Officer, met with Platinum to discuss the possibility of resuming negotiations. In February 2004, Mr. Coleman spoke with Platinum regarding the potential synergies between CompuCom and Platinum portfolio companies. It was agreed that a meeting should be held to explore this idea further. The meeting was scheduled for March 4 and March 5, 2004.
On February 21, 2004, the CompuCom special committee met to consider a possible repurchase of Safeguard’s CompuCom holdings and CompuCom’s other strategic alternatives. Attending were Mr. Coleman, and M. Lazane Smith, CompuCom’s Senior Vice President, Finance and Chief Financial Officer, as well as representatives of Montgomery McCracken and Willkie Farr & Gallagher LLP (“Willkie Farr”), serving as counsel to the special committee and CompuCom, respectively. It was noted at the meeting that two new members had been appointed by the board to serve on the special committee, namely Michael J. Emmi and John D. Loewenberg, increasing the size of the CompuCom special committee to six persons, thereby including all independent members of the board not affiliated with Safeguard. The special committee focused its discussion on the possible repurchase of Safeguard’s CompuCom holdings. The committee noted that at the time of their previous meeting on June 2, 2003 CompuCom had not been in a position to make an offer that Safeguard would have found acceptable. Ms. Smith and Mr. Coleman discussed possible reasons why this may have changed in the interim period, and Ms. Smith reviewed for the committee certain financial information relating to a possible offer to Safeguard, including the availability of cash for such an offer, the likelihood of being able to obtain the requisite financing and the cash flow implications for CompuCom in light of an offer at various prices. The special committee considered these implications, including the effects of the resulting reduced liquidity and increased debt on CompuCom, if available, and the corresponding impact on CompuCom’s ability to pursue its acquisition strategy. The special committee authorized management to seek Broadview’s advice on the feasibility and likely impact such a transaction would have on CompuCom, specifically with regard to the ability to obtain financing and the effects of such indebtedness and cash expenditure on CompuCom’s ongoing liquidity as well as its ability to pursue a growth strategy through acquisition.
During the period from late February through May, CompuCom management met with Broadview, other investment banks and its current banking source to determine the feasibility of obtaining the necessary financing to repurchase its shares from Safeguard. Each had differing assessments of the financing structure, likelihood of success and attendant risks of obtaining financing for such a transaction.
On March 4 and 5, 2004, Platinum representatives met with CompuCom to review CompuCom’s recent business and financial results. At this time, discussions were renewed regarding the possibility of undertaking a transaction which would combine CompuCom with another of Platinum’s portfolio companies. On March 15, 2004, Platinum indicated that it was not interested in pursuing the combination approach but continued to be
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willing to pursue discussions regarding acquiring CompuCom on a stand-alone basis. On March 23, 2004, Platinum met with members of CompuCom management to review further CompuCom’s financial results and cash flow, with a view toward possibly making a revised proposal. Following these meetings, Platinum delivered a revised written indication of interest to CompuCom on March 24, 2004. The financial terms of Platinum’s revised indication of interest were: $5.00 for the shares of CompuCom common stock held by all stockholders other than Safeguard; $4.50 for the shares of CompuCom common stock held by Safeguard; an aggregate of $8 million for all shares of CompuCom preferred stock, all of which is held by Safeguard; and cashing out of all vested stock options at a price equal to the difference between $5.00 and the exercise price of the option, multiplied by the number of shares subject to such option. While the indication of interest did not include a financing contingency, it did require that Safeguard provide $35 million in mezzanine financing.
On March 27, 2004, the CompuCom special committee met to consider Platinum’s indication of interest made on March 24. Attending (for portions of the meeting) were Mr. Coleman and Ms. Smith, as well as representatives of Willkie Farr, and (for the full meeting) Montgomery McCracken. Mr. Coleman and Ms. Smith described the revised indication of interest to the committee, noting that Platinum’s interest in a transaction persisted notwithstanding the decline in CompuCom’s EBITDA during the period following CompuCom’s discussions with Platinum in mid-2003, and noting further that Platinum’s overall indicative valuation had increased by approximately $12 million despite CompuCom’s financial performance during this period. The special committee discussed the status of Safeguard’s review of this indication of interest, and Mr. Coleman noted that it had been sent by Platinum to Mr. Craig who indicated that he intended to bring the indication of interest to the attention of the Safeguard special committee at a meeting during the week of March 29. The CompuCom special committee discussed several other issues relating to the indication of interest, including timing and documentation issues and issues relating to financial interests of management under existing and contemplated employment agreements. The CompuCom special committee also compared the merits of the Platinum indication of interest to the potential repurchase of the CompuCom holdings of Safeguard previously discussed, noting the advantages of the Platinum indication of interest, including the fact that financing for the repurchase was potentially unavailable on acceptable terms and that it was not clear that an offer could be made to Safeguard that Safeguard would accept in the context of the repurchase. The CompuCom special committee, following the departure from the meeting of Mr. Coleman, Ms. Smith and counsel to CompuCom, discussed the Platinum indication of interest and the desirability for the special committee to designate members of the committee to represent it separately from management in discussions with Safeguard relating to the indication of interest.
On April 1, 2004, the Safeguard special committee met to consider Platinum’s March 24 indication of interest. A representative of Morgan, Lewis & Bockius LLP, counsel to Safeguard, attended the meeting. The Safeguard special committee discussed the concerns it had with Platinum’s March 24 indication of interest and the terms that would be required for the Safeguard special committee to be able to recommend a transaction to the full Safeguard board of directors. The Safeguard special committee then discussed the manner in which its concerns and counteroffer should be communicated to Platinum. The Safeguard special committee also discussed a communication Safeguard received after receiving Platinum’s March 24, 2004 indication of interest, indicating that another entity had expressed interest in acquiring Safeguard’s CompuCom holdings. After discussions regarding the preliminary nature of this communication, the committee agreed that Safeguard should continue communications with this other entity.
On April 2, 2004, Safeguard sent a letter to Platinum detailing its concerns with Platinum’s indication of interest of March 24, namely that: (i) Safeguard expected, as the holder of the CompuCom preferred stock, given its status as the senior equity of CompuCom, to receive the full liquidation value of the preferred stock of $15 million, in accordance with the stated terms of the preferred stock; (ii) the indication of interest included a lower price to be paid for Safeguard’s holdings of CompuCom common stock compared to the price to be paid to the other holders of CompuCom common stock; (iii) the indication of interest contemplated Safeguard receiving less than $4.75 per share; and (iv) the indication of interest proposed that Safeguard would finance a portion of the aggregate merger consideration by acquiring $35 million of senior subordinated secured debt of CompuCom.
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Platinum responded to this letter in a letter to Safeguard dated April 7, 2004, in which Platinum noted that (i) its indication of interest had increased from its indication of interest of June 2003 despite deterioration in the financial performance of CompuCom over the intervening period; (ii) its indication of interest represented a substantial EBITDA multiple premium; and (iii) due to the extensive discussions over time that had already occurred, an agreement could be signed quickly without protracted negotiation. Platinum suggested in this letter that the allocation of the aggregate proceeds be determined by negotiation between CompuCom and Safeguard, but insisted that for the transaction to proceed without any financing contingency, Safeguard would have to provide the requested senior subordinated financing, which financing could ultimately be replaced by a third party financing post-signing if available on reasonable terms. As a way to eliminate the need for Safeguard to provide the requested senior subordinated financing, Platinum also suggested that it would be willing to explore using certain of CompuCom’s assets, in lieu of cash, as part of the consideration to be paid to Safeguard in connection with the CompuCom merger, if mutually acceptable terms could be agreed.
On April 10, 2004, the CompuCom special committee met to receive an update on the status of discussions with Platinum. Attending were Mr. Coleman and Ms. Smith, as well as a representative of Montgomery McCracken. Mr. Coleman stated that based on recent discussions with Mr. Craig, Safeguard was considering the possibility of having one of its portfolio companies acquire certain of CompuCom’s assets in an effort to resolve the pricing issues noted by Safeguard in its April 2 letter to Platinum. The CompuCom special committee discussion noted that Safeguard’s indication that it would require that its CompuCom preferred stock be purchased at its full liquidation value, in accordance with the terms of the preferred stock, as compared to a discount from this value would reduce the funds available to the holders of CompuCom common stock and considered whether the Platinum indication of interest would provide fair value to, and otherwise be in the best interests of, the non-Safeguard holders of CompuCom common stock. The role of Houlihan Lokey, financial advisor to the CompuCom special committee, in this determination was also discussed.
On April 28, 2004 the Safeguard board of directors met at a regularly scheduled meeting. At the meeting, Safeguard’s Chief Financial Officer, Christopher J. Davis, provided an overview of the Platinum indication of interest, including discussions regarding the possibility of Safeguard purchasing certain of CompuCom’s assets. Mr. Davis also provided an overview of the interest expressed by an entity that had contacted Safeguard regarding the possibility of acquiring Safeguard’s CompuCom holdings. The Safeguard board discussed the issues raised by the Platinum indication of interest and the inquiry regarding the possible acquisition of Safeguard’s CompuCom holdings. The Safeguard board also discussed Safeguard’s alternatives to engaging in a transaction with either Platinum or the entity that had expressed interest in possibly acquiring Safeguard’s CompuCom holdings. Because of the maturity of discussions with Platinum, the preliminary nature of discussions with the entity that had expressed interest in possibly acquiring Safeguard’s CompuCom holdings and the assessment of the Safeguard board regarding the likelihood of reaching an agreement with Platinum, the Safeguard board concluded that, at that time, it was appropriate to focus Safeguard’s efforts on pursuing a transaction with Platinum.
At a regularly scheduled meeting of the CompuCom board of directors on May 6, 2004, Mr. Coleman stated that a revised indication of interest had been received from Platinum the previous evening. A representative of Willkie Farr was in attendance at the meeting as outside counsel to CompuCom. Mr. Coleman described the terms of the indication of interest to the board, noting that, in lieu of a price per share for the CompuCom common stock and preferred stock, the indication of interest listed a total price for all shares of preferred and common stock of CompuCom, as well as vested “in the money” options. After discussions with Platinum this aggregate price was confirmed to be $253.5 million, which price was noted to be approximately $12 million greater than the indicative value during negotiations in June 2003. It was discussed that the transaction would be contingent upon Platinum being able to issue no less than $35 million of senior subordinated debt to third party lenders. Willkie Farr reviewed the role, duties and responsibilities of the board in considering this indication of interest. Mr. Craig noted his belief that Safeguard’s position was that it should receive the full liquidation value for its shares of CompuCom preferred stock in accordance with the terms of the preferred stock, and that the remainder of the consideration should be allocated through mutual agreement with Safeguard and the
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CompuCom special committee. He indicated his belief that Safeguard would be willing to accept a price for its shares of CompuCom common stock that was lower than that received by the other holders of CompuCom common stock in the event that the evenly allocated price was less than the market price, with the size of the discrepancy in the allocation to be agreed upon depending on the size of the discrepancy between the evenly allocated price and the market price.
At this point in the meeting it was agreed that the CompuCom board meeting should be temporarily adjourned and the CompuCom special committee should meet. A meeting of the CompuCom special committee was convened, with Mr. Coleman and Ms. Smith, as well as outside counsel to each of CompuCom and the special committee attending. Mr. Coleman summarized the terms of Platinum’s indication of interest, and counsel advised the special committee of its fiduciary responsibilities in considering the indication of interest. The CompuCom special committee discussed the merits of the indication of interest from the perspective of the non-Safeguard stockholders, including whether the present time was an appropriate time to consider such a transaction. Following discussion, the special committee agreed that trends in CompuCom’s business and the industry overall indicated that CompuCom’s results were not likely to improve in the near term, and as such an offer in excess of that under consideration from Platinum was unlikely to be obtained in the foreseeable future. It was also noted that the continuing strategic differences in the approaches favored by CompuCom as compared to those favored by Safeguard made it difficult for CompuCom to invest money or shares in new initiatives, and that this situation was unlikely to change, which could further adversely impact CompuCom’s performance. These factors led the CompuCom special committee to conclude that it was appropriate to consider Platinum’s indication of interest.
The CompuCom special committee then focused on whether the transaction contemplated by the Platinum indication of interest was fair to, and was otherwise in the best interests of, non-Safeguard stockholders, and the best transaction obtainable under the current circumstances. It was noted that CompuCom’s process of exploring strategic alternatives, which had essentially continued intermittently for over two years, had been thorough and that no bidder other than Platinum had elected to submit a credible indication of interest following due diligence. It was decided that a direct approach from the CompuCom special committee to Platinum was appropriate as a means of exploring whether or not Platinum could be convinced to increase the value of its indication of interest for CompuCom’s non-Safeguard stockholders. Mr. Emmi agreed to contact Platinum on behalf of the CompuCom special committee to gain a greater understanding of: (i) the basis for Platinum’s price; (ii) the possibility of, and methods for increasing the price contemplated by the current indication of interest; and (iii) the nature and status of their financing plans.
The CompuCom special committee asked Mr. Coleman for an update on whether the discussion of a possible sale of any CompuCom assets to a Safeguard portfolio company had proven fruitful. Mr. Coleman noted that these discussions had been terminated when it became clear that Platinum placed a significantly higher value on these assets than Safeguard.
The CompuCom special committee also noted that while the draft documentation regarding the potential transaction would allow for the CompuCom special committee and the CompuCom board to consider certain post-signing competing offers, Broadview should be requested to contact the parties who had previously expressed an interest in acquiring CompuCom to gauge any current interest in making a proposal. The CompuCom special committee also discussed contacting each of Houlihan Lokey and Broadview to request that they analyze the Platinum proposal and prepare to render an opinion as to the fairness of such offer to the CompuCom special committee and the board, respectively.
The CompuCom board meeting was then reconvened and Mr. Harper reported the results of the CompuCom special committee meeting to the board, which agreed with the suggested courses of action.
On May 10, 2004, Platinum contacted CompuCom requesting a meeting on May 11 and May 12, 2004. During these meetings, Platinum performed confirmatory business and financial due diligence.
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On May 11, 2004, Mr. Harper and Mr. Ford, on behalf of the CompuCom special committee, and Mr. Craig, on behalf of Safeguard, discussed the allocation of the proceeds in the Platinum offer between Safeguard, with respect to its holdings of CompuCom preferred and common stock, and the non-Safeguard holders of common stock. Messrs. Harper and Ford stated that the CompuCom special committee was concerned that the non-Safeguard stockholders be treated fairly, and they proposed that these stockholders receive at least $5.00 per share in the transaction. Mr. Craig suggested that a more appropriate allocation would be based on the closing price for CompuCom’s shares immediately preceding the time of the signing of an agreement. Mr. Craig proposed that if the closing price was less than the evenly allocated deal price, then all holders of common stock would receive the evenly allocated price. If the closing price was more than the evenly allocated price, then non-Safeguard holders of common stock would receive a price equal to the sum of the evenly allocated price plus 25% of the difference between the closing price and the evenly allocated price, and Safeguard would receive for its shares of CompuCom common stock the remainder of the aggregate price to be paid by Platinum for the CompuCom common stock. Mr. Craig noted that this proposal was conditioned on Safeguard’s price for its CompuCom common shares at no time falling below $4.50 per share, and Safeguard receiving the full $15 million liquidation value for its shares of preferred stock in accordance with the terms of those securities. Following a discussion of this proposal, Messrs. Harper and Ford indicated that they needed to discuss it further with the full CompuCom special committee.
Later that day, a meeting of the CompuCom special committee was convened, with Mr. Coleman and Ms. Smith, as well as Broadview and outside counsel to each of CompuCom and the CompuCom special committee attending. Ms. Smith updated the CompuCom special committee on the status of discussions with Platinum, including Platinum’s confirmatory diligence. Broadview noted that a commitment letter relating to Platinum’s senior asset backed lending facility would likely be issued shortly and that Jefferies was in the process of preparing a highly confident letter relating to the $35 million in senior subordinated notes. The meeting then focused on the earlier discussion with Safeguard. The CompuCom special committee considered the Safeguard proposal, including Safeguard’s insistence on the full liquidation value for its preferred stock as per the terms thereof. After discussion, the CompuCom special committee determined to counter Safeguard’s proposal regarding the allocation of proceeds to the common holders with a modification. The modification would be that instead of using the closing price as the market price in their formula, the deemed market price would be the average of the closing price and the twenty-day trading average up to and including the date of the closing price. This approach was intended to establish a more representative sampling of the market price given the volatility associated with CompuCom’s stock price. The CompuCom special committee also decided to propose to Safeguard that it reduce its floor from $4.50 to $4.40. Following the departure from the meeting of Mr. Coleman, Ms. Smith and counsel to CompuCom, the CompuCom special committee and its counsel further discussed the elements of Safeguard’s proposal and the special committee’s counteroffer, and asked Messrs. Ford and Harper to communicate this counteroffer to Safeguard at the earliest practical time.
On May 14, 2004, Platinum confirmed its willingness to proceed on the basis of its prior indication of interest, and draft transaction documents were delivered by Platinum’s counsel to counsel for CompuCom and Safeguard. During the period between May 14 and May 20, 2004, transaction documents, including the merger agreement and the related disclosure schedules, the principal stockholder agreement, the support agreements and the highly confident letter from Jefferies were negotiated by representatives of the parties, including counsel, from Platinum, CompuCom and Safeguard. During this period it was noted that CompuCom’s principal stock option plan did not permit the cancellation of unvested options in connection with a transaction of the type under negotiation, and thus it was agreed that all options, vested or unvested, would be cashed out in the merger to the extent their exercise prices were less than the price per share of common stock to be paid to the non-Safeguard holders of CompuCom common stock.
On May 19, 2004, on behalf of the CompuCom special committee, Mr. Emmi spoke with representatives of Platinum, including Tom Gores, Platinum’s founder and CEO, Johnny Lopez, Platinum’s Executive Vice President-Mergers & Acquisitions, and Jacob Kotzubei, Platinum’s senior vice president principally responsible for this transaction. Mr. Coleman and Ms. Smith joined the call solely to make introductions, and did not
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participate in the discussion. During the call, Platinum detailed to Mr. Emmi the bases for its valuation of CompuCom and pricing of the transaction, noting that based on CompuCom’s balance sheet and cash flow, they had made their best and final offer without room for improvement. At this price, Platinum expressed the belief that they were taking substantial risk. Platinum described its plans for CompuCom going forward, including strategic acquisitions, and indicated that notwithstanding the debt that might be required to finance such acquisitions, Platinum was confident that it would be able to arrange for this and the working capital needs of the business. Platinum detailed the level of due diligence that it had done to date, and provided an update on the status of its senior asset backed lending facility, as to which it had obtained a commitment letter from Bank of America and Wells Fargo Foothill. Platinum noted that the proposed transaction would not be conditioned on this financing. Platinum indicated that it had received a “highly confident” letter from Jefferies as to its ability to place the $35 million of senior subordinated notes, and Platinum described an additional $25 million liquidity facility that it would be providing to manage the liquidity needs of CompuCom’s business following the merger. The Platinum representatives gave Mr. Emmi a summary of their transactional experience.
The CompuCom special committee met on May 20, 2004, with Mr. Coleman and Ms. Smith, as well as outside counsel to the CompuCom special committee and CompuCom, attending. Mr. Emmi presented a report on his discussion with Platinum to the committee. Messrs. Ford and Harper then detailed their discussions with Safeguard regarding their counterproposal as to the allocation of proceeds. They reported that Safeguard had agreed to their formulation of the “market” price, but had been unwilling to reduce its floor below $4.50. After discussion, the special committee resolved to accept this proposal. Willkie Farr updated the committee on the status of the negotiations of the transaction, noting that the only significant issue remaining was obtaining the consent of the landlord under CompuCom’s Dallas headquarters lease, an affiliate of W.P. Carey, which was a condition to consummating the merger.
On May 21, 2004, each of Platinum and Jefferies made a presentation to a joint telephonic meeting of the boards of CompuCom and Safeguard at which counsel to each of CompuCom and Safeguard were present. Platinum’s presentation covered substantially the same material that had been discussed with Mr. Emmi on behalf of the CompuCom special committee. Messrs. Gores, Lopez and Kotzubei detailed their personal transaction experience and that of Platinum generally, and discussed their proposed sources and uses of funds for the proposed transaction, including details regarding their financing, and their plans for CompuCom, including managing its liquidity needs following the merger. Raymond J. Minella and Neil Wessan presented on behalf of Jefferies with respect to Jefferies’ highly confident letter, summarizing the proposed terms of the notes, their expertise in the placement of this type of debt, the market for this type of debt generally and the risks and proposed timing of the offering.
On May 24, 2004, W.P. Carey stated that as a condition to the granting of its consent to the transaction it would require, among other things, the posting of a security deposit covering eighteen months rent under the lease for the life of the lease, in an amount of approximately $6.3 million. W.P. Carey also noted that it would require an amendment to the Dallas lease to document the deposit requirement, and that this amendment would require the consent of the mortgage servicer under the lease, an affiliate of Wells Fargo Foothill. During the period from May 24 to May 27, the terms of W.P. Carey’s conditions were negotiated by representatives of Platinum, Safeguard and CompuCom. Ultimately Safeguard agreed to provide to the landlord a letter of credit from the closing date of the merger through March 2019 in an amount equal to $6,336,198. In exchange for agreeing to issue this letter of credit, Safeguard required that it receive the same per share merger consideration as that paid to the other holders of CompuCom common stock. Safeguard also required that CompuCom be obligated to reimburse Safeguard for all fees and expenses incurred by Safeguard in order to obtain and maintain this letter of credit, with this reimbursement obligation not to exceed 1.5% of the aggregate principal of the Safeguard letter of credit per annum.
At 1 p.m. EDT on May 27, 2004, a meeting of the CompuCom special committee was held. In attendance were Mr. Coleman and Ms. Smith, as well as representatives of outside counsel and the financial advisors to each of the CompuCom special committee and CompuCom. Outside counsel to the special committee again reviewed
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with the committee their fiduciary duties in considering the proposed transaction, including their role, duties and responsibilities. Following this, outside counsel to CompuCom detailed the respective interests of the committee members, board members generally, Safeguard and management in the merger. Outside counsel then updated the committee on the ongoing negotiations relating to the consents of the landlord and the mortgage servicer, noting that at the time of the meeting these had not yet been obtained, and thus the committee would not be asked for a formal recommendation to the board regarding the transaction at this meeting, but would be given all other information relevant to its determination, with an update to follow upon resolution of the consent issues. Counsel then reviewed in detail the terms of the proposed transaction and the transaction documents. Houlihan Lokey then opined to the CompuCom special committee that the merger consideration of $4.60 per share to be paid to the holders of CompuCom common stock was fair to the non-Safeguard holders of common stock from a financial point of view, as of that date and based upon the assumptions made, matters considered and limitations on the review that was described to the CompuCom special committee. Houlihan Lokey’s presentation included an executive summary, a due diligence summary, a transaction overview, information concerning alternatives considered by CompuCom to the proposed transaction, a company overview, and a fairness analysis. Houlihan Lokey pointed out that in arriving at its fairness conclusion, the report found that the indicated net consideration per share to common stockholders of CompuCom was within the report’s concluded aggregate equity range on a controlling interest basis of $4.25 to $4.90 per share. Houlihan Lokey commented on its use of various analyses, including a market multiple methodology, a comparable transaction methodology and a public share price approach. Houlihan Lokey also provided a draft of its fairness opinion letter. Mr. Harper then asked for Broadview’s comments, particularly with respect to its efforts to identify other possible purchasers and to consider strategic alternatives. Broadview stated that it and Mr. Coleman had revisited the potential strategic and financial purchaser contacts that in the past had shown the most interest in a possible transaction and had found no interest in any transaction that would provide value to CompuCom’s stockholders comparable to the Platinum proposal. It was noted that careful consideration had also been given to the possibility of CompuCom repurchasing the shares of its stock owned by Safeguard as well as other share repurchase alternatives, but it had been concluded that such a transaction would result in CompuCom having a level of indebtedness that would make it challenging for CompuCom to meet its strategic growth objectives. At this point in the meeting, Mr. Coleman, Ms. Smith, the financial advisors and counsel to CompuCom left the meeting and the CompuCom special committee together with its counsel discussed Safeguard’s condition to providing the letter of credit in connection with obtaining landlord consent to the transaction that it receive a per share price for its common stock equal to that paid to the other CompuCom common stockholders. The members of the committee considered whether to pursue further negotiations with Safeguard concerning an allocation of merger proceeds more favorable to the non-Safeguard shareholders, including the possible purchase of the CompuCom preferred stock at a price below its liquidation value. After discussion, the members of the special committee concluded not to reopen negotiations on this matter.
At 5 p.m. EDT on May 27, 2004, a meeting of the CompuCom board of directors was held. In attendance were representatives of outside counsel and the financial advisors to CompuCom. Outside counsel again reviewed with the board their fiduciary duties in considering the proposed transaction, including their role, duties and responsibilities. Following this, outside counsel detailed the respective interests of the special committee members, board members generally, Safeguard and management in the merger. Outside counsel then updated the board on the ongoing negotiations relating to the consents of the landlord and the mortgage servicer, noting that at the time of the meeting these had not yet been obtained, and thus the board would not be asked for a formal approval regarding the transaction at this meeting, but would be given all other information relevant to its determination, with an update to follow upon resolution of the consent issues. Counsel then reviewed in detail the terms of the proposed transaction and the transaction documents. Broadview then opined to the CompuCom board of directors that the merger consideration of $4.60 per share to be paid to the holders of CompuCom common stock was fair to the non-Safeguard holders of common stock from a financial point of view. Broadview’s report included a transaction overview, a due diligence summary, a summary of factors positively and negatively affecting the value of CompuCom, a summary and description of analyses used by Broadview in its determination that the transaction with Platinum was fair, and a summary of the valuation analysis. Broadview then summarized its efforts to identify other possible purchasers and to consider strategic alternatives on the
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same terms as its report to the CompuCom special committee. The CompuCom special committee then reviewed the process to date for the board and reported its preliminary findings and conclusions, noting that having considered the alternatives to the merger, the terms of the merger, the risks and benefits of the merger and various other considerations, and subject to satisfactory resolution of the two consent issues, it anticipated recommending to the board that it approve the merger and the merger agreement.
Shortly after the CompuCom board meeting, representatives of Platinum agreed that, based on the fact that it had recently obtained the consent of the landlord to the transaction subject only to obtaining the further consent of the mortgage servicer, Platinum was willing to eliminate the condition to the merger that landlord consent be obtained.
On the evening of May 27, 2004, a special joint meeting of Safeguard’s special committee and board of directors was held. Mr. Craig provided an update of recent developments that had occurred in connection with the proposed CompuCom transaction. Mr. Davis then provided an update of the financial terms of the proposed CompuCom transaction. A representative of Morgan, Lewis & Bockius LLP reviewed with the board the terms and provisions of the proposed transaction documents and the board’s fiduciary duties in considering the proposed transaction. Representatives of Robert W. Baird & Co. Incorporated presented an overview of the financial aspects of the proposed transaction and orally delivered Baird’s opinion, which was subsequently confirmed in writing, to the effect that, as of May 27, 2004, and based upon the contents of such opinion, including the various assumptions and limitations on the review described in such opinion, the consideration taken as a whole to be received by Safeguard in the CompuCom merger for the CompuCom common stock and convertible preferred stock held by Safeguard was fair, from a financial point of view, to Safeguard. Having considered all of the presentations and following full consideration, the Safeguard special committee unanimously recommended to the Safeguard board that it approve the transaction documents and the transactions contemplated therein. Following full consideration and discussion and a review of the principal reasons for the proposed transaction, the Safeguard board unanimously approved the transaction documents and the transactions contemplated therein and recommended that Safeguard’s shareholders approve the proposed transaction. Safeguard’s board approval was conditioned on the approval of the transaction by CompuCom’s board of directors without dissent and the execution of the transaction documents and announcement of the transaction prior to the opening of the New York Stock Exchange and NASDAQ on May 28, 2004.
Later in the evening of May 27, 2004, the CompuCom special committee reconvened. In attendance were Mr. Coleman and Ms. Smith, as well as representatives of outside counsel and the financial advisors to each of the special committee and CompuCom. Willkie Farr detailed the developments with respect to the landlord consent, noting the waiver of this condition by Platinum based on its belief that it would obtain the mortgage servicer consent. Houlihan Lokey then reaffirmed its fairness opinion to the CompuCom special committee, noting that in doing so it had considered the increase in the trading prices for CompuCom common shares that had occurred late in the day, resulting in a closing price higher than the per share merger consideration to be paid to CompuCom’s stockholders in the proposed transaction. After discussion of the rise in trading prices and the factors considered at their meeting earlier in the day, the CompuCom special committee unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, the stockholders of CompuCom and unanimously resolved to recommend that the board approve and adopt the merger and the merger agreement and recommend CompuCom stockholders adopt the merger agreement and approve the merger.
Immediately following this meeting of the CompuCom special committee, the board of CompuCom met to hear and consider the recommendation of the special committee. In attendance were representatives of outside counsel and the financial advisors to CompuCom. Willkie Farr updated the board as to the resolution of the landlord consent issues. Broadview then reaffirmed its fairness opinion to the board, noting that in doing so Broadview, like Houlihan Lokey, had considered the increase in the trading prices for CompuCom common shares that had occurred late in the day, resulting in a closing price higher than the per share merger consideration to be paid to CompuCom’s stockholders in the proposed transaction. The special committee
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reviewed for the board its deliberations and presented its recommendation that the board approve and adopt the merger and the merger agreement and recommend that CompuCom stockholders adopt the merger agreement and approve the merger. The board of directors, having considered the recommendation of the special committee regarding the proposed merger, as well as the factors relating to the merger considered at its prior meeting, including the Broadview fairness opinion, determined unanimously (with two directors not present) that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, CompuCom and its stockholders, and authorized, adopted and approved the merger agreement and the transactions contemplated by such merger agreement and recommended to CompuCom stockholders that they adopt the merger agreement and approve the merger. The two members of the CompuCom board of directors who were unable to attend the board meetings of May 27, 2004 have subsequently confirmed their view that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, CompuCom and its stockholders, and agreed with the board’s decision to authorize, adopt and approve the merger agreement and the transactions contemplated by such merger agreement and recommend that CompuCom stockholders adopt the merger agreement and approve the merger.
Shortly after this May 27 meeting, the merger agreement and the related documents were executed, and on May 28, 2004, CompuCom and Platinum issued a joint press release and Safeguard issued a press release announcing the execution of the transaction documents and the transaction contemplated thereby.
REASONS FOR THE MERGER AND THE RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS
Our board of directors and the special committee have unanimously determined that the merger agreement is in the best interests of the Company and our stockholders and unanimously recommend that our stockholders approve the merger and adopt the merger agreement. In reaching their recommendations, the special committee and our board of directors considered the following positive factors, each of which the special committee and our board of directors believed supported their recommendation of the merger agreement:
• | The special committee’s and our board of directors’ belief that, after extensive negotiations with Platinum and its representatives, they have obtained the highest price per share that Platinum is willing to pay and the highest price obtainable on the date of signing. This belief is supported by the process undertaken by us in marketing the transaction to 34 potential partners and the receipt of indications of interest from five different parties. Out of negotiations with three of those parties Platinum emerged as the only viable candidate with which a merger could be consummated. Continued contact with several of these potential buyers and others throughout the period of our discussions with Platinum through the signing of the merger agreement indicated a continuing unwillingness or inability to make an offer more beneficial to our stockholders than the transaction with Platinum. The belief is also supported by the negotiations with Platinum (including their representatives’ statement that their proposal represented their best and final offer) and by the fact that, between the public announcement of the execution of the merger agreement on May 27, 2004 and the date of this proxy statement, we did not receive any unsolicited bona fide offers from a third party regarding a potential acquisition transaction. |
• | If we do receive an unsolicited offer from a third party regarding a potential transaction before the meeting, we retained the ability to provide information to, and negotiate with, the third party regarding the alternative transaction under specified circumstances, and, subject to payment of a break-up fee, we can terminate the merger agreement if we accept a superior proposal on the terms described in the merger agreement. |
• | The fact that our board of directors delegated broad powers to the special committee in conducting its evaluation of Platinum’s proposal and considering and pursuing other strategic alternatives and that, to advise it in connection with these matters, the special committee engaged Houlihan Lokey as its independent financial advisor and had an independent legal advisor. As a result, the merger consideration and the other terms of the merger agreement reflect a transaction with Platinum that was approved by independent directors after consultation with independent advisors. |
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• | The presentations made by Houlihan Lokey to the special committee and by Broadview to our board of directors on May 27, 2004, and Houlihan Lokey’s and Broadview’s oral opinions on May 27, 2004, subsequently confirmed in writing, that the merger consideration was fair, from a financial point of view, to the non-Safeguard holders of our common stock. Broadview’s written opinion is attached as Appendix C to this proxy statement and Houlihan Lokey’s written opinion is attached as Appendix D. We encourage you to read both opinions in their entirety for a description of the assumptions made, matters considered and limitations on the review undertaken. |
• | The cash proceeds to be received by our stockholders which will enable them to realize immediately the value of their ownership interest in CompuCom in the face of market conditions that do not favor public companies like us that are controlled by a majority stockholder, have a small trading volume and are subject to substantial market price volatility. |
• | The fact that our strategy of increasing our market position in the service business through acquisitions will require significant additional acquisitions and additional financing to reach what we consider a critical mass given the size of our competitors in the service industry. Our ability to obtain financing or utilize our stock as currency is limited by the inability and/or unwillingness of our principal stockholder to be a viable source of financing or to support our strategy to grow by acquisition and its desire, if it continues to own shares in us, not to dilute its majority ownership position. |
• | Our knowledge of our business, assets, financial condition and results of operations and prospects and of the industry in which we operate. In particular, while the special committee and our board of directors believe that we are pursuing a strategy that should be successful in the long term, in voting for the merger agreement the view of the special committee and our board of directors was that the receipt of $4.60 per share of cash consideration by our stockholders pursuant to the merger at this time was preferable to continuing to own shares of our common stock given the inherent risks of our business and the industry in which we operate, uncertainties relating to current and future general economic conditions, the stock market’s reaction to our industry and our performance, our reliance on three key product suppliers, and the intensifying competition in the product resale market and IT services market. |
• | The fact that our majority stockholder has advised us it is not fully supportive of our strategy to grow our service business by acquisition and that it may pursue other means to divest its ownership position in CompuCom or may consider proposing changes to the membership of our board to pursue a strategy that it more fully supports. While regulatory constraints will most likely prevent our majority stockholder from divesting a large portion of our common stock on the open market, even if undertaken over a long period of time, knowledge that our principal stockholder wants to divest itself of our shares and is not supportive of our strategy to grow our service business by acquisition could depress our stock price. |
• | Our exploration with our majority stockholder and our lenders whether we could repurchase its interest or otherwise assist it in divesting its interest in us so that we could independently pursue our strategy. Due to regulatory constraints, Safeguard’s entire position would have to be purchased at one time. In addition to being unable to reach agreement on the price and terms of a repurchase, we concluded that the resulting financial leverage and increased balance sheet risk would limit our ability to obtain the required capital to make the necessary acquisitions to implement our strategy. |
• | The availability of appraisal rights under Delaware law for our stockholders other than Safeguard, which has waived such rights. |
In the course of the deliberations of the special committee and our board of directors, they also considered a number of negative factors related to the merger, including the following:
• | A condition to Platinum’s obligation to consummate the merger is that it receive gross proceeds of at least $35 million from the Note Financing. |
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• | While the merger is expected to be completed, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and as a result it is possible that the merger may not be completed even if approved by our stockholders or if our principal stockholder’s shareholders approve the vote by Safeguard of its CompuCom shares in favor of approval of the merger. |
• | The fact that the failure of the merger to be consummated for any reason could adversely affect revenues and income as well as the value of our stock because of the potential for a loss of customers, suppliers and employees and other negative factors due to potential confusion or concern over the reasons for the failure to consummate the transaction. |
• | Our inability under the terms of the merger agreement to solicit other acquisition proposals and the possibility that we may be required to pay Platinum fees and expenses if we were to terminate the merger agreement to accept a superior proposal, which may discourage other parties from proposing to acquire us. |
• | The interests that our executive officers and directors have in the merger in addition to their interests as holders of our common stock. See “—Interests of Executive Officers and Directors in the Merger.” |
• | The interests that our principal stockholder has in the merger, in addition to its interests as a holder of our common and preferred stock. See “—Interests of Principal Stockholder in the Merger.” |
• | The fact that the merger will eliminate our stockholders’ ability to benefit from any future appreciation in the price or value of our common stock. |
• | The fact that the receipt of cash pursuant to the merger will be a taxable transaction to our stockholders. |
The preceding information regarding the information and positive and negative factors considered by the special committee and our board of directors is not, and is not intended to be, exhaustive. The special committee and the board of directors collectively reached the unanimous decision to approve the merger agreement in light of the factors described above and other factors that each member of the special committee and our board of directors felt were appropriate. Moreover, in view of the wide variety of factors and the quality and amount of information considered in connection with the evaluation of the merger, the special committee and our board of directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors they considered in reaching their determinations. Individual members of the special committee and our board of directors may have given different weight to different factors in reaching his or her own conclusion about whether to approve the merger agreement.
Our board of directors engaged Broadview to act as its financial advisor and to provide a fairness opinion to the board of directors. Broadview focuses on providing merger and acquisition advisory services to IT, communications, healthcare technology and media companies. In this capacity, Broadview is continually engaged in valuing such businesses, and maintains an extensive database of IT, communications, healthcare technology and media mergers and acquisitions for comparative purposes. Broadview is currently acting as a financial advisor to our board of directors and we will pay Broadview a fee upon the successful completion of the merger.
BROADVIEW’S FAIRNESS OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BROADVIEW, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT. YOU ARE URGED TO READ THIS FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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In developing its fairness opinion, Broadview, among other things:
1. | reviewed the terms of the merger agreement in the form of the draft dated May 25, 2004; |
2. | reviewed our annual report on Form 10-K for the fiscal year ended December 31, 2003, including the audited financial statements included therein, and our quarterly report on Form 10-Q for the period ended March 31, 2004, including the unaudited financial statements included therein; |
3. | reviewed certain of our internal financial projections, including quarterly projections through December 31, 2004 prepared and provided by us; |
4. | participated in discussions with our management and Safeguard management concerning our operations, business strategy, financial performance and prospects; |
5. | discussed with our management its view of the strategic rationale for the merger; |
6. | reviewed the reported closing prices and trading activity for our common stock from May 27, 2003 to May 27, 2004; |
7. | compared certain aspects of our financial performance with public companies Broadview deemed comparable; |
8. | analyzed available information, both public and private, concerning other mergers and acquisitions Broadview believed to be comparable in whole or in part to the merger; |
9. | reviewed recent equity analyst reports covering CompuCom, including quarterly projections through December 31, 2004 and annual projections through December 31, 2005, contained therein; |
10. | participated in negotiations and discussions related to the merger among us, Platinum, Safeguard and our and their respective advisors; and |
11. | conducted other financial studies, analyses and investigations as Broadview deemed appropriate for purposes of its fairness opinion. |
In rendering its fairness opinion, Broadview relied, without independent verification, on the accuracy and completeness of all the financial and other information (including, without limitation, the representations and warranties contained in the merger agreement) that was publicly available or furnished to Broadview by us, Platinum, or our respective advisors. With respect to the financial projections examined by Broadview that were provided by our management, Broadview assumed that they were reasonably prepared and reflected the best available estimates and good faith judgments of our management as to our future performance.
Broadview also relied, with the permission of our board of directors, on Parent’s representations that it would have sufficient funds to consummate the merger.
For purposes of its opinion, Broadview assumed that, as of the date of its opinion, we were not currently involved in any material transaction other than the merger, other publicly announced transactions and those activities undertaken in the ordinary course of conducting our business. Broadview also expressed no opinion as to the price at which shares of our common stock would trade at any time. Broadview’s opinion is necessarily based upon market, economic, financial and other conditions as they existed as of the date of its opinion and can be evaluated as of such date, and any change in such conditions would require a reevaluation of its opinion.
Broadview’s fairness opinion speaks only as of May 27, 2004. The opinion was for the information of our board of directors in connection with its consideration of the proposed merger and does not constitute a recommendation to any of our stockholders as to how such stockholder should vote on the merger.
Broadview employed various sources of information and valuation methodologies in valuing CompuCom in conjunction with rendering its fairness opinion regarding the transaction with Parent and Platinum. Broadview’s analyses were based, in part, on: (i) historical stock price performance; (ii) public company comparables; (iii) transaction comparables; (iv) transaction premiums paid; and (v) evaluation of CompuCom’s discounted future cash flows to determine the fairness of the merger consideration.
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The following is a brief summary of some of the information and valuation methodologies employed by Broadview in rendering its fairness opinion. These analyses were presented to our board of directors at its initial meeting on May 27, 2004. This summary includes the financial analyses used by Broadview and deemed to be material, but does not purport to be a complete description of analyses performed by Broadview in arriving at its opinion. Broadview did not explicitly assign any relative weights to the various factors of analyses considered. This summary of financial analyses includes information presented in tabular format. In order to fully understand the financial analyses used by Broadview, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.
Stock Performance Analysis. For comparative purposes, Broadview examined the following:
(1) | CompuCom’s common stock daily historical volume and trading prices from May 19, 2004 through May 27, 2004; |
(2) | CompuCom’s common stock daily historical volume and trading prices from May 27, 2003 through May 27, 2004; |
(3) | CompuCom’s common stock daily historical volume and trading prices from May 26, 1999 through May 27, 2004; and |
(4) | relative daily closing prices for an index of public companies deemed comparable to CompuCom in comparison with CompuCom and the NASDAQ Composite from May 26, 2003 through May 27, 2004. |
Public Company Comparables Analysis—Ratios of a company’s common stock share price and Equity Market Capitalization (“EMC”), adjusted for cash and debt when appropriate, to selected historical and projected operating metrics indicate the value public equity markets place on companies in a particular market segment. A select group of companies are deemed by Broadview to be comparable to CompuCom based on market focus, business model and size. Broadview reviewed five public company comparables in the IT Hardware and Software Reseller industry with Trailing Twelve Month (“TTM”) revenues between $500 million and $4 billion, from a financial point of view, including each company’s: TTM Revenue; TTM Revenue Growth; TTM Gross Profit; TTM Earnings Before Interest and Tax (“EBIT”); TTM Diluted Earnings Per Share (“TTM Diluted EPS”); Last Quarter Annualized (“LQA”) Revenue; LQA Gross Profit; LQA EBIT; LQA Diluted EPS; Projected 12/31/04 Revenue; Projected 12/31/04 Gross Profit; Projected 12/31/04 EBIT; Projected 12/31/04 Diluted EPS; Net Cash (defined as cash minus debt); EMC; Tangible Book Value; Total Market Capitalization (“TMC” defined as EMC minus Net Cash)/TTM Revenue ratio (“TTM TMC/R”); TMC/TTM Gross Profit ratio (“TTM TMC/Gross Profit”); TMC/TTM EBIT ratio (“TTM TMC/EBIT”); TTM Price/Earnings ratio (“TTM P/E”); TMC/LQA Revenue ratio (“LQA TMC/R”); TMC/LQA Gross Profit ratio (“LQA TMC/Gross Profit”); TMC/LQA EBIT ratio (“LQA TMC/EBIT”); Price/LQA Earnings ratio (“LQA P/E”); TMC/Projected 12/31/04 Revenue ratio (“Projected 12/31/04 TMC/R”); TMC/Projected 12/31/04 Gross Profit ratio (“Projected 12/31/04 TMC/Gross Profit”); TMC/Projected 12/31/04 EBIT ratio (“Projected 12/31/04 TMC/EBIT”); Price/Projected 12/31/04 Earnings ratio (“Projected 12/31/04 P/E”); EMC/Tangible Book Value ratio (“EMC/Tangible Book Value”). The public company comparables were selected from theBroadview Barometer, a proprietary database of publicly-traded IT, communications, healthcare technology and media companies maintained by Broadview and broken down by industry segment.
In order of descending TTM TMC/R, the public company comparables consist of:
1) Insight Enterprises, Inc.;
2) Pomeroy Computer Resources, Inc.;
3) PC Connection, Inc.;
4) Systemax, Inc.; and
5) GTSI Corporation.
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These comparables exhibit the following medians and ranges for the applicable multiples:
Median Multiple | Range of Multiples | |||||||
TTM TMC/R | 0.15 x | 0.10 x | – | 0.30 x | ||||
TTM TMC/Gross Profit | 1.46 x | 0.79 x | – | 2.43 x | ||||
TTM TMC/EBIT | 11.97 x | 6.68 x | – | 15.28 x | ||||
TTM P/E | 19.15 x | 11.42 x | – | 27.42 x | ||||
LQA TMC/R | 0.15 x | 0.11 x | – | 0.30 x | ||||
LQA TMC/ Gross Profit | 1.47 x | 0.71 x | – | 2.32 x | ||||
LQA TMC/ EBIT | 8.80 x | 5.79 x | – | 15.65 x | ||||
LQA P/E | 16.79 x | 10.15 x | – | 27.90 x | ||||
Projected 12/31/04 TMC/R | 0.17 x | 0.15 x | – | 0.28 x | ||||
Projected 12/31/04 TMC/Gross Profit | 1.46 x | 1.42 x | – | 2.25 x | ||||
Projected 12/31/04 TMC/EBIT | 9.98 x | 5.99 x | – | 13.58 x | ||||
Projected 12/31/04 P/E | 16.84 x | 13.95 x | – | 24.72 x | ||||
EMC/Tangible Book Value | 1.54 x | 0.99 x | – | 2.40 x |
These comparables imply the following medians and ranges for per share value:
Median Implied Value | Range of Implied Values | ||||||||||
TTM TMC/R | $ | 5.28 | $ | 4.00 | – | $ | 9.27 | ||||
TTM TMC/Gross Profit | $ | 5.95 | $ | 3.79 | – | $ | 9.10 | ||||
TTM TMC/EBIT | $ | 5.56 | $ | 3.65 | – | $ | 6.76 | ||||
TTM P/E | $ | 4.27 | $ | 2.55 | – | $ | 6.11 | ||||
LQA TMC/R | $ | 4.76 | $ | 3.75 | – | $ | 8.01 | ||||
LQA TMC/Gross Profit | $ | 5.71 | $ | 3.41 | – | $ | 8.31 | ||||
LQA TMC/EBIT | $ | 3.11 | $ | 2.46 | – | $ | 4.56 | ||||
LQA P/E | $ | 2.19 | $ | 1.33 | – | $ | 3.64 | ||||
Projected 12/31/04 TMC/R1 | $ | 5.70 | $ | 5.19 | – | $ | 8.83 | ||||
Projected 12/31/04 TMC/Gross Profit1 | $ | 6.10 | $ | 5.97 | – | $ | 8.75 | ||||
Projected 12/31/04 TMC/EBIT1 | $ | 5.87 | $ | 4.02 | – | $ | 7.54 | ||||
Projected 12/31/04 P/E1 | $ | 4.55 | $ | 3.77 | – | $ | 6.67 | ||||
Projected 12/31/04 TMC/R2 | $ | 5.66 | $ | 5.15 | – | $ | 8.76 | ||||
Projected 12/31/04 TMC/Gross Profit2 | $ | 6.07 | $ | 5.93 | – | $ | 8.70 | ||||
Projected 12/31/04 TMC/EBIT2 | $ | 6.41 | $ | 4.34 | – | $ | 8.28 | ||||
Projected 12/31/04 P/E2 | $ | 4.88 | $ | 4.05 | – | $ | 7.17 | ||||
EMC/Tangible Book Value | $ | 4.92 | $ | 3.15 | – | $ | 7.65 |
1 | Projected 12/31/04 CompuCom financials from management estimates. |
2 | Projected CompuCom financials from Raymond James analyst report dated April 28, 2004. |
Transaction Comparables Analysis—Ratios of Equity Price, adjusted for the seller’s cash and debt when appropriate, to selected historical operating metrics indicate the value strategic and financial acquirers have been willing to pay for companies in a particular market segment. A handful of companies involved in recent transactions are deemed by Broadview to be comparable to CompuCom based on market focus, business model and size. Broadview reviewed five merger transactions that it deemed comparable to this merger. Broadview selected these transactions by choosing transactions that were announced from January 1, 2002 through May 27, 2004 involving sellers in the IT hardware and software distributor and reseller industries with TTM revenue greater than $500 million, from a financial point of view, including each transaction’s: Adjusted Price (Equity Price minus Net Cash); Seller TTM Revenue (“Seller Revenue”); Seller TTM EBIT (“Seller EBIT”); Adjusted
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Price/TTM Revenue ratio (“Adjusted Price/Revenue”); and Adjusted Price/TTM EBIT ratio (“Adjusted Price/EBIT”). Transactions were selected from Broadview’s proprietary database of published and confidential M&A transactions in the IT, communications, healthcare technology and media industries. In order of descending Adjusted Price/Revenue multiple, the transactions used were the acquisition of:
1) Pioneer-Standard Electronics, Inc. (Components Distribution Business) by Arrow
Electronics, Inc.;
2) Azlan Group PLC by Tech Data Corporation;
3) CorpSoft, Inc. by Level 3 Communications, Inc.;
4) Comark, Inc. by Insight Enterprises, Inc.; and
5) Software Spectrum, Inc. by Level 3 Communications, Inc.
These comparables exhibit the following median and range for the applicable multiple:
Median Multiple | Range of Multiples | |||||||
Adjusted Price/Revenue | 0.13 x | 0.08 x | – | 0.39 x | ||||
Adjusted Price/EBIT | 7.39 x | 3.67 x | – | 7.88 x |
These comparables imply the following median and range for per share value:
Median Implied Value | Range of Implied Values | |||||||||
Adjusted Price/Revenue | $4.66 | $ | 3.37 | – | $ | 11.90 | ||||
Adjusted Price/EBIT | $3.91 | $ | 2.56 | – | $ | 4.08 |
Transaction Premiums Paid Analysis—Premiums paid above the seller’s stock price indicate the additional value, when compared to public shareholders, strategic and financial acquirers are willing to pay for companies in a particular market segment. In this analysis, the value of consideration paid in transactions involving stock is computed using the buyer’s last reported closing price (on the appropriate exchange) prior to announcement. The seller’s stock price one trading day prior to announcement is calculated using the seller’s last reported closing price (on the appropriate exchange) prior to announcement. The seller’s stock price twenty trading days prior to announcement is calculated using the seller’s closing price (on the appropriate exchange) on the first day of that period which: (1) consists of twenty consecutive days during which the appropriate exchange conducts trading activity; and (2) ends on the day of the last reported closing price prior to announcement. Broadview reviewed eighteen comparable M&A transactions involving North American IT services vendors from January 1, 2001 to May 27, 2004 with equity consideration between $25 million and $1.5 billion. Transactions were selected from Broadview’s proprietary database of published and confidential M&A transactions in the IT, communications, healthcare technology and media industries. In order of descending premium paid to seller’s stock price twenty trading days prior to the date of announcement, the North American IT services transactions used were the acquisition of:
1) AlphaNet Solutions, Inc. by CIBER, Inc.;
2) Command Systems, Inc. by ICICI Ltd.;
3) PrimeSource Corporation by Fuji Photo Film U.S.A., Inc.;
4) Metro Information Services, Inc. by Keane, Inc.;
5) Software Spectrum, Inc. by Level 3 Communications, Inc.;
6) Technisource, Inc. by Intellimark Holdings, Inc.;
7) Mainspring, Inc. by IBM Corporation;
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8) Lante Corporation by SBI and Company;
9) IMRglobal Corporation by CGI Group Inc.;
10) BTG, Inc. by Titan Corporation;
11) Veridian Corporation by General Dynamics Corporation;
12) Cambridge Technology Partners by Novell, Inc.;
13) Wallace Computer Services Inc. by Moore Corporation Ltd.;
14) American Management Systems, Inc. by CGI Group Inc.;
15) SCB Computer Technology, Inc. by CIBER, Inc.;
16) Kent Electronics Corporation by Avnet, Inc.;
17) Right Management Consultants, Inc. by Manpower, Inc.; and
18) Atlantic Data Services, Inc. by ADS Parent Acquisition LLC.
These comparables exhibit the following medians and ranges for the applicable premiums (discounts):
Median Premium | Range of Premiums | |||||||
Premium Paid to Seller’s Stock Price 1 Trading Day Prior to Announcement | 26.9% | 2.2% | – | 139.5% | ||||
Premium Paid to Seller’s Stock Price 20 Trading Days Prior to Announcement | 47.9% | 1.6% | – | 183.2% |
These comparables imply the following medians and ranges for per share value:
Median Implied Value | Range of Implied Values | |||||||||
Premium Paid to Seller’s Stock Price 1 Trading Day Prior to Announcement | $6.14 | $ | 4.95 | – | $ | 11.59 | ||||
Premium Paid to Seller’s Stock Price 20 Trading Days Prior to Announcement | $7.16 | $ | 4.92 | – | $ | 13.71 |
Present Value Of Future Potential Share Price Analysis—Broadview calculated the present value of the future potential share price of shares of CompuCom common stock on a standalone basis using selected analyst earnings per share estimates for the twelve months ending December 31, 2005. The implied share price calculated using the median TTM P/E for CompuCom public company comparables applied to management estimates and discounted based on the Capital Asset Pricing Model (“CAPM”) using the median capital-structure adjusted beta for the public company comparables is $4.55. The implied share price calculated using CompuCom’s TTM P/E applied to Raymond James analyst estimates and discounted based on the CAPM using the capital-structure adjusted beta for CompuCom is $5.61.
Consideration of the Discounted Cash Flow Valuation Analysis—While discounted cash flow analysis is a commonly used valuation methodology, Broadview did not employ such analysis for the purposes of this opinion. Broadview considered a discounted cash flow analysis inappropriate for valuing CompuCom. Rather, Broadview employed a present value of future potential share price analysis, which was deemed more appropriate for these circumstances.
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Consideration of Receivable Securitization—As of March 31, 2004, CompuCom’s financing arrangements included the use of a receivable securitization facility. Such securitization facility’s pricing is based on a designated short-term interest rate plus an agreed upon spread. Amounts outstanding as sold receivables as of March 31, 2004 consisted of one $10 million certificate with an October 2005 maturity date. Such securitization facility allows CompuCom to sell, on an ongoing basis, its trade accounts receivable to a consolidated, wholly-owned bankruptcy-remote special purpose subsidiary. Although the securitization facility appears as an off-balance sheet liability, for the purposes of this opinion Broadview has treated the outstanding $10 million securitization facility balance as debt. None of CompuCom’s public company comparables use a similar securitization facility.
Summary of Valuation Analyses—Taken together, the information and analyses employed by Broadview lead to Broadview’s overall opinion that the merger consideration is fair, from a financial point of view, to the non-Safeguard holders of CompuCom common stock.
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Broadview considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Broadview believes that selecting any portion of its analyses, without considering all analyses, would create an incomplete view of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with respect to industry performance and general business and economic conditions and other matters, many of which are beyond our control or the control of Parent. The analyses performed by Broadview are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses.
Broadview’s opinion and presentation to the our board of directors was one of many factors taken into consideration by the board of directors in making its decision to approve the proposed merger.
Fees Payable to Broadview
Upon consummation of the merger, we have agreed to pay Broadview a transaction fee of $3,820,000. We have already paid Broadview an engagement fee of $50,000 and fairness opinion fees of $1,000,000. We have also agreed to pay Broadview a monthly retainer fee of $10,000 and to reimburse Broadview for its reasonable expenses on a monthly basis, and have paid $292,129 of retainer fees and expenses to Broadview to date. $750,000 of the fairness opinion fees, the engagement fee and all of the retainer fees and expenses will be credited against the transaction fee if the merger is consummated. In addition, we have agreed to indemnify Broadview and its affiliates against certain liabilities and expenses related to their engagement, including any liabilities under the federal securities laws. CompuCom negotiated the terms of the fee arrangement with Broadview, which CompuCom and Broadview believe are customary in transactions of this nature, at arm’s length with Broadview, and the board of directors was aware of the nature of the fee arrangement, including the fact that a significant portion of the fees payable to Broadview is contingent upon completion of the merger. In addition to these fees and expenses to be paid to Broadview, Platinum has agreed to pay Jefferies a fee as compensation for Jefferies’ services in placing the notes in the Note Financing.
Our special committee of the board of directors retained Houlihan Lokey as its financial advisor in connection with the special committee’s evaluation of the offer by an affiliate of Platinum to acquire all of the outstanding shares of our common stock not including those held by Safeguard for cash consideration of $4.60 per share. Houlihan Lokey was retained by the special committee to render an opinion as to whether the consideration to be received by our stockholders (other than Safeguard) in the merger is fair to such stockholders from a financial point of view. The fairness opinion was prepared to assist the special committee in evaluating the terms of the merger agreement and the merger.
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Houlihan Lokey is a nationally recognized investment banking firm that is continually engaged in providing financial advisory services and rendering fairness opinions in connection with mergers and acquisitions, leveraged buyouts, and business and securities valuations for a variety of regulatory and planning purposes, recapitalizations, financial restructurings and private placements of debt and equity securities. Houlihan Lokey was retained by the special committee, based on its qualifications, expertise and reputation in providing such financial advice and services to companies. Houlihan Lokey has no material prior relationship with us or our affiliates except in connection with the potential sale of CompuCom. Houlihan Lokey has performed financial advisory and merger and acquisition services for or involving Platinum and/or its portfolio companies but has not provided any services for Platinum pertaining to CompuCom.
THE FULL TEXT OF HOULIHAN LOKEY’S OPINION, WHICH IS ATTACHED HERETO AS APPENDIX D, DESCRIBES, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND QUALIFICATIONS MADE BY HOULIHAN LOKEY IN ITS REVIEW. THE SUMMARY OF THE HOULIHAN LOKEY OPINION IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE HOULIHAN LOKEY OPINION. YOU ARE URGED TO READ HOULIHAN LOKEY’S OPINION IN ITS ENTIRETY.
Houlihan Lokey’s opinion to the special committee addresses only the fairness from a financial point of view of the merger. The Houlihan Lokey opinion does not address the underlying business decision to effect the merger or the special committee’s decision to recommend the merger; nor does it constitute a recommendation to any stockholder regarding their participation in the merger and whether they should vote in favor of the merger. Houlihan Lokey has no obligation to update or reaffirm the Houlihan Lokey opinion. Houlihan Lokey did not, and was not requested by the special committee, us or any other person to make any recommendations as to the form or amount of consideration in connection with the merger. Furthermore, Houlihan Lokey did not negotiate any portion of the merger agreement or the merger or advise the special committee or our board of directors with respect to alternatives to the merger.
As compensation to Houlihan Lokey for its services in connection with the merger, we agreed to pay Houlihan Lokey an aggregate fee of $250,000 in addition to reimbursement of Houlihan Lokey’s expenses. We paid, during 2003, total fees of $250,000 to Houlihan Lokey for its services in connection with the prior transactions discussed and we reimbursed Houlihan Lokey for its expenses. No portion of Houlihan Lokey’s fee is contingent upon the successful completion of the merger, or the conclusions reached in Houlihan Lokey’s opinion. We have also agreed to indemnify and hold harmless Houlihan Lokey and any employee, agent, officer, director, attorney, stockholders or any person who controls Houlihan Lokey, against any and all losses in connection with, arising out of, based upon, or in any way related to Houlihan Lokey’s engagement by the special committee.
In arriving at its fairness opinion, Houlihan Lokey performed, among other things, the following activities:
1. | spoke with certain members of our senior management about the merger and our operations, financial condition, future prospects and projected operations and performance, and spoke with representatives of our investment bankers about certain matters; |
2. | reviewed our annual reports to stockholders on Form 10-K for the four fiscal years ended December 31, 2003 and our quarterly report on Form 10-Q for the quarter ended March 31, 2004, which our management had identified as being the most current financial statements available; |
3. | reviewed forecasts and projections prepared by our management with respect to us for the year ended December 31, 2004, which our management had identified as being the most current forecasts and projections available; |
4. | reviewed certain financial and other information provided by our management and Broadview with respect to us; |
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5. | reviewed copies of the following agreements: |
— | May 27, 2004 draft of the Agreement and Plan of Merger; and |
— | May 24, 2004 draft of the Principal Stockholder Agreement; |
6. | reviewed copies of the following documents: |
— | Certificate of Designation Establishing Series B Cumulative Convertible Preferred Stock of CompuCom Systems, Inc. dated March 1994; |
— | Presentation to CompuCom by Broadview, dated August 1, 2002; and |
— | May 13, 2004 Commitment Letter for $175,000,000 Senior Secured Credit Facility; |
7. | reviewed the historical market prices and trading volume for our publicly traded securities for the past two years ended May 27, 2004; |
8. | reviewed certain other publicly available financial data for certain companies that were deemed comparable to us, and publicly available prices and premiums paid in other transactions that were deemed comparable to the merger; and |
9. | conducted such other studies, analyses and inquiries as Houlihan Lokey deemed appropriate. |
Analyses
Houlihan Lokey used several methodologies to assess the fairness of the consideration to be received by our stockholders (other than Safeguard) in the merger. The following is a summary of the material financial analyses used by Houlihan Lokey in connection with providing its opinion. This summary is qualified in its entirety by reference to the full text of such opinion, which is attached as Appendix D to this proxy and incorporated herein by reference.
Houlihan Lokey performed each of the following analyses based upon its view that each is appropriate and reflective of generally accepted valuation methodologies given our trading volume relative to total shares outstanding, the accessibility of comparable publicly traded companies, the availability of forecasts from our management, and available information regarding similar transactions in the industries in which we are engaged. Further, no one methodology was considered to be more appropriate than any other methodology, and therefore Houlihan Lokey utilized all of the aforementioned methodologies in arriving at its conclusions. Houlihan Lokey performed the following analyses to determine the value of our business:
Market Multiple Methodology.Houlihan Lokey reviewed certain financial information of comparable publicly traded companies engaged primarily in the sale of: (a) hardware, software and value added services including network consulting and implementation services (the “Resellers With Services”), (b) hardware and software (the “Resellers”), and (c) IT services, including technology strategy consulting, systems design and architecture and network and systems integration (the “Services Companies”).
These publicly traded comparable companies were selected solely by Houlihan Lokey, and Houlihan Lokey deemed the selected companies to be reasonably comparable to us. The Resellers With Services included: GTSI Corp., Insight Enterprises, Inc., Manchester Technologies, Inc., and Pomeroy IT Solutions, Inc. The Resellers included: PC Connection, Inc., CDW Corp., Ingram Micro, Inc., and Tech Data Corp. The Services Companies included: Unisys Corp., Computer Sciences Corp., CGI Group, Inc., Perot Systems Corp., and Bearingpoint, Inc. Houlihan Lokey calculated and considered certain financial ratios of the comparable companies based on the most recent publicly available information, including the multiples of:
(i) | enterprise value (“EV”) (aggregate equity value plus all interest-bearing debt) to TTM EBIT; |
(ii) | EV to our projected calendar year 2004 (“CY04”) EBIT; |
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(iii) | EV to TTM and CY04 earnings before interest, taxes, depreciation and amortization (“EBITDA”); and |
(iv) | equity value to TTM and CY04 earnings. |
The analysis showed that the multiples exhibited by the comparable public companies as of May 27, 2004 were as follows:
EV/EBIT | EV/EBITDA | Equity Value/Earnings | ||||||||||
TTM | CY04 | TTM | CY04 | TTM | CY04 | |||||||
Resellers With Services | ||||||||||||
GTSI Corp. | 10.6x | 10.3x | 7.9x | 7.8x | 15.6x | 15.3x | ||||||
Manchester Technologies Inc. | NMF | 7.5x | 13.5x | 4.9x | NMF | 11.8x | ||||||
Insight Enterprises Inc. | 12.0x | 9.4x | 8.6x | 7.2x | 19.8x | 15.6x | ||||||
Pomeroy IT Solutions Inc. | 6.7x | 6.0x | 5.2x | 4.7x | 15.7x | 14.0x | ||||||
Resellers | ||||||||||||
PC Connection Inc. | 15.3x | 11.9x | 9.6x | 8.3x | 27.7x | 21.1x | ||||||
CDW Corp. | 17.5x | 13.7x | 16.7x | 13.2x | 32.0x | 25.2x | ||||||
Ingram Micro Inc. | 10.4x | 7.2x | 7.5x | 5.7x | 12.6x | 15.1x | ||||||
Tech Data Corp. | 14.4x | 11.3x | 11.1x | 9.2x | 21.7x | 17.2x | ||||||
Services Companies | ||||||||||||
Unisys Corp. | 12.2x | 12.2x | 6.6x | 6.4x | 18.4x | 19.1x | ||||||
Computer Sciences Corp. | 10.6x | 9.8x | 5.2x | 4.8x | 15.3x | 14.1x | ||||||
CGI Group Inc. | 10.9x | 7.2x | 7.3x | 5.4x | 17.5x | 11.8x | ||||||
Perot Systems Corp. | 16.2x | 11.7x | 11.1x | 8.8x | 28.8x | 20.6x | ||||||
Bearingpoint Inc. | 20.4x | 14.1x | 9.0x | 8.8x | 61.9x | 28.9x | ||||||
High | 20.4x | 14.1x | 16.7x | 13.2x | 61.9x | 28.9x | ||||||
Low | 6.7x | 6.0x | 5.2x | 4.7x | 12.6x | 11.8x | ||||||
Median | 12.1x | 10.3x | 8.6x | 7.2x | 19.1x | 15.6x | ||||||
Mean | 13.1x | 10.2x | 9.2x | 7.3x | 23.9x | 17.7x |
No company used in the analyses described above was directly comparable to us. Accordingly, Houlihan Lokey reviewed the foregoing comparable public companies to understand the range of multiples of EBITDA, EBIT, and earnings for companies in these industries.
To arrive at the appropriate EBIT, EBITDA and earnings against which to apply a multiple, Houlihan Lokey analyzed the TTM financial results and made certain adjustments to interest expense to reflect the level of interest expense associated with the current level of debt associated with the accounts receivable securitization. Houlihan Lokey determined that both TTM and CY04 earnings, EBIT and EBITDA should be considered.
Houlihan Lokey derived indications of the value of our business by applying selected EBIT, EBITDA, and earnings multiples to our TTM and CY04 adjusted operating results. The enterprise value indications based upon multiples of EBIT and EBITDA were adjusted for our $10 million accounts receivable securitization and our preferred stock to arrive at the value of our common stock.
Houlihan Lokey also considered that the multiples exhibited by the comparable public companies reflect marketable minority ownership, but not prices for change of control transactions. When stockholders are asked to give up the potential to benefit from a future controlling interest transaction, a premium above the minority ownership value could be appropriate. Houlihan Lokey identified four change of control transactions involving publicly traded resellers of hardware, software and/or services since March 2002. Each of these transactions involved strategic buyers that would generally be expected to benefit from synergies in the combined business
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and that therefore may include a strategic premium for change in control. Houlihan Lokey also identified 34 change of control transactions involving publicly traded companies that were acquired by a financial buyer. These change of control transactions would generally be expected to exclude a strategic premium for change in control. Due, in part, to the efforts Broadview undertook to find a buyer for CompuCom and the limited interest received by Broadview, Houlihan Lokey gave more weight to control premiums paid by financial buyers when selecting an appropriate range of control premiums. After due consideration, Houlihan Lokey applied a range of control premiums of zero percent to ten percent to reflect our value in a change of control transaction.
The indications of the value of our common stock based on the market multiple methodology ranged from approximately $4.23 to $4.96 per share.
Transaction Multiple Methodology.In addition to the trading multiples for comparable public companies, Houlihan Lokey reviewed the observed multiples in certain change of control transactions of selected companies that Houlihan Lokey deemed relevant and comparable to us. These multiples were calculated based upon data provided by Securities Data Corporation, Mergerstat, and public filings of those companies involved in such change of control transactions.
Houlihan Lokey identified 12 change of control transactions involving resellers of hardware, software and/or services since March 2002. These transactions exhibited multiples of the price paid (including debt), of EV to TTM EBIT which ranged from a low of 1.7 to a high of 33.8, with a median multiple of 7.7 and a mean multiple of 9.7. These transactions exhibited multiples of EV to TTM EBITDA, which ranged from a low of 2.5 to a high of 6.0, with a median multiple of 5.5 and a mean multiple of 4.9.
In performing its analysis, Houlihan Lokey considered that the merger and acquisition transaction environment varies over time because of, among other things, interest rate and equity market fluctuations and industry results and growth expectations. No company or transaction used in the analyses described above was directly comparable to us. Accordingly, Houlihan Lokey reviewed the foregoing comparable public companies and transactions to understand the range of multiples of EBITDA and EBIT paid for companies in these industries.
The indications of the value of our common stock based on the transaction multiple methodology ranged from approximately $4.09 to $4.58 per share, which included an adjustment for our $10 million accounts receivable securitization and our preferred stock.
Public Market Price.Houlihan Lokey also reviewed the historical public closing prices and trading volume for our common stock. Houlihan Lokey analyzed, as of May 27, 2004, the closing price, 5-day average price, and 20-day average price of our common stock, which were $4.84, $4.63, and $4.59 per share, respectively. Houlihan Lokey applied a range of control premiums of zero percent to ten percent to these observed prices. The resulting indications of value for our common stock ranged from approximately $4.63 per share to $5.10 per share. Houlihan Lokey compared our projected financial results for 2004 (which are more fully described in “Projected Financial Information”) and our capital spending requirements to those contained in a recent stock analyst’s report on us, and noted that our forecasts were below those of the analyst, and considered the differences between our forecasts and the analyst’s forecasts.
Discounted Cash Flow Methodology.Houlihan Lokey did not utilize the discounted cash flow methodology as we did not prepare financial projections for periods beyond fiscal 2004.
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Determination of Per Share Values
As set forth above, Houlihan Lokey determined the value of our business using the multiples of earnings, EBIT, and EBITDA and considered our public stock price. The per share valuation indications for our common stock are summarized as follows:
Low | High | |||||
Market Multiple Approach | $ | 4.23 | $ | 4.96 | ||
Transaction Multiple Approach | $ | 4.09 | $ | 4.58 | ||
Public Market Pricing | $ | 4.63 | $ | 5.10 |
Based upon the aforementioned analyses, Houlihan Lokey selected a range of value for our common stock of $4.25 to $4.90 per share.
Houlihan Lokey considered the aforementioned analyses as a whole and arrived at its range of equity value based upon consideration of all of the aforementioned analyses.
Determination of Fairness
After determining our equity value, Houlihan Lokey noted that the merger consideration of $4.60 per share is within the range of the indications of value that are the result of Houlihan Lokey’s analyses.
Conclusion
Houlihan Lokey delivered to the special committee a written opinion dated May 27, 2004 stating that, as of that date, based on and subject to the assumptions made, matters considered, limitations on and qualifications made by Houlihan Lokey in its review and assuming the merger is consummated as proposed, the consideration of $4.60 to be received in the merger by the non-Safeguard stockholders for each share of our common stock held by them is fair to such stockholders, from a financial point of view. The opinion was based upon and subject to the assumptions made, matters considered, limitations on, and qualifications made by Houlihan Lokey in its review. In connection with its review, Houlihan Lokey considered financial projections prepared by our management. The financial projections do not take into account any circumstances or events occurring after the date they were prepared. In addition, factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to our business, financial condition or results of operation, may cause the financial projections or the underlying assumptions to be inaccurate. As a result, the financial projections provided to Houlihan Lokey are not necessarily indicative of our future results.
Houlihan Lokey’s opinion is based on, among other things, the business, economic, market and other conditions as they existed as of May 27, 2004, and on our financial projections provided to Houlihan Lokey. In rendering its opinion, Houlihan Lokey relied upon and assumed, without independent verification, that the financial and other information provided to Houlihan Lokey, including the financial projections, was reasonably prepared and reflected the best currently available estimates of our financial results and condition; that no material change has occurred in the information reviewed between the date the information was provided and the date of the Houlihan Lokey opinion; and that there were no facts or information regarding us that would cause the information supplied to Houlihan Lokey to be incomplete or misleading in any material respect. Houlihan Lokey did not independently verify the accuracy or completeness of the information supplied to it with respect to us and does not assume responsibility for it. Houlihan Lokey did not make any independent appraisal of our specific properties or assets.
Houlihan Lokey was not asked to opine and does not express any opinion as to: (i) the tax or legal consequences of the merger; (ii) the net realizable value of our common stock or the prices at which our common stock may trade; and (iii) the fairness of any aspect of the merger not expressly addressed in its fairness opinion.
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The summary set forth above describes the material points of more detailed analyses performed by Houlihan Lokey in arriving at its fairness opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and application of those methods to the particular circumstances and is therefore not readily susceptible to summary description. In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Houlihan Lokey believes that its analyses and summary set forth herein must be considered as a whole and that selecting portions of its analyses, without considering all analyses and factors, or portions of this summary, could create an incomplete and/or inaccurate view of the processes underlying the analyses set forth in Houlihan Lokey’s fairness opinion. In its analyses, Houlihan Lokey made numerous assumptions with respect to us, the merger, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the respective entities. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable than suggested by such analyses. Additionally, analyses relating to the value of our businesses or securities are not appraisals. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty.
PRINCIPAL STOCKHOLDER AGREEMENT
In order to induce Parent to enter into the merger agreement, Safeguard has entered into a principal stockholder agreement pursuant to which Safeguard has agreed to call a special meeting of the Safeguard shareholders for the purpose of voting on a proposal that Safeguard vote the shares of our common stock and preferred stock that it (including its wholly-owned affiliates) owns in favor of approving the merger and adoption of the merger agreement. Subject to receiving the approval of a majority of the votes cast by Safeguard shareholders at the Safeguard shareholder meeting, Safeguard has agreed to vote its shares of our common stock and preferred stock in favor of our merger and the adoption of our merger agreement at our stockholder meeting, and against any acquisition proposal and any other action that may reasonably be expected to impede, interfere with, delay, postpone, attempt to discourage or have a material adverse effect on the consummation of, our merger or result in a breach in any material respect of any of our covenants, representations, warranties or other obligations and agreements contained in our merger agreement. If Safeguard votes its shares of our common stock and preferred stock in favor of the merger proposal at our special meeting, we will have received the requisite stockholder approval for approval of the merger and adoption of the merger agreement.
Additionally, Safeguard has agreed to restrictions on the transferability of its shares of our common stock and preferred stock and to refrain from taking certain actions with respect to acquisition proposals for us. At any time prior to the time that Safeguard’s shareholders approve the merger proposal, Safeguard may engage in negotiations with a third party with respect to an acquisition proposal that is a “superior proposal” provided certain procedures are followed.
Each of J. Edward Coleman, M. Lazane Smith, David A. Loeser and John F. McKenna, each of whom is one of our executive officers, and Michael J. Emmi, Richard F. Ford, Edwin L. Harper, Delbert W. Johnson, John D. Loewenberg, Warren V. Musser, Anthony J. Paoni and Edward N. Patrone, each of whom is one of our directors, have entered into a support agreement, dated May 27, 2004, with Parent. The support agreements bind these individuals solely in their capacity as stockholders of CompuCom and do not prohibit them from fulfilling their fiduciary duties as our officers or directors. Under the support agreements, each of these individuals has agreed to vote, or cause to be voted, at the special meeting or any other meeting called with respect to the merger, all the shares of CompuCom held by him or her beneficially in favor of approval of the merger and adoption of the merger agreement and each of the other transactions contemplated by the merger agreement. Each of these individuals, in his or her capacity as a stockholder, has also agreed not to enter into any agreement, letter of intent, agreement in principle, or understanding with any person that violates or conflicts with, or could reasonably be expected to violate or conflict with, the support agreement or the merger agreement. Each support
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agreement will expire as of the earliest to occur of mutual consent, the termination of the merger agreement under its terms or the consummation of the merger. The aggregate amount of outstanding shares of our common stock subject to the support agreements represented on the record date approximately 1.3% of the outstanding shares of our common stock entitled to vote at the special meeting and approximately 1.2% of the combined vote of our common stock and preferred stock.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of our board of directors with respect to the merger agreement and the merger, you should be aware that some of our executive officers and the members of our board of directors have interests in the merger that may be in addition to, or different from, the interests of our stockholders generally and that create potential conflicts of interest. These interests are described below.
Stock Options
The merger agreement provides that, immediately prior to the effective time of the merger, all outstanding options, whether vested or unvested, will be canceled and converted into the right to receive a cash payment, without interest, less any applicable withholding taxes, equal to the excess, if any, of $4.60 over the per share exercise price of the option, multiplied by the number of shares of common stock subject to the option.
The following table summarizes the number of shares of our common stock subject to vested options or unvested options that accelerate as a result of the merger that are currently held by each executive officer and director, as well as the aggregate amount of cash to which each executive officer and director would be entitled as of the date of our stockholders’ meeting:
Name of Director/Officer | Number of Shares Related to Vested/Accelerated Options1 | $ Value of Vested/Accelerated Options at Closing1 | ||
J. Edward Coleman | 1,100,000/50,000 | 1,433,425/120,500 | ||
Anthony L. Craig | 0 | 0 | ||
Michael J. Emmi | 37,750/10,250 | 64,268/27,742 | ||
Richard F. Ford | 37,750/10,250 | 64,268/27,742 | ||
Edwin L. Harper | 37,750/10,250 | 50,143/27,742 | ||
Delbert W. Johnson | 37,750/10,250 | 64,268/27,742 | ||
John D. Loewenberg | 37,750/10,250 | 64,268/27,742 | ||
Warren V. Musser | 0 | 0 | ||
Anthony J. Paoni | 37,750/10,250 | 52,393/27,742 | ||
Edward N. Patrone | 37,750/10,250 | 64,268/27,742 | ||
M. Lazane Smith | 403,750/31,250 | 588,813/75,312 | ||
David A. Loeser | 325,000/25,000 | 499,500/60,250 | ||
John F. McKenna | 325,000/25,000 | 343,250/60,250 |
1 | Figures reflect only options with per share exercise prices less than $4.60. |
Arrangements for Certain of Our Executive Officers Under Employment Agreements
Each of J. Edward Coleman, M. Lazane Smith, John F. McKenna and David A. Loeser has entered into a new employment agreement effective solely upon consummation of the merger and which will commence immediately prior to the effective time of the merger. Certain terms of these agreements differ from the terms of the agreements currently in place for each of these individuals. The base salary and percent of participation in the annual bonus plan remain the same; however, under the new agreements, these individuals forfeit the right to receive severance payments if they are terminated during the first year after the change of control. Additionally, the change of control payments owed at the closing of a change of control transaction under the current employment agreements of these individuals have been revised in the new employment agreements. Under the
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terms of the new agreements, only half of the payment amount will be paid upon the closing of the merger; an amount equal to the remaining half of this payment amount has been restructured as a stay bonus and will only be paid ninety days after the closing of the merger if the employee remains employed by CompuCom as of such date, or prior to such date is terminated without due cause or resigns for good reason. Likewise, benefits continuation and bonus payments pursuant to a change of control are subject to greater restrictions under the new employment agreements in comparison with the current employment agreements.
The following is a summary of the compensation and other benefits that each of these executive officers will receive under the terms of their respective employment agreements with us as a result of the change of control of CompuCom.
Employment Agreement with J. Edward Coleman
Our President and Chief Executive Officer, J. Edward Coleman, has had an employment agreement with CompuCom for several years which provided that Mr. Coleman was entitled to certain benefits upon the consummation of a “change in control.” On May 27, 2004, we signed a new employment agreement with Mr. Coleman, which will become effective solely upon the consummation of the merger transaction and which will commence immediately prior to the effective time of the merger. The completion of the merger will constitute a change in control for purposes of Mr. Coleman’s new employment agreement. As a result of a change in control, Mr. Coleman will receive:
• | a lump sum payment of $1,765,500 upon the closing of the merger transaction; |
• | a stay bonus of $1,765,500 ninety days after the closing of the merger transaction if Mr. Coleman remains employed as of such date, or prior to such date is terminated without due cause or resigns for good reason; |
• | a lump sum payment at the closing of the merger transaction equal to his targeted management incentive compensation plan bonus prorated to the date of the closing of the merger transaction to be deducted from any full year bonus earned; and |
• | a payment in respect of his vested and unvested stock options with a per share exercise price of less than $4.60, consistent with the treatment of other CompuCom optionholders. |
Employment Agreements with Other Executive Officers
Our Senior Vice President and Chief Financial Officer, M. Lazane Smith, our Senior Vice President-Services, John F. McKenna, and our Senior Vice President-Human Resources, David A. Loeser, have each had employment agreements with CompuCom for several years which provided that each of them were entitled to certain benefits upon the consummation of a “change in control.” On May 27, 2004, we signed new employment agreements with each of Ms. Smith, Mr. McKenna and Mr. Loeser, which will become effective solely upon the consummation of the merger transaction and which will commence immediately prior to the effective time of the merger. The completion of the merger will constitute a change in control for purposes of the new employment agreements.
These employment agreements are substantially similar to the one signed by J. Edward Coleman as described above, except that the lump sum payments will be $700,000 for Ms. Smith, $600,000 for Mr. McKenna and $420,000 for Mr. Loeser, and the stay bonuses will be $700,000 for Ms. Smith, $600,000 for Mr. McKenna and $420,000 for Mr. Loeser.
Special Committee Compensation
The members of the special committee receive separate compensation for serving on the committee. This compensation consists of payments of $500 per meeting to each of Michael J. Emmi, Richard F. Ford, John D.
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Loewenberg, Anthony J. Paoni and Edward N. Patrone as special committee members, and a payment of $1,000 per meeting to Edwin L. Harper for serving as chairman of the special committee.
Directors That Are Employees of Safeguard
Anthony L. Craig is currently a director of CompuCom and President, CEO and a director of Safeguard. Although not currently an employee of Safeguard, Warren V. Musser, a director of CompuCom, was the Chairman of the board of directors and Chief Executive Officer of Safeguard from 1953 to 2001. Pursuant to an agreement in October 2001, Safeguard has agreed to provide for annual payments of $650,000 per year and certain healthcare and other benefits for life to Mr. Musser. Each of Mr. Craig and Mr. Musser own shares of Safeguard. Safeguard’s interests are not necessarily aligned with CompuCom’s interest in this transaction. See “The Merger—Interests of Our Principal Stockholder in the Merger.”
DIRECTORS’ AND OFFICERS’ INDEMNIFICATION, ADVANCEMENT OF EXPENSES, EXCULPATION AND INSURANCE
Parent has agreed to cause the surviving corporation to indemnify, defend and hold harmless the present directors and officers of CompuCom against all damages arising out of claims made by third parties and to assume the obligations for all rights to indemnification, advancement of expenses and all exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger now existing in favor of our present and former officers, directors or employees, as provided in our restated certificate of incorporation, bylaws, resolutions or any indemnification agreement between any such person and us as they are in effect as of the date of the merger agreement. These obligations will continue for a period of not less than six years after the effective time of the merger.
Parent has also agreed to maintain in effect our current officers’ and directors’ liability insurance for a period of six years after the completion of the merger for acts or omissions occurring prior to the effective time of the merger, covering those persons who were, as of the date of the merger agreement, covered by that policy. The coverage terms and amount of coverage must be no less advantageous than those of the policy in effect on the date of the merger agreement, although Parent is not required to pay more than 200% of the annual premiums for the previous coverage. In the event coverage cannot be obtained for 200% of the annual premiums for the previous coverage or less, Parent is obligated to provide the greatest coverage that can be obtained for 200% of the annual premiums for the previous coverage.
INTERESTS OF OUR PRINCIPAL STOCKHOLDER IN THE MERGER
In considering the recommendation of our board of directors with respect to the merger agreement and the merger, you should be aware that our principal stockholder has interests in the merger that are in addition to, or different from, the interests of our stockholders generally and that create potential conflicts of interest. These interests are described below.
Safeguard currently owns all of our outstanding shares of preferred stock and at the effective time of the merger, in accordance with the terms of the preferred stock will receive $15,000,000, plus an amount equal to the accrued and unpaid dividends for these shares.
Safeguard has agreed to provide to our Dallas headquarters landlord a letter of credit in an amount equal to $6,336,198, after the effective date of the merger, in order to facilitate CompuCom obtaining the consent required under the Lease Agreement, dated as of March 31, 1999, between Delaware Comp LLC, and CompuCom. The letter of credit would expire on March 31, 2019 and CompuCom would reimburse Safeguard for all fees and expenses incurred in order to obtain and maintain this letter of credit. This reimbursement would provide that it may not exceed 1.5% of the aggregate principal amount of the Safeguard letter of credit per annum.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS
The following is a description of the material U.S. federal income tax consequences of the merger to holders of shares of our common stock and preferred stock who dispose of their shares in the merger, who are United States Persons (as defined below) and who, on the date of disposition, hold their shares as capital assets, as defined in the Internal Revenue Code of 1986, as amended (the “Code”), each referred to as a “United States Holder.” This discussion is based on the Code, proposed, temporary and final Treasury Regulations promulgated thereunder and administrative and judicial interpretations of the Code and Treasury Regulations, each as in effect on the date of this proxy statement, all of which may change, possibly with retroactive effect. This summary does not address all of the tax consequences that may be relevant to particular holders in light of their personal circumstances, or to other types of holders, including without limitation:
• | Banks, insurance companies or other financial institutions; |
• | Broker-dealers; |
• | Traders; |
• | Expatriates; |
• | Tax-exempt organizations; |
• | Non-United States Holders (as defined below); |
• | Persons who are subject to alternative minimum tax; |
• | Persons who hold their shares of common stock or preferred stock as a position in a “straddle” or as part of a “hedging” or “conversion” transaction; |
• | Persons deemed to sell their shares of common stock or preferred stock under the constructive sale provisions of the Code; |
• | Persons that have a functional currency other than the U.S. dollar; or |
• | Persons who acquired their shares of common stock or preferred stock upon the exercise of stock options or otherwise as compensation. |
In addition, this discussion does not address any foreign, state, local or other tax consequences of the disposition of shares in the merger.
We urge all holders to consult their own tax advisors regarding the specific tax consequences that may result from their individual circumstances as well as foreign, state, local and other tax consequences of the disposition of shares in the merger.
For purposes of this discussion a “United States Person” is a beneficial owner of common stock or preferred stock who, for U.S. federal income tax purposes, is:
• | a citizen or resident of the U.S.; |
• | a partnership or corporation, or an entity treated as a partnership or corporation for U.S. federal income tax purposes, created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia; |
• | an estate if its income is subject to U.S. federal income taxation regardless of its source; or |
• | a trust, (i) if the trust validly has elected to be treated as a United States person for U.S. federal income tax purposes or (ii) if (A) a U.S. court can exercise primary supervision over its administration and (B) one or more United States persons have the authority to control all of its substantial decisions. |
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A “Non-United States Holder” is a holder of our common stock or preferred stock other than a United States Holder.
If a partnership holds our common stock, the tax treatment of the partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock, you should consult your tax advisor.
Consequences of the Merger
Although we will not seek any rulings from the Internal Revenue Service or an opinion of counsel with respect to the merger, we believe that the merger will have the U.S. federal income tax consequences described below to the United States Holders.
The receipt of cash in exchange for shares of our common stock or preferred stock pursuant to the merger (including to the extent the receipt of such cash is attributable to accrued but unpaid dividends on the preferred stock) will be a taxable transaction for U.S. federal income tax purposes. A United States Holder will recognize gain or loss for U.S. federal income tax purposes upon the exchange of the holder’s shares pursuant to the merger for cash in an amount equal to the difference, if any, between the amount of cash received and the holder’s aggregate adjusted tax basis in the shares exchanged in the merger.
In general, any gain or loss recognized by a United States Holder in the merger will be eligible for capital gain or loss treatment. Any such capital gain or loss recognized by a United States Holder will be long-term capital gain or loss if the shares giving rise to the recognized gain or loss have been held for more than one year at the time of the consummation of the merger. Otherwise, the capital gain or loss will be short-term. A non-corporate United States Holder’s long-term capital gain generally is subject to U.S. federal income tax at a maximum rate of 15%. Any capital loss can be offset only against other capital gains plus $3,000 of other income in any tax year ($1,500 in the case of a married individual filing a separate return). Any unutilized capital loss will carry over as a capital loss to succeeding years for an unlimited time until the loss is exhausted.
For corporations, a capital gain is subject to U.S. federal income tax at a maximum rate of 35%, while any capital loss can be offset only against other capital gains. Any unutilized capital loss generally can be carried back three years and forward five years to offset net capital gains generated in those years. If a United States Holder of our common stock exercises appraisal rights and receives cash in exchange for its shares of our common stock, such holder will generally recognize capital gain or loss equal to the difference between the cash received and such holder’s aggregate adjusted tax basis in our common stock exchanged therefor.
Backup Withholding
Under the U.S. federal backup withholding tax rules, unless an exemption applies, the disbursing agent in the merger will be required to withhold, and will withhold, 28% of all cash payments to which a holder of shares or other payee is entitled under the merger agreement. Backup withholding will not apply to a holder who (i) furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on the Substitute Form W-9 included in the letter of transmittal to be delivered to holders of our common or preferred stock in connection with the merger, (ii) provides a certification of foreign status on Form W-8BEN or successor form, or (iii) is otherwise exempt from backup withholding. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability provided the required information is furnished to the Internal Revenue Service. Each of our stockholders and, if applicable, each other payee should complete and sign one of the following to provide the information and certification to the disbursing agent necessary to avoid backup withholding tax: (x) the Substitute Form W-9 included as part of the letter of transmittal to be returned to the disbursing agent, (y) a Form W-8BEN, or (z) such other information or documentation that for U.S. federal income tax purposes establishes that an exemption from backup withholding applies.
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THE U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
Because the expected consideration to be paid to the holders of our preferred and common stock in the merger is below our total current stockholders’ equity, we will need to complete an impairment review in accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets.” We expect to record a significant impairment charge related to this review in the second quarter of 2004. In addition, professional fees and expenses incurred relating to the proposed transaction will be recorded in the second quarter of 2004.
If the merger agreement is adopted and the merger is approved by the requisite vote of our stockholders and the other conditions to the merger are satisfied or, to the extent permitted, waived, the merger will be consummated and become effective at the time a certificate of merger is filed with the Secretary of State of the State of Delaware or such later time as otherwise agreed by CompuCom and Merger Subsidiary and provided in the certificate of merger.
PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF STOCK CERTIFICATES
Prior to the effective time of the merger, Parent will designate a bank, trust company or other entity reasonably satisfactory to us to act as disbursing agent for purposes of making the cash payments provided by the merger agreement to holders of our common stock and our preferred stock. At or prior to the effective time of the merger, Parent or Merger Subsidiary will deposit, or cause to be deposited, with the disbursing agent immediately available funds in an aggregate amount necessary to pay the merger consideration to all holders of our common stock and our preferred stock entitled to the consideration. The disbursing agent will, in accordance with its instructions, deliver to holders of our common stock and our preferred stock the merger consideration due to them according to the procedure summarized below.
After the effective time of the merger, Parent has agreed to cause the disbursing agent to mail a notice and a transmittal form to each of our stockholders that has not already executed a transmittal form, to advise each of them of the effectiveness of the merger and the procedure for surrendering to the disbursing agent stock certificates in exchange for the merger consideration.
Each stockholder will be entitled to receive their merger consideration, less any taxes required to be withheld upon proper surrender of his or her stock certificates to the disbursing agent, along with their transmittal form. Parent will cause the disbursing agent to promptly deliver the merger consideration to the stockholder upon surrender of stock certificates to the disbursing agent. Until properly surrendered, each stock certificate only represents the right to receive the merger consideration, and stockholders will not be entitled to payment of the merger consideration they are owed. No interest will be paid or accrued on the cash payable upon the surrender of a stock certificate. All costs and expenses of the disbursing agent will be paid by Parent.
If any or all of the merger consideration payable for any common stock or preferred stock is to be delivered to a person other than the stockholder, the stock certificates must be properly endorsed or accompanied by appropriate stock powers. Neither the disbursing agent nor any of the parties to the merger agreement will be liable to a stockholder for any merger consideration delivered to a public official under applicable abandoned property, escheat or similar laws.
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In the event any stock certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the stockholder, the surviving corporation will issue, in exchange for such lost, stolen or destroyed stock certificate, the applicable merger consideration. The surviving corporation’s board of directors may require a bond in this situation.
Seven months after the effective time of the merger, upon request by Parent, the disbursing agent will return to the surviving corporation all merger consideration in its possession relating to the transactions described in the merger agreement, and the disbursing agent’s duties will then terminate. At such time, stockholders may surrender such stock certificate to the surviving corporation, in accordance with the procedures above, and (subject to applicable abandoned property, escheat and similar laws) receive their merger consideration.
From and after the effective time of the merger, holders of our stock certificates will not have any rights as stockholders of CompuCom, except as provided by the merger agreement or by law.
At the effective time of the merger, the stock transfer books of CompuCom shall be closed and no transfer of shares of our common stock or preferred stock will be made. If, after the effective time of the merger, stock certificates are presented to the surviving corporation or the disbursing agent, they will be canceled and exchanged for the merger consideration, as provided in the merger agreement.
The merger consideration to be paid to CompuCom’s stockholders and optionholders will be paid entirely in cash. Platinum intends to pay the merger consideration from a combination of equity from its private equity fund, available cash at CompuCom, a senior secured revolving line of credit from a financial institution, a supplemental senior secured revolving line of credit from either Platinum or another financial institution and proceeds from the Note Financing.
Platinum Equity on behalf of Merger Subsidiary has obtained a commitment letter from Bank of America and Wells Fargo Foothill providing for a senior secured revolving line of credit up to $175 million based upon the eligible accounts receivables of CompuCom.
The obligations of Parent and Merger Subsidiary to effect the merger are subject to completion of the Note Financing. Platinum has received a letter from Jefferies stating that Jefferies is highly confident that, subject to certain terms and conditions, it will be able to arrange the placement of the Note Financing to be completed concurrently with the closing of the merger. These terms and conditions include (i) no material adverse change in the financial condition, results of operation, prospects or business of CompuCom, (ii) no material change in the market conditions for new issuances of subordinated debt, (iii) the preparation, execution and delivery of complete documentation with respect to the unsecured financing, satisfactory to Jefferies, (iv) no adverse information becoming known to Jefferies regarding CompuCom that is not otherwise set forth on CompuCom’s most recent quarterly and annual report filings made with the SEC, (v) Jefferies having a reasonable time to market the unsecured financing with the assistance of CompuCom, and (vi) approval by the Jefferies Underwriting Assistance Committee. There can be no assurance that the Note Financing will be consummated, and should it not be consummated, Platinum will not be obligated to consummate the merger. See “The Merger Agreement—Conditions to the Merger” and “Note Financing.”
Under Delaware law, if (1) you properly make a demand for appraisal in writing prior to the vote taken at the special meeting and (2) your shares are not voted in favor of the merger agreement or the merger, you will be entitled to exercise appraisal rights under Section 262 of the General Corporation Law of the State of Delaware.
Section 262 is reprinted in its entirety as Appendix F to this proxy statement. The following discussion is not a complete statement of the law relating to appraisal rights and is qualified in its entirety by reference to
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Appendix F. You should review this discussion and Appendix F carefully if you wish to exercise statutory appraisal rights or you wish to preserve the right to do so. Failure to strictly comply with the procedures set forth in Section 262 will result in the loss of your appraisal rights.
If you:
• | make the demand described below with respect to your shares; |
• | are continuously the record holder of your shares from the date of making the demand through the effective time of the merger; |
• | neither vote in favor of the adoption of the merger agreement and the approval of the merger nor consent to the adoption of the merger agreement and the approval of the merger in writing; |
• | file a proper petition with the Delaware Court of Chancery, as described below; and |
• | otherwise comply with the statutory requirements of Section 262, |
you will be entitled to an appraisal by the Delaware Court of Chancery of the “fair value” of your shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by the Delaware Court of Chancery.
Under Section 262, where a merger is to be submitted for approval at a meeting of stockholders, as in the case of the special meeting, we must notify you that appraisal rights are available not less than 20 days prior to the meeting and include in the notice a copy of Section 262. This proxy statement constitutes your notice of your appraisal rights, and Section 262 is attached to this proxy statement as Appendix F.
If you desire to exercise your appraisal rights, you must not vote in favor of the adoption of the merger agreement and the approval of the merger and you must deliver to us a separate written demand for appraisal prior to the vote at the special meeting. If you sign and return a proxy without expressly directing, by checking the applicable box on the enclosed proxy card, that your shares be voted against the proposal or that an abstention be registered with respect to your shares in connection with the proposal, you effectively will have waived your appraisal rights as to those shares. This is because, in the absence of express contrary instructions, your shares will be voted in favor of the proposal. See “Introduction – Voting and Revocation of Proxies.” Accordingly, if you desire to perfect appraisal rights with respect to any of your shares, you must, as one of the procedural steps involved in perfection, either (1) refrain from executing and returning the enclosed proxy card and from voting in person in favor of the proposal to adopt the merger agreement and approve the merger or (2) check either the “Against” or the “Abstain” box next to the proposal on the proxy card or affirmatively vote in person against the proposal or register in person an abstention with respect to the proposal.
Only a holder of record is entitled to assert appraisal rights for the shares of our stock registered in that holder’s name. A demand for appraisal must be executed by or on behalf of the holder of record and must reasonably inform us of the holder’s identity and that the holder of record intends to demand appraisal of the holder’s shares. If you have a beneficial interest in shares that are held of record in the name of another person, such as a broker, fiduciary or other nominee, you must act promptly to cause the record holder to follow properly and in a timely manner the procedures to perfect appraisal rights, and your demand must be executed by or for the record owner. If your shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, your demand must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal. However, the agent must identify the record owners and expressly disclose the fact that, in exercising the demand, the agent is acting as agent for the record owners.
A record owner, such as a broker, fiduciary or other nominee, who holds shares as a nominee for others may exercise appraisal rights with respect to the shares held for all or less than all of the beneficial owners of shares as to which the person is the record owner. In that case, the written demand must set forth the number of shares
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covered by the demand. Where the number of shares is not expressly stated, the demand will be presumed to cover all shares in the name of the record owner.
If you elect to exercise appraisal rights, you should mail or deliver your written demand to: CompuCom Systems, Inc. 7171 Forest Lane, Dallas, Texas, 75230, Attention: Corporate Secretary.
The written demand for appraisal should specify your name and mailing address, the number and class of shares you own and that you are demanding appraisal of your shares. A proxy or vote against the merger agreement and the merger will not by itself constitute a demand. Within 10 days after the effective time of the merger, CompuCom must provide notice of the effective time of the merger to you if you have complied with Section 262.
Within 120 days after the effective time of the merger, either CompuCom or you, if you have complied with the required conditions of Section 262 and are otherwise entitled to appraisal rights, may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of all stockholders demanding an appraisal. CompuCom does not have any present intention to file this petition in the event that a stockholder makes a written demand. Accordingly, if you desire to have your shares appraised, you should initiate any petitions necessary for the perfection of your appraisal rights within the time periods and in the manner prescribed in Section 262. If you file a petition, you must serve a copy on CompuCom. If appraisal rights are available and if you have complied with the applicable provisions of Section 262, within 120 days after the effective time of the merger, you will be entitled, upon written request, to receive from CompuCom a statement setting forth the aggregate number of shares of each class not voting in favor of the adoption of the merger agreement and the approval of the merger and as to which we received demands for appraisal, and the aggregate number of holders of those shares. This statement must be mailed within 10 days after CompuCom has received the written request for the statement or within 10 days after the expiration of the period for delivery of demands for appraisal rights, whichever is later.
If a petition for an appraisal is timely filed by a holder of our shares and a copy is served upon CompuCom, CompuCom will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of stock and with whom agreements as to the value of their shares have not been reached. After notice to those stockholders as required by the Court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights. If you have demanded an appraisal, the Delaware Court of Chancery may require you to submit your stock certificates to the Delaware Register in Chancery for notation on the stock certificates of the pendency of the appraisal proceeding. If you fail to comply with this direction, the Delaware Court of Chancery may dismiss the proceedings as to you.
Where proceedings are not dismissed, the Delaware Court of Chancery will appraise the shares owned by stockholders demanding an appraisal, determining the “fair value” of those shares, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value.
THE DELAWARE COURT OF CHANCERY’S APPRAISAL MAY BE MORE THAN, LESS THAN OR EQUAL TO THE PER SHARE MERGER CONSIDERATION FOR OUR COMMON STOCK. You should be aware that investment advisors’ opinions as to fairness, from a financial point of view, are not opinions as to “fair value” under Section 262. In determining fair value, the Delaware Court of Chancery is to take into account all relevant factors. In relevant case law, the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court may consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts ascertainable as of the date of the merger that throw light on the future prospects of the merged corporation. The
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Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”
Section 262, however, provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.
The Delaware Court of Chancery will also determine the amount of interest, if any, to be paid upon the amounts to be received by persons whose shares of our common stock have been appraised. The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and taxed against the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a stockholder who has demanded an appraisal, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all of the shares entitled to an appraisal.
If you have demanded appraisal in compliance with Section 262, you will not, after the effective time of the merger, be entitled to vote for any purpose any shares subject to your demand or to receive payment of dividends or other distributions on your shares, except for dividends or distributions payable to holders of record as of a date prior to the effective time of the merger.
If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after the effective time of the merger, your rights to appraisal will cease. You may withdraw your demand for appraisal by delivering to CompuCom a written withdrawal of your demand for appraisal and an acceptance of the merger. However, (1) any attempt to withdraw made more than 60 days after the effective time of the merger will require written approval of CompuCom and (2) no appraisal proceeding in the Delaware Court of Chancery may be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and the approval may be conditioned upon such terms as the Delaware Court of Chancery deems just.
IF YOU FAIL TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SET FORTH IN SECTION 262, YOU WILL FORFEIT YOUR RIGHTS OF APPRAISAL AND WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION FOR YOUR SHARES AS PROVIDED IN THE MERGER AGREEMENT. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS SHOULD CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE THESE RIGHTS.
Safeguard has waived its appraisal rights in this transaction for both its shares of common and preferred stock.
LITIGATION CONCERNING THE ACQUISITION
On May 28, 2004, June 1, 2004 and June 10, 2004, three substantially similar complaints were filed in the Chancery Court of the State of Delaware by purported stockholders of CompuCom allegedly on behalf of a class of holders of our common stock. One or all of these actions name as defendants CompuCom, its directors, Safeguard and Platinum. The complaints allege that the CompuCom directors and Safeguard breached fiduciary duties in connection with the merger agreement, and that Platinum aided and abetted the alleged breach. The complaints seek (i) an injunction against the proposed transaction or (ii) in the event the proposed transaction is consummated, an order invalidating the transaction or awarding damages to the class.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, certain mergers and acquisitions may not be consummated unless notice has been given, and specified information has been furnished, to the Federal Trade
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Commission and the Antitrust Division of the United States Department of Justice and specified waiting period requirements have been satisfied. The merger is subject to the requirements of the Hart-Scott-Rodino Act and of other non-U.S. laws relating to trade regulation. Safeguard, our principal stockholder, on the one hand, and Platinum Equity Capital Partners, L.P., on the other hand, each filed a notification form under the Hart-Scott-Rodino Act on June 21, 2004 with the Federal Trade Commission and the Department of Justice. On June 29, 2004, Safeguard and Platinum were notified that they had been granted early termination of the waiting period under the Hart-Scott-Rodino Act.
The following description summarizes the material provisions of the merger agreement and is qualified in its entirety by reference to the complete text of the merger agreement. The merger agreement included in this proxy statement as Appendix A contains the complete terms and conditions of that agreement, and stockholders should read it carefully and in its entirety.
CONSIDERATION TO BE RECEIVED BY COMPUCOM’S STOCKHOLDERS
At the effective time of the merger, each share of CompuCom’s common stock (other than treasury shares and shares owned by Parent or Merger Subsidiary or any of Parent’s subsidiaries and shares for which appraisal rights have been validly exercised under Delaware law and whose holders do not effectively withdraw or lose their right to appraisal) will be converted into the right to receive $4.60 in cash, without interest. In addition, at the effective time of the merger, each share of CompuCom’s preferred stock will be converted into the right to receive $10.00 in cash, plus an amount equal to all accrued and unpaid dividends on each share, without interest. Based on the number of shares of CompuCom’s common stock and preferred stock outstanding on July 13, 2004, and assuming payment for all options exercisable as of July 13, 2004, the aggregate consideration paid by Parent to CompuCom’s stockholders and optionholders will be approximately $254,130,425.
GUARANTEE OF PLATINUM EQUITY, LLC
Platinum Equity will be responsible for the performance by Parent and Merger Subsidiary of all of their obligations under the merger agreement that are to be performed by Parent or Merger Subsidiary on or prior to the effective time of the merger.
In the merger agreement, CompuCom has agreed that:
• | CompuCom’s stock option plans will be terminated immediately before the effective time of the merger, without prejudice to the rights of the holders of outstanding options issued under CompuCom’s stock option plans, and CompuCom will give appropriate termination notices to the holders of outstanding options; |
• | No additional options will be granted under CompuCom’s stock option plans; |
• | No other options, warrants, rights, convertible securities or other agreements or commitments under which CompuCom is required to issue any shares of CompuCom’s capital stock or any securities convertible into or exchangeable for CompuCom’s capital stock will be issued after the execution of the merger agreement; |
• | CompuCom will before the closing cause the surrender of all outstanding options, even if the options are then exercisable and have an exercise price less than $4.60 per share; |
• | In settlement of the surrender and cancellation of each option, vested or unvested, that has an exercise price less than $4.60 per share, the holder of such option will be entitled to receive at the closing of the merger an amount in cash, without interest, equal to $4.60 minus the exercise price per share of common stock under such option, multiplied by the number of shares of common stock issuable upon the exercise of such option, less all applicable federal and state withholding taxes; and |
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• | On or prior to the closing, CompuCom will take all steps necessary to ensure that, assuming the contemplated payments are made, no options will remain outstanding after the effective time of the merger. |
In the merger agreement, CompuCom has agreed to terminate its Employee Stock Purchase Plan effective immediately following the June 30, 2004 termination of the current offering period under the plan.
COMPUCOM REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by CompuCom to Parent and Merger Subsidiary, including representations and warranties relating to:
• | due organization, corporate power and standing, and other corporate matters; |
• | the authorization, execution, delivery and enforceability of the merger agreement; |
• | the identity of the necessary consents needed from governmental entities and parties to CompuCom’s material contracts to consummate the merger; |
• | the absence of conflicts with organizational documents and material contracts, violations of any laws or orders and required governmental consents, and approvals and filings relating to execution and delivery of the merger agreement; |
• | CompuCom’s capital structure; |
• | required filings with the SEC and the accuracy of information, including financial information, contained in CompuCom’s SEC filings; |
• | the absence of material changes or events and material liabilities since December 31, 2003; |
• | the validity of and proper accounting for accounts receivable; |
• | completion and accuracy of CompuCom’s tax filings and payment of CompuCom’s taxes; |
• | matters relating to CompuCom’s material contracts and intellectual property; |
• | pending or threatened material litigation; |
• | compliance with applicable legal requirements, including environmental, employee benefit and labor laws; |
• | the absence of labor difficulties and material disputes with CompuCom’s customers and suppliers, and the absence of terminations or threats to terminate such relationships; |
• | the validity of CompuCom’s licenses and permits, and CompuCom’s holding of all required material permits; |
• | the validity of CompuCom’s title to, or leasehold or sublease interests in, CompuCom’s real estate and personal property and compliance with the terms of CompuCom’s leases and subleases; |
• | insurance matters; |
• | information contained in CompuCom’s corporate records and about CompuCom’s bank accounts; |
• | CompuCom’s engagement and payment of fees for brokers and financial advisors in connection with the merger agreement and CompuCom’s receipt of fairness opinions from Broadview and Houlihan Lokey; |
• | the accuracy of the information CompuCom supplied for inclusion in this proxy statement; |
• | voting requirements in connection with the merger agreement; and |
• | compliance with state takeover statutes and takeover provisions in CompuCom’s certificate of incorporation. |
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Under the merger agreement, CompuCom has agreed to provide Parent reasonable access to CompuCom’s facilities, personnel and books and records and has agreed that, prior to the effective time of the merger, subject to specified exceptions, including those expressly provided in the merger agreement or contemplated in connection with obtaining financing for the merger, CompuCom will:
• | use commercially reasonable efforts to preserve substantially intact its current business organization, to keep the services of its current key officers, directors, employees, agents and consultants and to preserve its relationships with those doing business with CompuCom; |
• | advise Parent of any material claim, litigation or proceeding involving it or its directors, officers or agents; |
• | comply in all material respects with any law, statute, rule or regulation or any tribunal or any order; and |
• | use reasonable efforts to assist Parent in its efforts to obtain financing for the merger. |
In addition, CompuCom has agreed that, except as expressly provided in the merger agreement or contemplated in connection with obtaining financing for the merger, CompuCom may not, without Parent’s prior written consent, take the following actions:
• | change its capitalization, except for shares issued upon the exercise of outstanding stock options or in accordance with its employee stock purchase plan; |
• | purchase, redeem or otherwise acquire any shares of its capital stock; |
• | declare or pay any dividend on any share of its capital stock, except for regular dividends on its preferred stock; |
• | change its severance or termination pay practices; |
• | increase its employee benefits or compensation other than in the ordinary course of business consistent with past practices; |
• | sell or mortgage its material assets except in the ordinary course of business; |
• | change or remove its certified public accountants; |
• | change its corporate governance documents; |
• | enter into transactions to buy all or substantially all of the assets or capital stock of any other person or entity; |
• | enter into or amend material contracts, except in the ordinary course of business consistent with past practice; |
• | incur any indebtedness for borrowed money, except for working capital purposes in the ordinary course of business; |
• | pay amounts owed to its three largest vendors other than on their respective due dates during the 30-day period before the CompuCom stockholders’ meeting unless required to do so under applicable credit limits; |
• | make or commit to make capital expenditures in excess of its 2004 capital expenditure budget absent prior consultation with Parent; |
• | settle any material pending claim or other material disagreement absent prior consultation with Parent; |
• | grant any lien on its capital stock or on the capital stock of any of its subsidiaries except for permitted liens; or |
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• | enter into new material transactions with any of its affiliates (excluding those transactions related to the sale of accounts receivable to CSI Funding, Inc., and other transactions with the subsidiaries in the ordinary course of business and, except for transactions with CompuCom Federal Systems, Inc. consistent with past practice). |
CompuCom and Parent have agreed to notify each other of:
• | any representation or warranty of the notifying party in the merger agreement becoming untrue or inaccurate in any material respect; |
• | the failure of the notifying party to comply with or satisfy in any material respect any covenant, condition or agreement required of the party under the merger agreement; |
• | any notice from any person alleging that the consent of such person may be required for the merger or the transactions contemplated by the merger agreement; |
• | any notice relating to an investigation or restraint by any governmental authority relating to the merger or the transactions contemplated by the merger agreement; and |
• | any litigation, investigations or proceedings affecting CompuCom, on the one hand, and Parent or Merger Subsidiary, on the other hand, which, if pending on the date of the merger agreement would have been required to have been disclosed as an exception to the representations and warranties in the merger agreement, or which affect consummation of the transactions contemplated by the merger agreement. |
CompuCom has agreed to, and will cause its officers and agents to, use commercially reasonable efforts to effect the closing of the merger transaction as soon as reasonably practicable, including its efforts relating to:
• | completing and filing the CompuCom proxy statement; |
• | responding to any comments and requests of the SEC; and |
• | scheduling the CompuCom stockholders’ meeting relating to the approval of the merger transaction. |
CompuCom has also agreed to consult with Parent about any actions CompuCom or Parent wants CompuCom to take or consider taking to maximize the certainty of the closing of the merger transaction.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
The merger agreement contains representations and warranties made by Parent and Merger Subsidiary to CompuCom, including those relating to:
• | due organization, corporate power and standing, and other corporate matters; |
• | the authorization, execution, delivery and enforceability of the merger agreement; |
• | the absence of conflicts with organizational documents and contracts, violations of any laws or orders and required governmental consents, approvals and filings relating to execution and delivery of the merger agreement; and |
• | the accuracy of the information supplied by Parent and Merger Subsidiary for inclusion in this proxy statement. |
In addition, the merger agreement contains the following representations made by Parent and Merger Subsidiary relating to the financing:
• | Platinum Equity, on behalf of Merger Subsidiary, has obtained a commitment letter, dated May 13, 2004, from Bank of America and Wells Fargo Foothill establishing terms under which their lenders |
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commit to provide to Merger Subsidiary and the surviving corporation a senior secured asset based credit facility (the “Senior Facility”), and Parent and Merger Subsidiary have obtained a letter from Jefferies confirming that it is highly confident in its ability to place the $35 million Note Financing; |
• | as of the date of the merger agreement, Parent was not aware of any facts or circumstances that Parent believed or had reason to believe were reasonably likely to (i) prevent the conditions described in the senior credit facility commitment letter or Jefferies highly confident letter from being satisfied, (ii) prevent Parent or Merger Subsidiary from receiving the financing pursuant to the terms of such financing letters, or (iii) make any of the conditions or assumptions set forth in such financing letters unreasonable, and the providers of such financing letters at that date had not advised Parent or Merger Subsidiary of any facts that caused them to believe that the financings would not be consummated substantially in accordance with the terms of the financing letters; and |
• | the aggregate proceeds of the Note Financing and the Senior Facility, when taken together with the cash of CompuCom and its subsidiaries anticipated to be available at the effective time of the merger and funds that will be made available to Parent and Merger Subsidiary by, or through arrangements made by, Platinum will be sufficient to (i) pay the merger consideration owed to our stockholders and optionholders, (ii) pay all fees and expenses in connection with the merger, (iii) pay all amounts required to be paid to our senior executive officers under their employment agreements at the effective time of the merger and (iv) to provide additional financing sufficient in the reasonable judgment of Parent for the future working capital and general corporate needs of the surviving corporation and its subsidiaries. |
COVENANTS OF PARENT AND MERGER SUBSIDIARY
The merger agreement contains the following covenants of Parent and Merger Subsidiary:
• | Prior to the effective time of the merger, Merger Subsidiary will not engage in any activities except as provided for in the merger agreement; |
• | Parent will cause Merger Subsidiary to take all actions necessary on its part to carry out the merger and the other transactions contemplated by the merger agreement, and, as sole stockholder of Merger Subsidiary will consent in writing to the approval of the merger agreement in accordance with the General Corporation Law of the State of Delaware; |
• | Parent will cause the surviving corporation to indemnify, defend and hold harmless the officers, directors, employees and agents of CompuCom and any subsidiaries against all damages arising out of claims brought by third parties as more fully described in the “Directors’ and Officers’ Indemnification, Advancement or Expenses, Exculpation and Insurance” section of this proxy statement; |
• | Parent and Merger Subsidiary will use reasonable efforts to arrange and obtain the financings on the terms set forth in the financing commitments; |
• | Parent and Merger Subsidiary will pay any commitment and other fees required or contemplated by the financing commitments that become due prior to the effective time of the merger; |
• | Parent and Merger Subsidiary will keep CompuCom informed of the status of their efforts to arrange the financing and have agreed to not permit any material adverse amendment or modification to be made to, or any waiver of any provision or remedy under, the financing commitments without CompuCom’s prior written consent, which CompuCom has agreed will not be unreasonably withheld; |
• | If Parent and Merger Subsidiary cannot obtain the financing on the terms set forth in the financing commitments, Parent and Merger Subsidiary will use commercially reasonable efforts to obtain alternative financing with overall pricing, cost, timing and maturity terms that are no less favorable, and other terms that are no less favorable in any material respect, to Parent and Merger Subsidiary than those in the financing commitments; |
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• | Parent and Merger Subsidiary will and will cause their respective officers and agents to use commercially reasonable efforts to effect the closing as soon as possible, including their efforts relating to reviewing and commenting on CompuCom’s proxy statement and responding to any comments and requests of the SEC; and |
• | Parent will consult with CompuCom about any actions that CompuCom deems appropriate to maximize the certainty of closing of the merger transaction. |
The merger agreement provides that on execution CompuCom and its subsidiaries, affiliates and representatives will cease all existing activities, discussions or negotiations with any person conducted before the date of the merger agreement relating to any acquisition proposal. An “acquisition proposal” refers to any proposal or offer relating to a merger, reorganization, share exchange, tender offer, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving CompuCom or any of its subsidiaries to acquire all or a substantial part of CompuCom’s or any of its subsidiaries’ businesses or properties, or 5% or more of CompuCom’s capital stock or the capital stock of any of its subsidiaries.
The merger agreement provides that CompuCom will not, nor will it authorize or permit any of its subsidiaries or its or their directors, officers, or employees to, and CompuCom will cause any other agents or representatives retained by it or any of its subsidiaries not to:
• | initiate or solicit any inquiries about or the making of any acquisition proposal; or |
• | have any discussion with or provide any information to any person about an acquisition proposal or engage in any negotiation concerning an acquisition proposal. |
At any time prior to the time that CompuCom’s stockholders approve the merger agreement, CompuCom may engage in negotiations with a third party that seeks, without prior solicitation by CompuCom or any of its affiliates or representatives, to initiate such discussions or negotiations and may furnish information to such third party only if:
• | CompuCom receives an unsolicited bona fide written acquisition proposal that CompuCom’s board of directors determines in good faith, after consultation with its legal and financial advisors, may reasonably lead to a superior proposal, as described below; and |
• | prior to furnishing such information to, or entering into discussions with, any third party, CompuCom receives an executed confidentiality agreement and gives notice to Parent of CompuCom’s intent to furnish information to a third party. |
A “superior proposal” refers to a bona fide unsolicited written acquisition proposal which CompuCom’s board of directors determines in good faith, after consultation with CompuCom’s board of directors’ legal and financial advisors, after taking into account any conditions to and risks of consummation and the ability of the party making the acquisition proposal to obtain financing for the acquisition proposal, is more favorable to CompuCom’s stockholders than the merger.
CompuCom must promptly notify Parent of any inquiry relating to any potential acquisition proposal and its material terms and conditions and the identity of the person making it, and keep Parent informed of any significant developments.
The merger agreement provides that unless CompuCom follows the procedure outlined below, neither CompuCom’s board of directors nor any committee of CompuCom’s board of directors will:
• | change its recommendation to CompuCom’s stockholders because of the receipt of an acquisition proposal; |
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• | approve or recommend or propose publicly to approve or recommend an acquisition proposal; or |
• | enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any acquisition proposal. |
If, in response to a bona fide unsolicited written acquisition proposal, CompuCom’s board of directors determines in good faith, after consultation with its legal and financial advisors, that such acquisition proposal constitutes a superior proposal, CompuCom’s board of directors may change its recommendation and enter into a definitive agreement with respect to such superior proposal. Before doing so, CompuCom must give Parent two business days’ prior written notice stating the material terms of and identity of the person making the superior proposal. If, within two business days of the notice, Parent does not make an offer that CompuCom’s board of directors determines, in good faith after consultation with its legal and financial advisors, is at least as favorable to CompuCom’s stockholders as the superior proposal, CompuCom may change its recommendation or enter into any binding agreement for the superior proposal. CompuCom has agreed to postpone or adjourn its stockholders’ meeting, if necessary, to accommodate these procedures.
For a discussion of the circumstances under which CompuCom must pay fees as a result of a change in recommendation by CompuCom’s board of directors, or CompuCom’s termination of the merger agreement because of a superior proposal, see “—Termination of the Merger Agreement” and “—Termination Fees.”
The obligations of Parent and Merger Subsidiary to effect the merger are subject to Parent or Merger Subsidiary obtaining no less than $35 million in gross proceeds from the senior subordinated financing contemplated by the highly confident letter issued by Jefferies. In addition, at the effective time of the merger, the sum of the following amounts, determined as of the close of business on the business day immediately preceding the effective date, must be equal to or greater than $215 million: (a) the gross proceeds of the senior subordinated note financing; (b) the amount by which CompuCom’s unrestricted cash exceeds $20 million; and (c) an amount equal to the lesser of (i) 85% of CompuCom’s eligible receivables under its receivables financing facility and (ii) 65% of CompuCom’s gross trade receivables.
The obligations of Parent and Merger Subsidiary, on the one hand, and CompuCom, on the other hand, to effect the merger are also subject to the satisfaction or waiver of the following conditions:
• | the merger proposal must be approved by the affirmative vote of stockholders holding a majority of the shares of CompuCom’s common stock and preferred stock outstanding at the close of business on the record date, voting as a single class; |
• | the waiting period that applies to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 must expire or terminate, which occurred on June 29, 2004; |
• | no temporary restraining order, injunction or other judgment or court order or statute, law, rule, or regulation may be in effect that prevents the completion of the merger, or that makes completing the merger illegal; |
• | the other party must have performed in all material respects all agreements and covenants required to be performed or complied with by it under the merger agreement on or prior to the closing; |
• | the representations and warranties of the other party set forth in the merger agreement must be true and correct in all material respects without giving effect to materiality qualifications contained therein, as of the appropriate date, provided that this condition will be satisfied if the breaches would not be reasonably likely to have a material adverse effect on CompuCom or prevent or materially impair the consummation of the merger; |
• | each party must obtain all consents required to be obtained by it from governmental entities; and |
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• | each party must deliver executed officer’s certificates required by the agreement to the other parties. |
The merger agreement provides that a “material adverse effect” is a material adverse effect on the business, operations, financial condition, properties, assets, liabilities or results of operations of CompuCom and its subsidiaries taken as a whole or, after the effective time of the merger, on the surviving corporation and its subsidiaries taken as a whole. “Material adverse effect” excludes any material adverse effect to the extent it relates to:
• | conditions generally affecting the business or industry in which CompuCom operates, including economic, legal and regulatory changes; |
• | United States or global general economic or political conditions, events or circumstances affecting the United States or global financial markets generally; or |
• | any outbreak or escalation of hostilities (including any declaration of war by the United States) or act of terrorism. |
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective time of the merger, including after CompuCom’s stockholders have approved the merger proposal, under the following circumstances:
• | by mutual written consent of Parent and CompuCom; |
• | by either Parent or CompuCom if: |
• | the merger has not been consummated on or before December 31, 2004, except that this right is not available to any party that has breached, in any material respect, its representations, warranties, covenants or other agreements in the merger agreement; |
• | there is in effect any final, nonappealable court order or judgment that permanently enjoins, restrains or prohibits the completion of the merger; or |
• | the requisite vote of CompuCom’s common and preferred stockholders relating to the approval of the merger proposal is not obtained at our special meeting or any adjournment thereto or if the requisite vote of Safeguard’s shareholders relating to the approval of Safeguard’s voting its CompuCom shares in favor of the merger proposal is not obtained at Safeguard’s special meeting or any adjournments thereto; |
• | by Parent if: |
• | CompuCom materially breaches any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach cannot be cured or is not cured within 30 days of notice to CompuCom. Termination may only occur, in the case of a breach of a representation or warranty, if the breach would have a material adverse effect or would prevent or materially impair the consummation of the transactions contemplated by the merger agreement. Termination may only occur in the case of any failure to perform, if such failure would prevent or materially impair the consummation of the transactions contemplated by the merger agreement; |
• | at any time prior to CompuCom’s stockholders’ meeting, CompuCom’s board of directors or a committee thereof withdraws its approval or recommendation of the merger or the merger agreement other than for a superior proposal; |
• | at any time prior to CompuCom’s stockholders’ meeting, CompuCom approves or recommends a superior proposal; or |
• | CompuCom enters into a definitive agreement with respect to a superior proposal; |
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• | by CompuCom if: |
• | Parent or Merger Subsidiary materially breaches any of its respective representations, warranties, covenants or other agreements contained in the merger agreement, which breach cannot be cured or is not cured within 30 days of notice to Parent or Merger Subsidiary. Termination may only occur if such breach or failure would prevent or materially impair the consummation of the transactions contemplated by the merger agreement; |
• | CompuCom approves or recommends a superior proposal; or |
• | CompuCom enters into a definitive agreement for a superior proposal; or |
• | automatically by no action on the part of the parties if the principal stockholder agreement is terminated. |
Once the merger agreement is terminated, the merger agreement is void and will have no effect, without any liability or obligation on the part of Parent, Merger Subsidiary or CompuCom, except for specified provisions of the merger agreement, including those regarding confidentiality, fees and expenses, and liability for any willful and material breach of the merger agreement.
The merger agreement generally provides that each party will pay its own fees and expenses in connection with the merger agreement, whether or not the merger is completed.
CompuCom must pay Parent a break-up fee of $8,880,000 if:
• | Parent and Merger Subsidiary are not in material breach of their representations, warranties, covenants or other agreements contained in the merger agreement at the time of termination and the merger agreement is terminated: |
• | by Parent because CompuCom’s board of directors or a committee thereof changed its recommendation relating to the merger other than for a superior proposal; or |
• | by Parent prior to CompuCom’s special meeting or by CompuCom if CompuCom approved or recommended a superior proposal, or CompuCom entered into a definitive agreement with respect to a superior proposal. |
CompuCom must also pay Parent a break-up fee of $8,880,000 if:
• | Parent and Merger Subsidiary are not in material breach at such time of any of their respective representations, warranties, covenants or other agreements in the principal stockholder agreement and the merger agreement; and |
• | Safeguard receives a Safeguard superior proposal (i.e. an acquisition proposal which constitutes a superior proposal for the shares of CompuCom capital stock held by Safeguard) and such proposal could also be reasonably construed as a superior proposal (i.e., relating also to the shares of CompuCom common stock not held by Safeguard); and |
• | either (i) Safeguard’s board of directors or a committee thereof has withdrawn its approval or recommendation that Safeguard vote in favor of the merger proposal at the CompuCom special meeting at any time before the Safeguard shareholders meeting or Safeguard enters into an agreement with respect to such Safeguard superior proposal, (ii) CompuCom approves or recommends a superior proposal before CompuCom’s stockholders’ meeting, or (iii) CompuCom enters into a definitive agreement with respect to a superior proposal; and |
• | either (i) the principal stockholder agreement is terminated (A) by Safeguard or Parent if Safeguard enters into a definitive agreement with respect to a Safeguard superior proposal or (B) by Parent before the Safeguard shareholders’ meeting if the Safeguard board of directors or a committee thereof |
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withdraws its approval or recommendation that Safeguard vote in favor of the merger proposal at the CompuCom special meeting, or (ii) the merger agreement is terminated (A) by Parent before the CompuCom stockholders’ meeting if CompuCom approves or recommends a superior proposal, (B) by CompuCom if CompuCom approves or recommends a superior proposal, or (C) by CompuCom or Parent if CompuCom enters into a definitive agreement with respect to a superior proposal. |
CompuCom must pay Parent’s and Merger Subsidiary’s fees and expenses actually incurred in this transaction with non-affiliates, capped at $4,000,000, if the merger agreement is terminated by Parent or CompuCom because either Safeguard’s shareholders failed to approve at the Safeguard special meeting the proposal that Safeguard vote in favor of the merger proposal at the CompuCom special meeting or CompuCom’s stockholders failed to approve the merger proposal at the CompuCom special meeting. These expenses will only be payable to Parent if Parent and Merger Subsidiary are not in material breach of their representations, warranties, covenants or other agreements contained in the merger agreement at the time of termination.
In addition to Parent’s and Merger Subsidiary’s fees and expenses, CompuCom must also pay an alternate transaction fee (as discussed below) if, in addition to the conditions described in the immediately preceding paragraph about when CompuCom has to pay fees and expenses actually incurred in this transaction (i) an acquisition proposal was received by CompuCom and not withdrawn, or CompuCom’s board changes its recommendation of the merger before CompuCom’s stockholders’ meeting or Safeguard’s shareholders’ meeting and (ii) within 225 days after the termination of the merger agreement any of the following occur:
• | a “change of control” transaction is consummated; |
• | a “change of control” transaction is approved by CompuCom’s board of directors, a special committee thereof, or CompuCom’s stockholders; |
• | CompuCom enters into an agreement with respect to a “change of control” transaction; or |
• | a tender offer or exchange offer for CompuCom’s shares is commenced, and CompuCom’s board of directors or a special committee thereof recommends that CompuCom’s stockholders tender their shares in such offer or fails to recommend the rejection of the offer within ten business days of the offer’s commencement. |
A “change of control” transaction in this context means any merger, recapitalization, liquidation, dissolution or similar transaction involving CompuCom in which CompuCom’s common stockholders receive cash or non-cash consideration for their shares, other than a reorganization in which there is no material change in the ownership of CompuCom.
The alternate transaction fee referenced above is equal to 50% of the amount by which the total consideration to be paid to CompuCom’s stockholders in the other transaction exceeds the total amount which was to be paid to CompuCom’s stockholders in this merger transaction, but the alternate transaction fee cannot exceed $8,880,000 (less the actual expenses of Platinum that CompuCom may have previously paid).
CompuCom’s obligation to pay fees and expenses to Parent cannot exceed $8,880,000. If a break-up fee is payable, Parent is not entitled to receive from CompuCom any additional fees, including an alternate transaction fee, another break-up fee, or expenses.
AMENDMENTS TO THE MERGER AGREEMENT AND WAIVERS OF ITS TERMS
The merger agreement may be amended in writing by mutual consent of the parties. At any time prior to the effective time of the merger, the parties may:
• | extend the time for performance by the other parties to the merger agreement; and |
• | to the extent permitted by law, waive any inaccuracies in representations and warranties, or waive compliance with any agreement or condition in the merger agreement. |
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After the merger agreement has been adopted by CompuCom’s stockholders, there may not be, without further approval by CompuCom’s stockholders, any amendment of the merger agreement if, by law, the amendment requires further approval by CompuCom’s stockholders.
The failure of any party to the merger agreement to assert any of its rights under the merger agreement or otherwise will not constitute a waiver of its rights.
The merger agreement provides that for six months after the effective time of the merger, CompuCom’s employees who remain employed by CompuCom will receive salary and employee benefits that are in the aggregate no less favorable than the employee benefits currently provided to CompuCom’s employees, except that no equity incentive plans will be provided.
Parent will treat prior service with CompuCom as service rendered to Parent or its subsidiaries for purposes of all employee benefit plans, programs and agreements maintained, or contributed to, by Parent and its subsidiaries. CompuCom’s employees will also be given credit for any deductible or co-payment amounts paid during this plan year and have their currently waived pre-existing conditions also be waived under Parent’s plans. Parent will recognize any accrued but unused vacation of CompuCom’s employees as of the effective time of the merger.
Nothing in the merger agreement restricts Parent’s or the surviving corporation’s ability to modify, terminate or establish any specific employee benefit plans.
EFFORTS TO COMPLETE THE MERGER
Each party is obligated to use its commercially reasonable efforts, to complete the merger in the most expeditious manner practicable, including the following:
• | making all governmental filings and obtaining all necessary governmental consents; |
• | obtaining all necessary consents, approvals or waivers from third parties; and |
• | preparing this proxy statement. |
THE PRINCIPAL STOCKHOLDER AGREEMENT
In order to induce Parent to enter into the merger agreement, Safeguard entered into a principal stockholder agreement with Parent and Merger Subsidiary concurrently with the execution of the merger agreement. As of May 27, 2004, Safeguard (individually, and through certain wholly-owned subsidiaries) owned 24,540,881 shares of CompuCom’s common stock and each of the 1,500,000 outstanding shares of CompuCom’s preferred stock, which collectively represented approximately 51.0% percent of the voting power of CompuCom’s capital stock entitled to approve the merger and adopt the merger agreement.
The following description summarizes the provisions of the principal stockholder agreement and is qualified in its entirety by reference to the complete text of the principal stockholder agreement attached as Appendix B to this proxy statement. This summary does not purport to describe all the terms of the principal stockholder agreement. We urge you to read carefully the entire principal stockholder agreement for its terms and other information that may be important to you.
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Pursuant to the terms of the principal stockholder agreement, Safeguard has agreed to:
• | duly call a meeting of the Safeguard shareholders for the purpose of voting on a proposal that Safeguard (or its subsidiaries, as the case may be) vote at CompuCom’s stockholders’ meeting in favor of the approval of the merger and adoption of the merger agreement; |
• | if the merger proposal is approved by a majority of the votes cast by the holders of the shares of Safeguard common stock entitled to vote thereon at the meeting of the Safeguard shareholders: |
• | vote its shares of CompuCom’s common stock and preferred stock in favor of the approval of the merger and the adoption of the merger agreement at CompuCom’s stockholders’ meeting, and against any acquisition proposal and any other action that may reasonably be expected to impede, interfere with, delay, postpone, attempt to discourage or have a material adverse effect on the consummation of, the merger or result in a breach in any material respect of any of CompuCom’s covenants, representations, warranties or other obligations and agreements contained in the merger agreement; |
• | if requested by Parent, execute (and not revoke) a proxy in favor of Parent to vote its shares of CompuCom’s common stock and preferred stock in favor of the approval of the merger and the adoption of the merger agreement at CompuCom’s stockholders’ meeting; or |
• | if requested by Parent and CompuCom, execute a written consent of CompuCom stockholders approving the merger and adopting the merger agreement. |
If a majority of the votes cast by Safeguard shareholders at the Safeguard shareholders’ meeting do not approve the proposal that Safeguard vote its CompuCom shares at CompuCom’s stockholders’ meeting in favor of the approval of the merger and adoption of the merger agreement, Safeguard may vote against the merger proposal at CompuCom’s stockholders’ meeting or, if requested by CompuCom, execute a written consent of stockholders voting against the approval of the merger proposal.
The principal stockholder agreement also contains representations and warranties of Safeguard, Parent and Merger Subsidiary. Under the terms of the principal stockholder agreement, Safeguard has waived its appraisal rights in connection with the merger and has also agreed:
• | to restrict the transferability of its shares of CompuCom’s common stock and preferred stock; |
• | to furnish to CompuCom data and information with respect to Safeguard or its subsidiaries as CompuCom shall reasonably request in connection with CompuCom’s proxy statement and to make such filings and comply with any requests for additional information under any antitrust laws with respect to the merger and the other transactions contemplated by the merger; |
• | to cooperate with Parent and the Merger Subsidiary in connection with any filing under any antitrust laws and in connection with resolving any investigation or other inquiry of any agency or tribunal under any antitrust laws with respect to any such filing, the merger or the other transactions contemplated by the merger; and |
• | to notify Parent in writing if certain Safeguard officers obtain actual knowledge (without any requirement of due inquiry) of any breach of any of CompuCom’s representations, warranties or covenants in the merger agreement. |
The principal stockholder agreement requires Safeguard to cease all existing activities, discussions or negotiations with any person conducted prior to the date of the principal stockholder agreement with respect to
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any acquisition proposal (within the meaning contemplated by the merger agreement). Safeguard must promptly notify Parent of any inquiry relating to any potential acquisition proposal and its material terms and conditions and the identity of the person making it, and must keep Parent informed of any significant developments.
Pursuant to the principal stockholder agreement Safeguard agreed not to authorize or permit any of its directors, officers, employees, investment bankers, attorneys, accountants or other agents to:
• | initiate or solicit any inquiries about or the making of any acquisition proposal; |
• | enter into any agreement with respect to any acquisition proposal; |
• | approve, recommend or propose publicly to approve or recommend or execute or enter into any merger, acquisition or similar agreement resulting from any acquisition proposal; or |
• | have any discussion with or provide any information to any person about an acquisition proposal or engage in any negotiation concerning an acquisition proposal. |
At any time prior to the time that CompuCom’s stockholders approve the merger agreement, Safeguard may engage in discussions or negotiations with a third party who seeks, without prior solicitation by Safeguard or its affiliates or representatives, to initiate discussions or negotiations and may furnish information to the third party only if:
• | an unsolicited bona fide written acquisition proposal is received from the third party that Safeguard’s board of directors determines in good faith, after consultation with its legal and financial advisors, may reasonably lead to a Safeguard superior proposal, as described below; and |
• | prior to furnishing information to or entering into discussions with any third party, Safeguard receives an executed confidentiality agreement and gives notice to Parent of Safeguard’s intention to negotiate with the third party. |
The term “Safeguard superior proposal” means an unsolicited bona fide written acquisition proposal which the Safeguard board of directors determines, in good faith, after consultation with its legal and financial advisors, after taking into account any conditions to and risks of consummation and the ability of the party making such proposal to obtain financing for the acquisition proposal, is more favorable to its shareholders than the transactions contemplated by the merger agreement. The parties have agreed that a Safeguard superior proposal cannot reasonably be construed as a superior proposal under the merger agreement if the Safeguard superior proposal relates to an acquisition of the capital stock of Safeguard or the acquisition of shares of our common stock from only Safeguard.
If the Safeguard board of directors determines in good faith, after consultation with its legal and financial advisors, that an unsolicited written acquisition proposal from a third party constitutes a Safeguard superior proposal, the Safeguard board of directors may change its recommendation and enter into a definitive agreement with respect to such acquisition proposal. Before doing so, Safeguard must give Parent two business days’ prior written notice stating the material terms of and identity of the person making the Safeguard superior proposal. If Parent does not make, within two business days of the notice, an offer that the Safeguard board of directors determines, in good faith after consultation with its legal and financial advisors, is at least as favorable to the Safeguard shareholders as the Safeguard superior proposal, the Safeguard board of directors may change its recommendation or enter into a binding agreement with respect to the Safeguard superior proposal. Safeguard has agreed to postpone or adjourn its shareholders’ meeting, if necessary, to accommodate these procedures.
Except in the circumstances described in the preceding paragraph, neither Safeguard’s board of directors nor any committee thereof will:
• | change its recommendation to the Safeguard shareholders to approve the proposal to vote in favor of the merger proposal at CompuCom’s stockholders’ meeting; |
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• | approve or recommend or propose publicly to approve or recommend an acquisition proposal; or |
• | enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any acquisition proposal. |
TERMINATION OF THE PRINCIPAL STOCKHOLDER AGREEMENT
The principal stockholder agreement may be terminated under the following circumstances:
• | by mutual written consent of Parent and Safeguard at any time; |
• | by either Parent or Safeguard if there is in effect any final, nonappealable court order or judgment that permanently enjoins, restrains or prohibits the completion of the merger; |
• | by Safeguard if: |
• | Parent or Merger Subsidiary materially breaches any of its respective representations, warranties, covenants or other agreements contained in the principal stockholder agreement, which cannot be or is not cured within 30 days of notice to Parent and the breach or breaches would prevent or materially impair the consummation of the transactions contemplated by the merger agreement; |
• | at the Safeguard shareholders meeting, the Safeguard shareholders do not approve the proposal that Safeguard vote its CompuCom shares in favor of the merger proposal at the CompuCom special meeting; or |
• | Safeguard enters into a definitive agreement with respect to a Safeguard superior proposal; |
• | by Parent if: |
• | Safeguard materially breaches any of its representations, warranties, covenants or other agreements contained in the principal stockholder agreement, which breach cannot be cured or is not cured within 30 days of notice to Safeguard and the breach or breaches would have a material adverse effect or would prevent or materially impair the consummation of the transactions contemplated by the merger agreement; |
• | at any time prior to the Safeguard shareholders’ meeting, the Safeguard board of directors, or any committee thereof, withdraws its approval or recommendation of the proposal to vote in favor of the merger proposal at the CompuCom stockholders’ meeting; |
• | at the Safeguard shareholders’ meeting, the Safeguard shareholders do not approve the proposal that Safeguard vote in favor of the merger proposal at the CompuCom special meeting; or |
• | Safeguard enters into a definitive agreement with respect to a Safeguard superior proposal; or |
• | automatically by no action on the part of Parent or Safeguard if the merger agreement is terminated in accordance with its terms. See “The Merger Agreement-Termination of the Merger Agreement.” |
If the principal stockholder agreement is terminated, neither Parent nor Safeguard will have any liability to the other, except as discussed below.
In the event that the principal stockholder agreement or merger agreement is terminated by Parent or Safeguard under certain circumstances, and within two hundred twenty-five (225) days of such termination, either:
• | a “change of control” transaction (within the meaning contemplated by the merger agreement) with respect to CompuCom is consummated or approved by the Safeguard board of directors, a special committee thereof or the Safeguard shareholders; |
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• | CompuCom enters into an agreement with respect to a change in control transaction with respect to CompuCom; or |
• | a tender offer or exchange offer for all of CompuCom’s outstanding shares of common stock is commenced, and either CompuCom’s board of directors or a special committee of that board recommends that CompuCom’s stockholders tender their shares in a tender offer or exchange offer or CompuCom’s board of directors fails to recommend rejection of the offer within ten business days after the commencement of the tender offer or exchange offer; |
then Safeguard shall pay to Parent upon consummation of the change of control transaction with respect to CompuCom an amount equal to (x) 50% of the amount, if any, by which the aggregate consideration, including the fair market value of any non-cash consideration valued as of the date on which the change of control transaction is consummated that is to be received by Safeguard with respect to its shares of CompuCom’s common and preferred stock upon consummation of the change of control transaction exceeds the aggregate merger consideration that Safeguard would have received with respect to its shares of CompuCom’s common and preferred stock if the merger had been consummated in accordance with the terms of the merger agreement as in effect on the date the principal stockholder agreement is terminatedminus (y) a credit equal to 51.83% of the aggregate of expense reimbursements and fees paid by CompuCom to Parent in accordance with the merger agreement. The foregoing credit shall be reduced to the extent that the sum of the expenses and fees payable by CompuCom under the merger agreement and the fees payable by Safeguard to Parent under the principal stockholder agreement, prior to any reduction in the credit, does not exceed $4 million.
If Safeguard receives a superior proposal that could also be construed as a superior proposal for CompuCom, and either CompuCom or Safeguard determine to change the recommendation or CompuCom or Safeguard enter into an agreement relating to that superior proposal, CompuCom is required to pay Parent a break up fee of $8,880,000. In addition, Safeguard is obligated to pay an alternate transaction fee if a change in control transaction is completed, but it is required to make a payment only to the extent the alternate transaction fee exceeds the $8,880,000 break up fee.
Platinum has received a letter from Jefferies stating that Jefferies is highly confident that it will be able to arrange the placement of $35 million of senior subordinated unsecured debt to be completed concurrently with the closing of the merger subject to the following terms:
• | there being no material adverse change in the financial condition, results of operation, prospects or business of CompuCom; |
• | there being no material change in the market conditions for new issuances of subordinated debt; |
• | there being prepared, executed and delivered complete documentation with respect to the unsecured financing, satisfactory to Jefferies; |
• | there being no adverse information becoming known to Jefferies regarding CompuCom that is not otherwise set forth on CompuCom’s most recent quarterly and annual report filings made with the SEC; |
• | Jefferies having a reasonable time to market the unsecured financing with the assistance of CompuCom; and |
• | approval by the Jefferies Underwriting Assistance Committee. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 17, 2004, information about the shares of our common stock beneficially owned by each of our directors, our chief executive officer and each of our four other most highly compensated executive officers serving as such at December 31, 2003, by all of our directors and executive officers as a group and by persons who are known to us to be the beneficial owners of more than five percent of the issued and outstanding shares of our common stock. These persons have sole voting power and sole dispositive power with respect to all shares set forth in the table unless otherwise specified in the footnotes to the table. The table does not include shares of our common stock subject to options that are not currently exercisable or will not become exercisable within 60 days of June 17, 2004.
Name | Shares Beneficially Owned | Options Exercisable Within 60 Days of June 17, 2004 | Shares Beneficially Owned Assuming Exercise of Options | Percent of Shares | |||||
Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087 | 26,756,538 | 0 | 26,756,538 | 51.0 | % | ||||
Dimensional Fund Advisors 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 | 3,350,142 | 0 | 3,350,142 | 6.7 | % | ||||
J. Edward Coleman | 70,000 | 1,100,000 | 1,170,000 | 2.3 | % | ||||
Anthony L. Craig | 0 | 0 | 0 | * | |||||
Michael J. Emmi | 0 | 51,000 | 51,000 | * | |||||
Richard F. Ford | 30,000 | 51,000 | 81,000 | * | |||||
Edwin L. Harper | 1,000 | 29,000 | 30,000 | * | |||||
Delbert W. Johnson | 0 | 49,000 | 49,000 | * | |||||
John D. Loewenberg | 11,875 | 74,000 | 85,875 | * | |||||
Warren V. Musser | 473,983 | 0 | 473,983 | * | |||||
Anthony J. Paoni | 1,000 | 39,000 | 40,000 | * | |||||
Edward N. Patrone | 10,000 | 51,000 | 61,000 | * | |||||
M. Lazane Smith | 27,238 | 523,750 | 550,988 | 1.1 | % | ||||
David A. Loeser | 4,235 | 325,000 | 329,235 | * | |||||
John F. McKenna | 0 | 325,000 | 325,000 | * | |||||
Executive officers and directors as a group (13 persons) | 629,331 | 2,617,715 | 3,247,081 | 6.1 | % |
* | Less than 1% of CompuCom’s outstanding shares of common stock |
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Each individual has the sole power to vote and to dispose of the shares (other than shares held jointly with spouse) except for the following shares:
Safeguard Scientifics, Inc. | Includes 23,421,181 shares held by Safeguard Scientifics (Delaware), Inc., and 1,119,700 shares held by Safeguard Delaware, Inc., wholly-owned subsidiaries of Safeguard Scientifics, Inc. Safeguard Scientifics (Delaware), Inc. also holds 1,500,000 shares of Series B preferred shares. Those shares are convertible into 2,215,657 shares of common stock, which also are included. This amount does not include 443,283 shares which have been pledged to Safeguard as collateral for a loan it provided to Warren V. Musser. Safeguard disclaims beneficial ownership of these shares. | |
Dimensional Fund Advisors, Inc. | Dimensional Fund Advisors Inc. (“Dimensional”), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds”. In its role as investment advisor or manager, Dimensional possesses voting and/or investment power over the securities of the Issuer described in this schedule that are owned by the Funds. All securities reported in this schedule are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. | |
Edwin L. Harper | Includes 1,000 shares held in a Revocable Trust. | |
Warren V. Musser | Includes 30,700 shares held by a trust of which Mr. Musser is a co-trustee. Mr. Musser disclaims beneficial ownership of the shares beneficially owned by the trust. The remaining 443,283 shares have been pledged to Safeguard as collateral for a loan it provided to Mr. Musser. Safeguard disclaims beneficial ownership of these shares. |
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PROJECTED FINANCIAL INFORMATION
CompuCom does not as a matter of course make public projections as to future performance, revenues or earnings. However, in the course of the discussions giving rise to the Merger Agreement, CompuCom furnished to Broadview, Houlihan Lokey and Platinum financial projections prepared by CompuCom’s management that Broadview and Houlihan Lokey used in connection with their fairness opinions, and that Platinum used in developing its offer price. These financial projections were prepared by management to assist Broadview, Houlihan Lokey and Platinum in valuing CompuCom.
CompuCom did not prepare the financial projections that were provided to Broadview, Houlihan Lokey and Platinum with a view to public disclosure, and they are included in this proxy statement only because this information was used by Broadview, in connection with its role as financial advisor to CompuCom’s Board of Directors, by Houlihan Lokey, in connection with its role as financial advisor to the CompuCom special committee, and by Platinum, in connection with the discussions giving rise to the merger agreement. CompuCom did not prepare the projections that were provided to Broadview, Houlihan Lokey and Platinum with a view to compliance with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. KPMG, LLP, CompuCom’s independent public accountant, has neither examined nor compiled the accompanying prospective financial information and, accordingly, they have not provided any services or expressed any opinion or any other form of assurance whatsoever with respect thereto. The KPMG, LLP report incorporated by reference into this proxy statement relates solely to CompuCom’s historical consolidated financial statements as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003. It does not extend to the projected financial information set forth below and should not be read to do so.
In general, management’s internal financial projections are prepared for internal use and are subjective in many respects and thus susceptible to interpretations and assumptions, all made by management of CompuCom, with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond the control of CompuCom. Accordingly, CompuCom cannot offer any assurance that the assumptions made in preparing the projections will prove accurate, and actual results may be materially higher or lower than those contained in the projections. The inclusion of this information should not be regarded as an indication that we or anyone else who received this information considered it a reliable predictor of future events, and this information should not be relied on as such. We do not assume any responsibility for the validity, reasonableness, or completeness of the projected financial information, and we have made no representation to either Broadview, Houlihan Lokey or Platinum regarding such information. This information should not be relied upon as being necessarily indicative of future results, and you are cautioned not to place undue reliance on the prospective financial information. Except to the extent required under federal securities law, CompuCom does not intend to make publicly available any update or other revisions to the projections to reflect circumstances existing after the date of the preparation of the projections.
The projections should be read together with the information contained in the consolidated financial statements of CompuCom available in its filings with the Securities and Exchange Commission, and the information set forth above and along with the risk factors set forth above.
The projections set forth below include those provided to Platinum in March 2004 in connection with its diligence of CompuCom, as well as a revised set of projections provided to Broadview and Houlihan Lokey in May 2004 and described to Platinum during its confirmatory business and financial due diligence sessions on May 11 and 12, 2004. The key assumptions incorporated in the March 2004 projections included total revenue growth of 1.3% compared to 2003 actual results, with product revenue estimated to be essentially flat with 2003 and service revenue increasing by 6.1%. As a result, service revenue as a percentage of total revenue was
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projected to increase from 20.4% in 2003 to 21.4% in 2004. Total gross margin dollars as a percentage of total revenue was estimated to be 12.3%, compared to 12.0% in 2003, reflecting the revenue shift to services. Additionally, product gross margin percent was estimated to decline to 6.7% from 7.1% in 2003, while service gross margin percent was projected to increase to 32.9% compared to 31.1% last year. Operating expense was projected to slightly increase from $152.5 million in 2003 to $153.5 million in 2004.
The May 2004 projections were updated to reflect management’s current outlook for 2004. These projections were revised to reflect the first quarter 2004 actual results and included the following key assumptions: (i) product revenue decline of 6.7% partially offset by an increase in service revenue of 2.1%; (ii) a decrease in total gross margin dollars of $5.6 million resulting primarily from the decline in product revenue; (iii) lower operating expense of $2.8 million, primarily resulting from lower revenue partially offset by increased costs in connection with compliance procedures related to the Sarbanes-Oxley Act of 2002; and (iv) lower financing expense of $566,000.
2004 Forecasted Statement of Earnings | ||||||||
(stated in Thousands of US Dollars) | March 2004 | May 2004 | ||||||
Product Revenue | $ | 1,158,522 | $ | 1,080,128 | ||||
Service Revenue | 314,996 | 321,466 | ||||||
Total Revenue | 1,473,518 | 1,401,594 | ||||||
Product Margin $ | 77,071 | 70,145 | ||||||
Service Margin $ | 103,605 | 104,926 | ||||||
Total Gross Margin $ | 180,676 | 175,071 | ||||||
Product Margin % | 6.7 | % | 6.5 | % | ||||
Service Margin % | 32.9 | % | 32.6 | % | ||||
Total Gross Margin % | 12.3 | % | 12.5 | % | ||||
Operating Expense | 153,492 | 150,681 | ||||||
Financing Expense | 300 | (266 | ) | |||||
Pretax | 26,884 | 24,656 | ||||||
Net Income | $ | 16,130 | $ | 14,804 | ||||
Service Revenue as a percentage of Total Revenue | 21.4 | % | 22.9 | % | ||||
Service Gross Margin as a percentage of Total Gross Margin | 57.3 | % | 59.9 | % | ||||
EBITDA | 39,995 | 36,993 | ||||||
Earnings Per Share | 0.29 | 0.27 |
OTHER MATTERS FOR ACTION AT THE SPECIAL MEETING
As of the date of this proxy statement, we know of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement. If, however, other matters are brought before the special meeting, the persons named as proxies will vote in accordance with their judgment on such other matters unless otherwise indicated on the proxy.
We do not currently expect to hold a 2004 annual meeting of stockholders because, following the merger, we will not be a publicly held company. However, if the merger is not consummated for any reason, we will promptly convene an annual meeting of stockholders. In that event, we must receive stockholder proposals intended to be presented at that meeting at our principal executive offices no later than the tenth day following our public announcement of the date of that meeting in order to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting.
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We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the SEC at the SEC’s facilities located at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the offices of the National Association of Securities Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C. 20006. Please call the SEC at 1-800-SEC-0330 for further information on the SEC’s public reference rooms. Our SEC filings also are available to the public at the SEC’s website at www.sec.gov.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this proxy statement constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may be identified by words such as “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions. These forward-looking statements may include statements concerning, among other things, our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and management objectives. Although we believe the expectations contained in the forward-looking statements are reasonable, we can give no assurance that the expectations will prove correct. In addition, the forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, strategic investments or one-time events. As a result, readers should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties. While it is difficult to identify each factor and event that could affect our results, there are a number of important factors that could cause actual results to differ materially from those indicated by the forward-looking statements, and as a result could have an adverse impact on our business, financial condition and operating results. These factors include, but are not limited to, the matters discussed in this proxy statement and our public filings.
We undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere whether as a result of new information, future events or otherwise.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information incorporated by reference in this proxy statement as described below is considered to be a part of this proxy statement, except for any information that is modified or superseded by information that is included directly in this proxy statement or by a document subsequently filed with the SEC. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this proxy statement.
This proxy statement incorporates by reference the documents listed below that CompuCom has previously filed with the SEC. They contain important information about CompuCom and its financial condition.
CompuCom’s SEC Filings | Period | |
Annual Report on Form 10-K | Year ended December 31, 2003, as filed on March 12, 2004 | |
Quarterly Report on Form 10-Q | Quarter ended March 31, 2004, as filed on May 6, 2004 | |
Current Report on Form 8-K | Filed on May 28, 2004 | |
Current Report on Form 8-K | Filed on June 4, 2004 |
Also incorporated by reference are additional documents that CompuCom may file with the SEC after the date of this proxy statement and prior to the date of the special meeting under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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Statements contained in this proxy statement or in any document incorporated in this proxy statement by reference regarding the contents of any contract or other document are not necessarily complete and each of these statements is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC.
You can obtain any of the documents incorporated by reference in this proxy statement from the SEC through the SEC’s Internet world wide web site at www.sec.gov. If you would like to request from us any of the documents we have previously filed with the SEC, please do so at least 10 business days before the date of the special meeting in order to receive timely delivery of those documents prior to the special meeting. Documents we have previously filed with the SEC, excluding any exhibits to those documents, are also available from us, without charge, at the following address:
COMPUCOM SYSTEMS, INC.
7171 Forest Lane
Dallas, Texas 75230
Attention: Dottie Tabor
Telephone: (972) 856-3600
Internet address: www.compucom.com
You should rely only on the information contained or incorporated by reference in this proxy statement to vote your shares at the special meeting. We have not authorized anyone to provide you with information that is different from what is contained or incorporated by reference in this proxy statement.
CompuCom has supplied all information contained in this proxy statement relating to CompuCom; Safeguard has supplied all information contained in this proxy statement relating to Safeguard; and Platinum has supplied all information contained in this proxy statement relating to Platinum, Parent and Merger Subsidiary. No entity has independently verified any of the information supplied by any other entity.
This proxy statement is datedJuly 15, 2004. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.
By order of the Board of Directors
|
/s/ M. Lazane Smith ___________________________________
|
M. Lazane Smith Secretary |
July 15, 2004
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AGREEMENT AND PLAN OF MERGER
among
COMPUCOM SYSTEMS, INC.,
CHR HOLDING CORPORATION
and
CHR MERGER CORPORATION
Dated as of May 27, 2004
Table of Contents
TABLE OF CONTENTS
Section | Page | |||
ARTICLE I | DEFINITIONS | A-1 | ||
1.1 | Definitions | A-1 | ||
ARTICLE II | THE MERGER | A-2 | ||
2.1 | Merger | A-2 | ||
2.2 | Closing | A-2 | ||
2.3 | Effective Time | A-2 | ||
2.4 | Effects of the Merger | A-2 | ||
2.5 | Certificate of Incorporation and Bylaws | A-2 | ||
2.6 | Directors | A-2 | ||
2.7 | Officers | A-3 | ||
2.8 | Disclosure Schedule | A-3 | ||
ARTICLE III | CONVERSION OF THE COMPANY’S CAPITAL STOCK | A-3 | ||
3.1 | Conversion of the Company’s Capital Stock | A-3 | ||
3.2 | Payment | A-3 | ||
3.3 | No Further Rights | A-4 | ||
3.4 | Closing of the Company’s Transfer Books | A-4 | ||
3.5 | Dissenting Shares | A-5 | ||
3.6 | Stock Options | A-5 | ||
3.7 | Company Employee Stock Purchase Plan | A-5 | ||
ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF THE COMPANY | A-5 | ||
4.1 | Organization, Standing, etc. of the Company | A-5 | ||
4.2 | Authorization and Execution | A-6 | ||
4.3 | No Consents | A-6 | ||
4.4 | Absence of Conflicts; Governmental Authorizations | A-6 | ||
4.5 | Capitalization | A-7 | ||
4.6 | SEC Reports and Financial Statements | A-7 | ||
4.7 | Absence of Certain Changes or Events | A-8 | ||
4.8 | Absence of Undisclosed Liabilities | A-9 | ||
4.9 | Accounts Receivable | A-9 | ||
4.10 | Taxes and Tax Returns | A-9 | ||
4.11 | Agreements, Contracts and Commitments | A-10 | ||
4.12 | Intellectual Property | A-11 | ||
4.13 | Litigation | A-13 | ||
4.14 | Compliance with Legal Requirements | A-13 | ||
4.15 | Environmental Matters | A-13 | ||
4.16 | Employee Benefit Plans | A-14 | ||
4.17 | Absence of Labor Difficulties | A-15 | ||
4.18 | Customers and Suppliers | A-16 | ||
4.19 | Licenses and Permits | A-16 | ||
4.20 | Personal Property | A-16 | ||
4.21 | Insurance | A-16 | ||
4.22 | Corporate Books and Records | A-16 | ||
4.23 | Bank Accounts | A-16 | ||
4.24 | Real Property | A-16 | ||
4.25 | No Broker’s or Finder’s Fees | A-17 | ||
4.26 | Opinion of Financial Advisors | A-17 | ||
4.27 | Information Supplied | A-17 |
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Section | Page | |||
4.28 | Voting Requirements | A-17 | ||
4.29 | Anti-Takeover Laws | A-17 | ||
4.30 | Disclaimer of Other Representations and Warranties | A-17 | ||
ARTICLE V | REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBSIDIARY | A-17 | ||
5.1 | Organization, Standing, etc. of Parent | A-17 | ||
5.2 | Organization, Standing, etc. of Merger Subsidiary | A-18 | ||
5.3 | Authorization and Execution | A-18 | ||
5.4 | Absence of Conflicts; Governmental Authorizations | A-18 | ||
5.5 | Financing | A-18 | ||
5.6 | Information Supplied | A-19 | ||
5.7 | Disclaimer of Other Representations and Warranties | A-19 | ||
ARTICLE VI | COVENANTS OF THE COMPANY | A-19 | ||
6.1 | Access to Information | A-19 | ||
6.2 | Conduct of Business | A-20 | ||
6.3 | Acquisition Proposals | A-21 | ||
6.4 | Closing Efforts | A-22 | ||
ARTICLE VII | COVENANTS OF PARENT AND THE MERGER SUBSIDIARY | A-22 | ||
7.1 | Conduct of Business of Merger Subsidiary | A-22 | ||
7.2 | Obligation of Parent to Make Merger Effective and Merger Subsidiary’s Stockholder Consent | A-22 | ||
7.3 | Information for Proxy Statement for the Company’s Stockholders | A-23 | ||
7.4 | Indemnification Rights | A-23 | ||
7.5 | Employee Benefits | A-24 | ||
7.6 | Financing | A-24 | ||
7.7 | No Amendment to Principal Stockholder Agreement | A-25 | ||
7.8 | Closing Efforts | A-25 | ||
ARTICLE VIII | COVENANTS OF ALL PARTIES | A-25 | ||
8.1 | Stockholder Approval; Preparation of Company Proxy Statement | A-25 | ||
8.2 | HSR Act Filings; Reasonable Efforts | A-26 | ||
8.3 | Notifications | A-27 | ||
8.4 | Confidentiality | A-27 | ||
ARTICLE IX | CONDITIONS | A-27 | ||
9.1 | General Conditions | A-27 | ||
9.2 | Conditions to Obligations of Parent and Merger Subsidiary | A-28 | ||
9.3 | Conditions to Obligations of the Company | A-29 | ||
ARTICLE X | TERMINATION; AMENDMENTS; WAIVERS; FEES AND EXPENSES | A-29 | ||
10.1 | Termination of Agreement and Abandonment of the Merger | A-29 | ||
10.2 | Effect of Termination | A-30 | ||
10.3 | Amendment | A-32 | ||
10.4 | Extension; Waiver | A-32 | ||
10.5 | Fees and Expenses | A-32 |
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Section | Page | |||
ARTICLE XI | GENERAL | A-32 | ||
11.1 | Release of Information | A-32 | ||
11.2 | Notices | A-33 | ||
11.3 | Successors and Assigns | A-33 | ||
11.4 | Specific Performance | A-34 | ||
11.5 | Severability | A-34 | ||
11.6 | Entire Agreement | A-34 | ||
11.7 | Governing Law | A-34 | ||
11.8 | Certain Construction Rules | A-34 | ||
11.9 | Survival of Representations, Warranties and Pre-Effective Date Covenants | A-34 | ||
11.10 | Counterparts | A-35 |
EXHIBITS
EXHIBIT A — Principal Stockholder Agreement
EXHIBIT B — Certificate of Merger
EXHIBIT C — Post-Merger Directors and Officers
EXHIBIT D — Disclosure Schedule
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), is dated as of May 27, 2004, among CompuCom Systems, Inc., a Delaware corporation (the “Company”), CHR Holding Corporation, a Delaware corporation (“Parent”), and CHR Merger Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Subsidiary”).
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Company Board and a Special Committee consisting of independent directors of the Company (the “Special Committee”) have approved this Agreement and deem it advisable and in the best interests of the Company’s stockholders to consummate the merger of Merger Subsidiary into the Company as set forth herein;
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary and the Company (and the Special Committee) have each approved the merger of Merger Subsidiary into the Company (the “Merger”), upon the terms and subject to the conditions set forth in this Agreement, whereby each share of common stock, $.01 par value per share, of the Company (“Company Common Stock”), other than shares owned directly or indirectly by Parent, Merger Subsidiary or the Company, will be converted into the right to receive $4.60 per share in cash, without interest thereon (the “Common Stock Per Share Merger Consideration”), and each share of preferred stock, par value $.01 per share, of the Company (“Company Preferred Stock”), other than shares owned directly or indirectly by Parent, Merger Subsidiary or the Company, will be converted into the right to receive $10.00 per share in cash, plus accrued but unpaid dividends per share through the Effective Time, without interest thereon (the “Preferred Stock Per Share Merger Consideration”);
WHEREAS, the Company Board and the Special Committee have adopted resolutions approving the Merger and recommending that the Company’s stockholders approve and adopt this Agreement and the Merger;
WHEREAS, concurrently with the execution of this Agreement, as an inducement to Parent to enter into this Agreement, Safeguard Scientifics, Inc., a Pennsylvania corporation and the principal stockholder of the Company (the “Principal Stockholder”), has entered into a Principal Stockholder Agreement with Parent and Merger Subsidiary, a copy of which is attached hereto asExhibit A (the “Principal Stockholder Agreement”); and
WHEREAS, Parent, Merger Subsidiary and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual agreements, representations and warranties contained herein, and subject to the conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1Definitions. As used in this Agreement, the terms set forth inSchedule 1.1 shall have the respective meanings set forth therein.
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ARTICLE II
THE MERGER
2.1Merger.
(a) Subject to the terms and conditions of this Agreement, at the Effective Time (as such term is defined inSection 2.3), in accordance with this Agreement and the Delaware General Corporation Law (the “DGCL”), Merger Subsidiary shall merge with and into the Company and the separate existence and corporate organization of Merger Subsidiary (except as may be continued by operation of law) shall cease and the Company shall survive the Merger as the surviving corporation (the “Surviving Corporation”). The Surviving Corporation shall succeed to and assume all the rights and obligations of Merger Subsidiary and the Company in accordance with the DGCL.
(b) Subject to the closing conditions set forth inSection 9.1 andSection 9.2, including the obtaining of financing as described inSection 9.2(e), Parent shall provide or cause to be provided to Merger Subsidiary on a timely basis the funds necessary to enable the Surviving Corporation to accept for payment, and pay for, any shares of Company Common Stock and Company Preferred Stock that the Surviving Corporation becomes obligated to accept for payment, and pay for, pursuant to the Merger, as well as to make the payments contemplated bySection 3.6 hereof, and shall be liable on a direct and primary basis for the performance of the obligations of Merger Subsidiary with respect to the Merger.
2.2Closing. The Closing of the Merger (the “Closing”) shall take place at the offices of Willkie Farr & Gallagher LLP, 787 7th Avenue, New York, New York 10019, on a date and at a time to be specified by Parent which shall be no later than five Business Days after satisfaction or waiver of the conditions set forth inArticle IX (other than conditions which by their nature are to be satisfied at the Closing) or at such other time and place or on such other date as Parent and the Company may agree.
2.3Effective Time. As soon as practicable following the satisfaction or waiver of the conditions set forth inArticle IX (and subject to no other condition set forth herein or otherwise), the parties shall use their reasonable best efforts to consummate the Merger, including without limitation, filing a certificate of merger or other appropriate documents (the “Certificate of Merger”) substantially in the form attached asExhibit B executed in accordance with the relevant provisions of the DGCL, and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such later time as Parent and the Company shall agree and specify in the Certificate of Merger (the time the Merger becomes effective, the “Effective Time”).
2.4Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL.
2.5Certificate of Incorporation and Bylaws.
(a) Pursuant to the Merger, the Certificate of Incorporation of the Company shall be amended in its entirety to read as theRestated Certificate of Incorporation attached as “Exhibit A” to the Certificate of Merger, and as so amended, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law.
(b) The Bylaws of Merger Subsidiary as in effect at the Effective Time shall be the Bylaws of the Surviving Corporation, until changed or amended as provided therein or by applicable law.
2.6Directors. The director listed onExhibit C shall be the sole director of the Surviving Corporation, to hold office in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation, until the earlier of her death, resignation or removal or until her successor is duly elected and qualified.
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2.7Officers. The officers listed onExhibit C shall be the officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and the Bylaws of the Surviving Corporation and until the earlier of their death, resignation or removal or until their successors are duly elected and qualified.
2.8Disclosure Schedule. The Company has prepared and delivered to Parent as of the date of this Agreement a disclosure schedule attached asExhibit D (the “Disclosure Schedule”), setting forth, among other things, certain information that, to the extent and as provided in this Agreement, is required to be disclosed in the Disclosure Schedule or qualifies certain representations and warranties of the Company made in this Agreement.
ARTICLE III
CONVERSION OF THE COMPANY’S CAPITAL STOCK
3.1Conversion of the Company’s Capital Stock. Subject to the terms and conditions of this Agreement:
(a) At the Effective Time, by virtue of the Merger and without any action on the part of Merger Subsidiary, the Company or the holder of any shares of Company Common Stock or Company Preferred Stock, (i) each share of Company Common Stock issued and outstanding immediately prior to the Effective Time, other than shares to be canceled pursuant toSection 3.1(b) below and Dissenting Shares pursuant toSection 3.5 below, shall be converted into and represent the right to receive the Common Stock Per Share Merger Consideration and (ii) each share of Company Preferred Stock, other than shares to be canceled pursuant toSection 3.1(b) below, shall be converted into and represent the right to receive the Preferred Stock Per Share Merger Consideration. The aggregate consideration paid to the holders of issued and outstanding shares of Company Common Stock and Company Preferred Stock pursuant to thisSection 3.1(a) is referred to herein as the “Merger Consideration.”
(b) At the Effective Time, each share of Company Common Stock and Company Preferred Stock, if any, held in the Company’s treasury or owned by Parent, Merger Subsidiary or any subsidiary of Parent immediately prior to the Effective Time shall be canceled and retired without payment of any consideration therefor.
(c) At the Effective Time, each share of common stock of Merger Subsidiary issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, $.01 par value per share, of the Surviving Corporation. From and after the Effective Time, each outstanding certificate theretofore representing shares of common stock of Merger Subsidiary shall be deemed for all purposes to evidence ownership and to represent the same number of shares of common stock of the Surviving Corporation.
3.2Payment.
(a) Prior to the Effective Time, Parent shall designate a bank, trust company or other entity reasonably satisfactory to the Company to act as the disbursing agent (the “Disbursing Agent”) in effecting the exchange of the Merger Consideration for certificates of shares of Company Common Stock and Company Preferred Stock (“Stock Certificates”). At or prior to the Effective Time, Parent, Merger Subsidiary and/or the Surviving Corporation shall deposit with the Disbursing Agent cash in an aggregate amount sufficient to make the cash payments contemplated bySection 3.1 to be made to the holders of shares of Company Common Stock and Company Preferred Stock. As soon as practicable after the Effective Time, Parent shall cause the Disbursing Agent to mail a notice and a transmittal form to each holder of record of shares of Company Common Stock and Company Preferred Stock that has not already executed a transmittal form advising such holder of the effectiveness of the Merger and the procedure for surrendering to the Disbursing Agent such holder’s Stock Certificates for exchange into the Merger Consideration. Each such holder, upon proper surrender of such Stock Certificates to the Disbursing Agent together with and in accordance with
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such transmittal form, shall be entitled to receive in exchange therefor the Merger Consideration deliverable in respect of the shares of Company Common Stock and Company Preferred Stock theretofore evidenced by the Stock Certificates so surrendered, subject to any Taxes required to be withheld. Upon surrender of such Stock Certificates to the Disbursing Agent, Parent shall cause the Disbursing Agent promptly to deliver the Merger Consideration to the Person entitled thereto. The Principal Stockholder shall be entitled to prompt payment by wire transfer in accordance with instructions specified in the transmittal form. Until properly surrendered, each such Stock Certificate shall be deemed for all purposes to evidence only the right to receive the Merger Consideration payable with respect to the shares of Company Common Stock or Company Preferred Stock represented by such Stock Certificate in accordance with Section 3.1(a). Until properly surrendered, holders of Stock Certificates will not be entitled to payment of the Merger Consideration to which they would otherwise be entitled. No interest will be paid or accrued on the cash payable upon the surrender of a Stock Certificate. All costs and expenses of the Disbursing Agent shall be borne by Parent.
(b) If the Merger Consideration (or any portion thereof) payable with respect to any Company Common Stock or Company Preferred Stock is to be delivered to a Person other than the Person in whose name the Stock Certificates surrendered in exchange therefor are registered, it shall be a condition to the payment of such Merger Consideration that the Stock Certificates so surrendered shall be properly endorsed or accompanied by appropriate stock powers and otherwise in proper form for transfer, that such transfer otherwise be proper and that the Person requesting such transfer pay to the Disbursing Agent any transfer or other Taxes payable by reason of the foregoing or establish to the satisfaction of the Disbursing Agent that such Taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither the Disbursing Agent nor any party hereto shall be liable to a holder of shares of Company Common Stock or Company Preferred Stock for any Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
(c) In the event any Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Stock Certificate to be lost, stolen or destroyed, the Surviving Corporation will issue, in exchange for such lost, stolen or destroyed Stock Certificate, the Merger Consideration deliverable in respect thereof as determined in accordance with thisArticle III. When authorizing such payment of the Merger Consideration in exchange therefor, the Board of Directors of the Surviving Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Stock Certificate to give the Surviving Corporation a bond in such sum as it may direct, or such other secured or unsecured indemnity agreement as such Board of Directors may require, as indemnity against any claim that may be made against the Surviving Corporation with respect to the Stock Certificate alleged to have been lost, stolen or destroyed.
(d) Promptly following the seven month anniversary of the Effective Time, upon request by Parent, the Disbursing Agent shall return to the Surviving Corporation all Merger Consideration in its possession relating to the transactions described in this Agreement, and the Disbursing Agent’s duty shall thereupon terminate. Thereafter, each holder of a Stock Certificate may surrender such Stock Certificate to the Surviving Corporation, in accordance with the procedures above, and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor the Merger Consideration payable with respect thereto, without any interest thereon and subject to any Taxes required to be withheld.
3.3No Further Rights. From and after the Effective Time, holders of Stock Certificates shall cease to have any rights as stockholders of the Company, except as provided herein or by law.
3.4Closing of the Company’s Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of shares of Company Common Stock or Company Preferred Stock shall thereafter be made. If, after the Effective Time, Stock Certificates are presented to the Surviving Corporation or the Disbursing Agent, they shall be canceled and exchanged for the Merger Consideration, as provided in thisArticle III.
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3.5Dissenting Shares. NotwithstandingSection 3.1(a), shares of Company Common Stock outstanding immediately prior to the Effective Time and held by a holder who has demanded appraisal for such shares (“Dissenting Shares”) in accordance with the DGCL shall not be converted into or represent the right to receive the applicable Merger Consideration, unless such holder withdraws or otherwise loses (through failure to perfect or otherwise) his, her or its right to appraisal, and each holder of Dissenting Shares shall be entitled only to such rights with respect to such Dissenting Shares as may be granted to such holder pursuant to Section 262 of the DGCL. If after the Effective Time such holder withdraws or loses (through failure to perfect or otherwise) his, her or its right to appraisal, such Dissenting Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration payable with respect thereto, and any right of such holder to a judicial appraisal of the Dissenting Shares shall be extinguished. The Company shall use commercially reasonable efforts to give Parent notice of any demands received by the Company for appraisal of shares of Company Common Stock and involve Parent in the negotiations and proceedings with respect to such demands.
3.6Stock Options.
(a) The Company will (i) terminate, to the extent permitted by the terms thereof, the Company Option Plans immediately before the Effective Time, without prejudice to the rights of the holders of outstanding Options issued pursuant to the Company Option Plans and give appropriate notices of such termination to the holders of outstanding Options, (ii) grant no additional Options after the date of this Agreement under the Company Option Plans and (iii) grant or enter into, in each case after the date of this Agreement, no other options, warrants, rights, convertible securities or other agreements or commitments pursuant to which the Company is required to issue any shares of its capital stock or any securities convertible into or exchangeable for its capital stock.
(b) The Company will, at or before the Closing, cancel and cause the surrender of all outstanding Options, regardless of whether the Options are then exercisable and regardless of the exercise price of the Options.
(c) In settlement of the surrender and cancellation of each Option that has an exercise price less than the Common Stock Per Share Merger Consideration, the holder of such Option (regardless of whether such Option is then exercisable) will be entitled to receive an amount in cash, without any interest thereon, equal to the product of (i)(A) the Common Stock Per Share Merger Consideration, minus (B) the exercise price per share of Company Common Stock under such Option, multiplied by (ii) the number of shares of Company Common Stock issuable upon the exercise of such Option; provided, however, that the amounts payable pursuant to thisSection 3.6 shall be reduced by any applicable federal and state withholding Taxes. Options shall be surrendered and canceled at the Closing and, upon such surrender and cancellation, will be paid for by the Surviving Corporation at Closing. On or prior to Closing, the Company shall take all steps necessary to ensure that, assuming the payments contemplated by thisSection 3.6 are made, no Options will remain outstanding after the Effective Time.
3.7Company Employee Stock Purchase Plan. The Company will terminate the Company ESP Plan effective immediately following the termination of the current “Offering Period” (as such term is defined in the Company ESP Plan).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule, the Company hereby represents and warrants to Parent and Merger Subsidiary as follows:
4.1Organization, Standing, etc. of the Company. The Company and the Subsidiaries are corporations duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of their incorporation, have the requisite corporate power and authority to own their assets and to carry on their business as presently
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conducted and, except as set forth onSchedule 4.1 of the Disclosure Schedule, are duly qualified as a foreign corporation to do business in and are in good standing in each jurisdiction where they are presently engaged in business and are required to be so qualified except where the failure to be so qualified would not be reasonably expected to have a Material Adverse Effect. The Company has delivered or made available to Parent true and complete copies of its Certificate of Incorporation and all amendments thereto to the date hereof and its Bylaws as presently in effect and the Certificate of Incorporation and Bylaws (or other comparable documents) of each of the Subsidiaries. The Company has all requisite corporate power and authority to execute and deliver, and perform its obligations under, this Agreement and to consummate the transactions contemplated hereby.Schedule 4.1 of the Disclosure Schedule sets forth a complete list of the Subsidiaries.
4.2Authorization and Execution. The execution and delivery of this Agreement and, subject to obtaining the requisite stockholders’ approval, the performance by the Company of this Agreement and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company. The Company Board, at meetings duly called and held, has (a) determined that the transactions contemplated by this Agreement, including the Merger, are fair to and in the best interests of the stockholders of the Company, (b) approved this Agreement and the transactions contemplated hereby, including, without limitation, the Merger, and (c) recommended that the stockholders of the Company adopt this Agreement and approve the Merger and directed that this Agreement and the transactions contemplated hereby be submitted for consideration by the stockholders of the Company. This Agreement has been duly and validly executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, assuming this Agreement is enforceable against Parent and Merger Subsidiary, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, rearrangement, reorganization, fraudulent conveyance, fraudulent transfer, moratorium, liquidation, conservatorship or similar laws or by general principles of equity.
4.3No Consents. Except as set forth inSection 4.4, the execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby will not require any Consent or other action by or in respect of, or declaration or filing with, any Tribunal or with any Person that is a party to a Material Contract.
4.4Absence of Conflicts; Governmental Authorizations.
(a) The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby will not (i), except as set forth onSchedule 4.4of the Disclosure Schedule, conflict with or result in any violation of any provision of the Certificate of Incorporation or Bylaws or equivalent organizational document, each as amended to date, of the Company or any Subsidiary; (ii) subject to obtaining the Consents listed inSchedule 4.4 of the Disclosure Schedule, conflict with, result in any material violation or breach of, constitute a material default under, give rise to any material right of termination or acceleration (with or without notice or the lapse of time or both) pursuant to, or result in being declared void or voidable, any term or provision of any Material Contract as to which the Company or any Subsidiary is a party or by which any of their respective properties or assets are or may be bound; (iii) violate in any material respect any term of any Legal Requirement applicable to the Company or any Subsidiary or by which any of their respective properties or assets are bound or affected; or (iv) result in the creation of, or impose on the Company or any Subsidiary the obligation to create, any Lien upon any material properties or assets of the Company or any Subsidiary other than Permitted Liens.
(b) Except for applicable requirements, if any, of the Exchange Act (including the filing with the SEC of a proxy statement relating to any required approval by the Company’s stockholders of this Agreement (the “Proxy Statement”)), the Securities Act, the premerger notification requirements of the HSR Act, the filing and recordation of appropriate merger documents as required by the DGCL, filings required pursuant to any state securities or “blue sky” laws and such other notices, reports or other filings the failure of which
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to be made would not have a Material Adverse Effect or prevent or materially impair the consummation of the transactions contemplated hereby, the Company is not required to submit any notice, report or other filing to any Tribunal in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby.
4.5Capitalization. The authorized capital stock of the Company consists solely of (a) 70,000,000 shares of Company Common Stock, of which 50,199,874 shares are issued and outstanding on the date hereof, 2,215,657 shares have been reserved for issuance upon the conversion of the issued and outstanding shares of Company Preferred Stock, 6,633,543 shares have been reserved for issuance under the Company Option Plans, 1,887,296 shares have been reserved for issuance under the terms of the Company ESP Plan, and none are held in the treasury; and (b) 10,000,000 shares of Company Preferred Stock, of which 3,000,000 are reserved for issuance as Series B Cumulative Convertible Preferred Stock, of which 1,500,000 shares are issued and outstanding on the date hereof. All of the outstanding shares of Company Common Stock and all of the outstanding shares of Company Preferred Stock have been duly authorized and are validly issued, fully paid and nonassessable and free of preemptive rights. All of the issued shares of Company Common Stock and all of the issued shares of Company Preferred Stock were issued, and to the extent purchased by the Company or transferred, have been so purchased or transferred, in compliance with any preemptive rights and any other statutory or contractual rights of any stockholders of the Company. All shares of Company Common Stock subject to issuance upon exercise of the outstanding Options described above will be, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, duly authorized, validly issued, fully paid and nonassessable. Other than as set forth above, there are no subscriptions, options, warrants, convertible securities or other agreements or commitments (contingent or otherwise) pursuant to which the Company or any Subsidiary is required to issue any shares of its capital stock (or ownership interests) or any securities convertible into or exchangeable for its capital stock (or ownership interests), or is otherwise required to give any Person the right to receive any benefits or rights similar to any rights enjoyed by or accruing to the holders of shares of capital stock (or ownership interests) of the Company or any Subsidiary or any rights to participate in the equity or net income of the Company or any Subsidiary. Except as set forth onSchedule 4.5 of the Disclosure Schedule, there are no outstanding contractual obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire shares of its capital stock (or ownership interests) or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any Subsidiary or any other Person.Schedule 4.5 of the Disclosure Schedule sets forth (i) the number and exercise price of all outstanding Options and (ii) the aggregate number of participants in, and the aggregate amount contributed (and not otherwise withdrawn) by such participants to, the Company ESP Plan in the current “Offering Period” (as such term is defined in the Company ESP Plan), each calculated as of May 21, 2004. Except as set forth onSchedule 4.5 of the Disclosure Schedule, there are no stockholders’ agreements, voting trusts or other agreements or understandings to which the Company or any Subsidiary is a party or by which it is bound or, to the Company’s Knowledge, between or among stockholders, in each case with respect to the transfer or voting of any capital stock of the Company or any Subsidiary. Each outstanding share of capital stock (or ownership interests) of each Subsidiary is duly authorized, validly issued, fully paid and nonassessable, and is owned by the Company or another Subsidiary, free and clear of all Liens other than Permitted Liens.
4.6SEC Reports and Financial Statements.
(a) The Company has filed all forms, reports, schedules, statements and other documents required to be filed by it with the SEC, and has made available to Parent true and complete copies of all such forms, reports, schedules, statements and other documents filed by it since January 1, 2001, under the Exchange Act or the Securities Act (such forms, reports, schedules, statements and other documents, including any financial statements or schedules included therein, are referred to as the “Company SEC Documents”). To the Company’s Knowledge, each of the Company SEC Documents, at the time filed, (i) did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by such Company SEC Document and (ii) complied in all material respects with the
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applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. No Subsidiary is required to file any form, report or other document with the SEC.
(b) The consolidated financial statements included in the Company SEC Documents comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except as may be indicated in the notes thereto or, in the case of the unaudited statements of the Company, as permitted by SEC Forms 10-Q and 8-K) and fairly present in all material respects (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the consolidated financial position, results of operations and cash flows of the Company for the periods presented in the Company SEC Documents.
4.7Absence of Certain Changes or Events. Except (a) as disclosed (i) in the Company SEC Documents, or (ii) inSchedule 4.7of the Disclosure Schedule, and (b) if this representation is being made at Closing, as expressly provided in this Agreement or as contemplated by the parties in connection with obtaining financing for the Merger, since December 31, 2003, the Company and the Subsidiaries have conducted their businesses only in the ordinary course and, to the Company’s Knowledge, in a manner consistent with past practice, and there has not been:
(a) any material adverse change in the business, operations, properties, condition (financial or otherwise), or assets or liabilities (including, without limitation, contingent liabilities) of the Company or any Subsidiary;
(b) any material damage, destruction or loss (if not covered by insurance) with respect to any material property or asset of the Company or any Subsidiary;
(c) any material change by the Company or any Subsidiary in its accounting methods, principles or practices, except as required by applicable laws, regulations or accounting pronouncements, provided that each such change has been disclosed in the Company SEC Documents;
(d) any revaluation by the Company or any Subsidiary of any material asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), other than in the ordinary course of business consistent with past practice;
(e) other than the distribution of quarterly dividends consistent with past practice with respect to outstanding shares of Company Preferred Stock, any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock (or ownership interests) of the Company or any Subsidiary, or any redemption, purchase or other acquisition of any of their respective securities;
(f) any issuance to any director, officer or employee of the Company or any Subsidiary of any options, warrants, rights, or convertible securities relating to the issued or unissued capital stock (or ownership interests) of the Company or any Subsidiary other than pursuant to the Company ESP Plan;
(g) any acquisition by the Company or any Subsidiary (including, without limitation, by merger, consolidation, or acquisition of stock or assets or any other business combination) of any corporation, partnership, other business organization or any division thereof or any material amount of assets;
(h) any incurrence of Indebtedness other than in the ordinary course of business and consistent with past practice or any issuance of any debt securities by the Company or any Subsidiary;
(i) any assumption or guarantee by the Company or any Subsidiary of the obligations of any Person;
(j) other than trade payables, extensions of credit to customers and advances to employees and independent contractors for travel expenses or wage or salary advances for non-executive employees of the Company that do not exceed two weeks wages or salary, in each case in the ordinary course of business and consistent with past practice, any loan or advance by the Company or any Subsidiary to any Person;
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(k) any authorization of, or commitment to make, any capital expenditure that exceeds the Company’s 2004 capital expenditure budget, a copy of which has been previously provided to Parent (the “2004 Capital Expenditure Budget”); or
(l) any increase in the compensation payable or to become payable or the benefits provided or to be provided to any director, officer or employee of the Company or any Subsidiary, except for increases in the ordinary course of business and consistent with past practice.
4.8Absence of Undisclosed Liabilities. Except as set forth in the Company SEC Documents or onSchedule 4.8of the Disclosure Schedule, and except for obligations in connection with the transactions contemplated hereby, neither the Company nor any Subsidiary has any material liabilities, Indebtedness or material obligations of any nature (whether accrued, absolute or contingent, asserted or unasserted, due or to become due) other than liabilities, Indebtedness and obligations incurred in the ordinary course of business consistent with past practice.
4.9Accounts Receivable. All Accounts Receivable existing as of the date hereof arose out of bona fide business transactions in the ordinary course of business. To the Knowledge of the Company, adequate reserves have been accrued and maintained in the financial statements of the Company included in the Form 10-Q of the Company filed with the SEC for the fiscal quarter ended March 31, 2004, to provide for all doubtful accounts of, valid counterclaims or setoffs by, rebates, discounts and allowances to, and returns from, any customers of the Company, and such reserves were established in a manner consistent with the Company’s collection experience in prior periods. The Company has furnished Parent with a true and complete copy of its Accounts Receivable Aging Report, dated March 31, 2004.
4.10Taxes and Tax Returns. Except as set forth onSchedule 4.10 of the Disclosure Schedule:
(a) The Company and the Subsidiaries have duly filed in all material respects all tax returns, statements, reports and forms required to be filed with any taxing authority (collectively, the “Tax Returns”) and have duly paid or caused to be duly paid in full or made provision in accordance with GAAP (or there has been paid or provision has been made on their behalf) for the payment in all material respects of all Taxes for all periods or portions thereof ending prior to the date hereof. All such Tax Returns accurately reflect in all material respects all liability for Taxes for the periods covered thereby and, to the Knowledge of the Company, all such Tax Returns are true, correct and complete. The Company has delivered to Parent complete and correct copies of all federal income Tax Returns filed by the Company and each Subsidiary for the three most recent taxable years for which such Tax Returns have been filed prior to the date of this Agreement. Neither the Company nor any Subsidiary has received written notice of any material claim made by a Tribunal in a jurisdiction where neither the Company nor such Subsidiary files Tax Returns that the Company or such Subsidiary is or may be subject to taxation by that jurisdiction.
(b) The Company and each Subsidiary has withheld and timely paid in all material respects all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
(c) None of the federal income Tax Returns of the Company or the Subsidiaries has been examined by the Internal Revenue Service during the last six (6) taxable years. The applicable statutes of limitation for the assessment of Federal income taxes for all taxable periods ending on or prior to December 31, 1998 have expired, and no material deficiencies were asserted as a result of such examinations that have not been resolved or fully paid.
(d) No Tax audit, examinations or other administrative or judicial proceedings are pending or being conducted, or, to the Knowledge of the Company, threatened, with respect to any Taxes due from or with respect to or attributable to the Company or any Subsidiary or any Tax Return filed by or with respect to the Company or any Subsidiary, and no written notification of an intent to audit, to examine or to initiate administrative or judicial proceedings has been received by the Company or by any Subsidiary. There is no material dispute or claim concerning any Tax liability of the Company or of any Subsidiary either claimed or raised by any taxing authority in writing.
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(e) Neither the Company nor any Subsidiary (i) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, (ii) is a party to any material tax sharing, tax indemnity or other agreement or arrangement with any entity not included in the Company’s consolidated financial statements most recently filed by the Company with the SEC, (iii) has made an election under Section 341(f) of the Code, (iv) is a party to or bound by any closing agreement or offer in compromise with any taxing authority, (v) has been or will be required to include any material adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 or Section 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing, (vi) has any excess loss account (as defined in Treasury Regulations Section 1.1502-19), (vii) has any deferred intercompany gains (as defined in Treasury Regulations Section 1.1502-13), or (viii) is a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code or any similar provision of foreign, state or local law.
(f) There is no material Tax lien (other than for current Taxes not yet due and payable) against the assets of the Company or any Subsidiary except for Permitted Liens.
(g) None of the assets of the Company or any Subsidiary is (i) “tax exempt use property” within the meaning of Section 168(h) of the Code, (ii) subject to any lease made pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954 or (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code.
(h) The accruals and reserves for current Taxes reflected in the financial statements included in the Company SEC Documents are adequate in all material respects to cover all Taxes accruable through the respective dates thereof (including interest and penalties, if any, thereon) in accordance with GAAP.
(i) The Company and each of the Subsidiaries is a “United States Person” within the meaning of Section 7701(a)(30) of the Code.
(j) With respect to (i) the Receivables Contribution and Sale Agreement between the Company and CSI Funding, Inc. and (ii) all other material related party transactions between the Company and its Subsidiaries, each of such transactions in clauses (i) and (ii) is, in all material respects, on an arms’ length basis in accordance with Section 482 of the Code, or any state law equivalent.
(k) The Company and each Subsidiary have disclosed on their federal income Tax Returns all positions taken therein that (i) constitute a reportable tax shelter transaction or any other tax shelter transaction within the meaning of Section 6011 of the Code or (ii) to the Knowledge of the Company and its Subsidiaries, could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.
(l) No powers of attorney or other authorizations are in effect that grant to any Person the authority to represent the Company or any Subsidiary in connection with any Tax matter or proceeding.
(m) Since January 1, 1999, neither the Company nor any Subsidiary has made any tax election, other than in the ordinary course of business and consistent with past practice, or settled or compromised any Tax liability in excess of $25,000.
4.11Agreements, Contracts and Commitments.
(a)Schedule 4.11 of the Disclosure Schedule contains a list of the following contracts to which either the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or has committed to be bound as of the date hereof:
(i) all loan, credit or security agreements, notes, bonds, mortgages, indentures and other agreements and instruments for borrowed money in excess of $100,000 of the Company or any Subsidiary and any agreement which guarantees the obligations of any party in excess of such amount;
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(ii) all material employment or retention agreements, including collective bargaining agreements and consulting agreements, with employees, officers, directors or consultants or former employees, officers, directors or consultants associated with the Company or any Subsidiary or Affiliate of the Company which contain obligations which bind the Company or any Subsidiary of the Company and any agreement with any such individual that provides for the payment of severance upon the termination of such individual’s employment or which is in the nature of a stay bonus or retention bonus to the extent such agreements contain obligations that exceed $100,000 per annum and are not terminable by it or any Subsidiary on 90 days’ notice or less without penalty;
(iii) all leases for real property in which the amount of payments which the Company is required to make on an annual basis exceeds $100,000;
(iv) all leases for personal property in which the amount of payments which the Company is required to make on an annual basis exceeds $500,000;
(v) all Contracts between the Company or any Subsidiary and their aggregate top twenty-five (25) customers, determined on the basis of revenue recognized by the Company or any Subsidiary, as applicable, for sales to such customers for the fiscal year ended December 31, 2003, and all Contracts between the Company or any Subsidiary and their aggregate top twenty-five (25) suppliers, determined on the basis of the total dollar value of supplies purchased by the Company or any Subsidiary, as applicable, from such suppliers for the fiscal year ended December 31, 2003, indicating whether each such Contract is terminable by either party on ninety (90) days’ notice or less (each a “Key Customer or Supplier”);
(vi) all agreements materially limiting the freedom of the Company or any Subsidiary to compete in any line of business or in any geographic area or with any Person;
(vii) all agreements to make capital expenditures in excess of $250,000 with respect to the Company or any Subsidiary;
(viii) all agreements to sell, lease or otherwise dispose of any material assets of the Company or any Subsidiary other than in the ordinary course of business and consistent with past practice;
(ix) all joint venture agreements and partnership agreements related to the Company or any Subsidiary; and
(x) all intercompany contracts and agreements.
(b) All agreements listed inSchedule 4.11(a)(i) through (xi) of the Disclosure Schedule or otherwise disclosed in the Company SEC Documents (such contracts being referred to herein as “Material Contracts”) are valid and binding agreements of the Company or a Subsidiary of the Company and are in full force and effect.
(c) No material default, violation or breach by the Company or any Subsidiary under any Material Contract has occurred or will occur as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby which affects or will affect the enforceability of any Material Contract or any party’s rights thereunder. To the Knowledge of the Company, none of the parties to the Material Contracts is any material respect in breach thereof or default thereunder.
(d) The Company has made available to Parent complete and accurate copies of each Material Contract.
4.12Intellectual Property.
(a) “Intellectual Property” means all the (i) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing (collectively, “Trademarks”), (ii) patents and patent applications (including any inventions disclosed therein and all registrations, disclosures, continuations,
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continuations in part, renewals, revisions, extensions, reexaminations and applications for any of the foregoing) (“Patents”), (iii) all copyrightable works and copyrights (including any registrations and applications for any of the foregoing) (“Copyrights”), (iv) Software, (v) technology, trade secrets and other confidential information, Know-How, inventions, proprietary processes, formulae, algorithms, models, methodologies, ideas, research and development, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals (collectively, “Trade Secrets”), (vi) all other proprietary rights and (vii) all copies and tangible embodiments thereof (in whatever form or medium) held for use or used in the conduct of the Company and the Subsidiaries’ businesses as currently conducted or contemplated to be conducted. For purposes of thisSection 4.12, “Software” means any and all (i) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, and (iii) all documentation, including user manuals and training materials, relating to any of the foregoing and the content and information contained on any website.
(b)Schedule 4.12(b) of the Disclosure Schedule sets forth a complete and accurate list of all of the following that are owned by the Company or any Subsidiary: (i) Patents which are either registered or applied for; (ii) Trademarks which are either registered, applied for or material to the operation of the business; (iii) all registrations and applications for registration of all Copyrights; and (iv) Software (other than readily-available commercial Software). All Intellectual Property owned by the Company or any Subsidiary is free and clear of all Liens, except for Permitted Liens.
(c)Schedule 4.12(c) of the Disclosure Schedule sets forth a complete and accurate list of all agreements to which the Company or any Subsidiary is a party or otherwise bound, (i) granting or obtaining any right to use or practice any rights under any Intellectual Property (other than licenses for readily available commercial Software programs), or (ii) restricting the Company’s or any Subsidiary’s rights to use any Intellectual Property (other than restrictions contained in licenses for readily available commercial Software programs) (collectively, the “License Agreements”). The License Agreements are in all material respects valid and binding obligations of the Company or a Subsidiary, and, to the Knowledge of the Company, all other parties thereto, are enforceable in accordance with their terms, and will not in any material adverse respect be modified, altered, affected, discontinued or terminated as a result of the Merger, and there exists no event or condition which will result in a material violation or breach of, or constitute (with or without due notice of lapse of time or both) a material default by any party under any such License Agreement. Neither the Company nor any Subsidiary has licensed or sublicensed its rights in any material Intellectual Property other than pursuant to the License Agreements. No royalties, honoraria or other fees are payable by the Company or any Subsidiary to any third parties for the use of or right to use any Intellectual Property except pursuant to the License Agreements.
(d) The Company or one of the Subsidiaries owns or possesses in all material respects adequate, valid and enforceable licenses or other rights to use all Intellectual Property necessary to operate its business in the ordinary course and consistent with past practice and such licenses and rights (other than licenses for readily available commercial software programs) shall not in any material adverse respect be modified, altered, diminished or terminated as a result of the Merger.
(e) To the Knowledge of the Company, the conduct of the Company and the Subsidiaries’ businesses as currently conducted does not in any material respect conflict with or infringe on any intellectual property rights owned or controlled by any third party. Except as set forth onSchedule 4.12 of the Disclosure Schedule, there is no pending or, to the Knowledge of the Company, threatened claim, suit, arbitration or other adversarial proceeding before any Tribunal in any jurisdiction involving the Intellectual Property or alleging that the activities or the conduct of the Company’s or any Subsidiary’s businesses in any material respect infringe upon, violate or constitute the unauthorized use of the intellectual property rights of any third party or challenging in any material respect the Company’s or any Subsidiary’s ownership, use, validity, enforceability or registrability of any Intellectual Property. There are no settlements, forbearances to sue, consents, judgments, or orders or similar obligations (other than the License Agreements) applicable
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to the Company or any Subsidiary which in any material respect (i) restrict the Company’s or any Subsidiary’s right to use any Intellectual Property owned or necessary to the operation of the business, (ii) restrict the Company’s or any Subsidiary’s businesses in order to accommodate a third party’s intellectual property rights or (iii) permit third parties to use any Intellectual Property owned by, controlled by, or necessary to the operation of the business of, the Company or any Subsidiary.
(f) To the Knowledge of the Company, no third party is in any material respect using, misappropriating, infringing, diluting or violating any of the Company Intellectual Property, and no such claims, suits, arbitrations or other adversarial proceedings have been brought or threatened against any third party by the Company or any Subsidiary.
(g) The Company and the Subsidiaries have taken reasonable measures to protect the confidentiality of Trade Secrets the disclosure of which, either individually or in the aggregate, would have a Material Adverse Effect. To the Knowledge of the Company, no party to any non-disclosure agreement relating to Company Trade Secrets is in material breach or default thereof.
4.13Litigation.Schedule 4.13 of the Disclosure Schedule lists all lawsuits, suits, claims, actions, proceedings, investigations, arbitrations, mediations or other proceedings which, to the Knowledge of the Company, are pending or threatened against the Company or any Subsidiary, or any property or asset of the Company or any Subsidiary, before any Tribunal (each, an “Action” and collectively, “Actions”). Neither the Company nor any Subsidiary nor any property or asset of the Company or any Subsidiary is subject to any continuing Order of, settlement agreement or similar written agreement with, or, to the Knowledge of the Company, continuing investigation by, any Tribunal, or any Order of any Tribunal (other than regulations or executive Orders of a general nature applicable to more than the Company or its Subsidiaries).
4.14Compliance with Legal Requirements. To the Company’s Knowledge, the Company has not in any material respect violated or failed to comply with any Legal Requirement. Except as set forth onSchedule 4.14of the Disclosure Schedule, neither the Company nor any Subsidiary has received any notice from, or otherwise been advised that, any Tribunal or other Person is claiming any material violation or potential material violation of any Legal Requirement with respect to the Company, any Subsidiary or their respective businesses.
4.15Environmental Matters.
(a) Without limiting the generality ofSection 4.14, (i) the Company, each Subsidiary and, to the Knowledge of the Company, their respective properties, are in compliance in all material respects with all, and neither the Company nor any of the Subsidiaries has any material liability under any, applicable Environmental, Health and Safety Laws (as defined below); (ii) the Company and each Subsidiary have timely filed all required material reports, obtained all required material approvals and Permits and generated and maintained all required material data, documentation and records under any applicable Environmental, Health and Safety Laws; (iii) to the Knowledge of the Company, neither the Company nor any Subsidiary nor anyone acting on their behalf in the course of so acting, has generated, stored, released, manufactured, processed, treated, transported or disposed of any Hazardous Materials (as defined below) on, beneath or about any premises owned or used by the Company or any Subsidiary at any time, except for inventories of Hazardous Materials in the ordinary course of business, which inventories were and are generated, stored, released, manufactured, processed, treated, transported and disposed of in material compliance with all applicable Environmental, Health and Safety Laws; (iv) neither the Company nor any Subsidiary has caused and is not aware of any release or threat of release of any Hazardous Materials on, beneath or about any premises owned or used by the Company or the Subsidiary at any time except in material compliance with all applicable Environmental, Health and Safety Laws; (v) neither the Company nor any Subsidiary has received any notice advising it that it is or may be responsible, or potentially responsible, for clean up costs with respect to a release or threatened release of any Hazardous Materials; and (vi) neither the Company nor any Subsidiary is aware of any release or disposal of any Hazardous Materials by any other Person on any premises owned or used by the Company or any Subsidiary except in material compliance with all applicable Environmental, Health and Safety Laws.
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(b) For the purposes of this Agreement, “Environmental, Health and Safety Laws” shall mean (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., and any amendments thereto; (ii) the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., and any amendments thereto; (iii) the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; (iv) any other similar Legal Requirements, as now in effect, relating to, or imposing liability or standards of conduct concerning, any Hazardous Materials or dangerous waste, substance or material; and (v) any Legal Requirements relating to the protection of human health and occupational safety for employees and others in the workplace. For the purposes of this Agreement, “Hazardous Materials” shall mean petroleum and all derivatives thereof or synthetic substitutes therefor, asbestos and asbestos-containing materials, and any and all materials now or hereafter defined, listed, designated or classified as, or otherwise determined to be, “hazardous wastes,” “hazardous substances,” “radioactive,” “solid wastes,” or “toxic” under or pursuant to or otherwise listed or regulated pursuant to any Environmental, Health and Safety Law.
4.16Employee Benefit Plans.
(a)Schedule 4.16(a) of the Disclosure Schedule hereto sets forth a true and complete list of: (i) all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and any other employee benefit arrangements or payroll practices (including, without limitation, severance pay, vacation pay, company awards, salary continuation for disability, sick leave, death benefit, hospitalization, medical welfare benefit, deferred compensation, profit sharing, retirement, retiree medical or life insurance, supplemental retirement, bonus or other incentive compensation, stock purchase, stock option, restricted stock and phantom stock arrangements or policies) (collectively, the “Employee Benefit Plans”); (ii) all Employee Benefit Plans which are “pension plans” (as defined in Section 3(2) of ERISA (“Pension Plans”)); and (iii) all material employment, termination, bonus, severance or other contracts or agreements (“Employment Agreements”), in each case to which the Company or any ERISA Affiliate is a party, with respect to which the Company or any ERISA Affiliate has any obligation or which are maintained by the Company or any ERISA Affiliate or to which the Company or an ERISA Affiliate contributes or is obligated to contribute with respect to current or former employees of the Company (such Employee Benefit Plans, Pension Plans, and Employment Agreements collectively, the “Benefit Plans”). The Company has made available to Parent a true and complete copy of each Benefit Plan.
(b) None of the Benefit Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) or a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Company or any Subsidiary could incur liability under Section 4063 or 4064 of ERISA. None of the Benefit Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company or any Subsidiary.
(c) The Company and the Subsidiaries have performed all material obligations required to be performed by them under and are not in any material respect in default under or in violation of, and to the Knowledge of the Company, there is no material default or violation by any party to, any Benefit Plan. No Action is pending or, to the Knowledge of the Company, threatened with respect to any Benefit Plan (other than claims for benefits in the ordinary course) and, to the Knowledge of the Company, no fact or event exists that could give rise to any such Action, which action would have a Material Adverse Effect.
(d) Except as set forth onSchedule 4.16 of the Disclosure Schedule, all contributions required to be made to each Benefit Plan under the terms thereof, ERISA, the Code, or any other applicable Legal Requirement have in all material respects been timely made, and are in all material respects fully deductible in the year for which they were paid or accrued. All other amounts that should be accrued to date as liabilities of the Company or any Subsidiary under or with respect to each Benefit Plan (including any unpaid administrative expenses and incurred but not reported claims) for the current plan year of each Benefit Plan have been recorded in all material respects on the books of the Company or such Subsidiary.
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(e) There has been no “reportable event,” as that term is defined in Section 4043 of ERISA and the regulations thereunder, with respect to any of the Benefit Plans which would require the giving of notice, or any event requiring notice to be provided, under Section 4063(a) of ERISA.
(f) To the Knowledge of the Company, there has been no violation of ERISA that could reasonably be expected to result in a material liability with respect to the filing of applicable returns, reports, documents or notices regarding any of the Employee Benefit Plans with the Secretary of Labor or the Secretary of the Treasury or the furnishing of such notices or documents to the participants or beneficiaries of the Employee Benefit Plans.
(g) True and complete copies of the following documents, with respect to each of the Employee Benefit Plans (as applicable) have been made available by the Company to Parent: (i) any plans and related trust documents, and all amendments thereto; (ii) the most recent Forms 5500 and schedules thereto; and (iii) the most recent summary plan description.
(h) There are no pending Actions which have been asserted or instituted against any Employee Benefit Plan, or its assets or against the Company, plan administrator, or fiduciary of any Employee Benefit Plan with respect to the operation of such Employee Benefit Plan (other than routine, uncontested benefit claims). To the Knowledge of the Company, the Company has not engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Code.
(i) Neither the Company nor any Subsidiary maintains, contributes to or is obligated to contribute to (or within the past three (3) years has maintained, contributed to or been obligated to contribute to) any Pension Plan that is subject to Title IV of ERISA or Section 412 of the Code.
(j) Except as set forth onSchedule 4.16 of the Disclosure Schedule, neither the Company nor any Subsidiary has any liability or obligation under any Benefit Plan to provide life insurance or medical or health benefits after termination of employment to any employee or dependent, other than as required by Part 6 of Title I of ERISA or Section 4980B of the Code, or applicable state law.
(k) There will be no material liability of the Company or any Subsidiary (i) with respect to any Benefit Plan that has previously been terminated or (ii) under any insurance policy or similar arrangement procured in connection with any Benefit Plan in the nature of a retroactive rate adjustment, loss sharing arrangement, or other liability arising wholly or partially out of events occurring before the Effective Time.
(l) To the Knowledge of the Company, Persons performing services for the Company or any Subsidiary have not been improperly classified as being independent contractors or leased employees rather than employees except where the failure to properly classify such Persons would not have a Material Adverse Effect.
(m) Except as set forth onSchedule 4.16 of the Disclosure Schedule, none of the Benefit Plans provides any benefits that become payable or become vested solely as a result of the consummation of the transactions contemplated by this Agreement (other than benefits payable because an employee terminates employment covered by the Benefit Plan) and the consummation of the transactions contemplated hereby will not require the funding (whether formal or informal) of any Benefit Plan.
4.17Absence of Labor Difficulties. Neither the Company nor any Subsidiary is a party to any labor union or collective bargaining agreement. There is no labor union or organizing activity pending or, to the Knowledge of the Company, threatened with respect to the Company, any Subsidiary or their respective businesses. To the Knowledge of the Company, no certification question or organizational drive exists or has existed within the past two (2) years with respect to the Company or any Subsidiary’s employees. Except as set forth onSchedule 4.17of the Disclosure Schedule, there are no pending charges, investigations, administrative proceedings, formal complaints or other matters (including unfair labor practices, discrimination based upon sex, age, marital status, race, national origin, sexual preference, handicap or veteran status) pending or, to the Knowledge of the Company, threatened before the Equal Employment Opportunity Commission, the National Labor Relations Board or any Tribunal. There is no labor strike, dispute, slowdown or stoppage pending or to the Knowledge of the Company, threatened against or involving the Company or any Subsidiary. To the Knowledge of the
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Company, no executive, key employee or significant group of employees plans to terminate employment with the Company or any Subsidiary during the next twelve (12) months.
4.18Customers and Suppliers. There are no material disputes with any customer or supplier of the Company or any Subsidiary that is a Key Customer or Supplier, and there are no material disputes with customers or suppliers that are not Key Customers or Suppliers where the failure to resolve any such disputes, or the results of resolution of any such disputes, would have a Material Adverse Effect. Except as set forth onSchedule 4.18 of the Disclosure Schedule, no party to a Material Contract that is with a customer or supplier has terminated or, to the Knowledge of the Company, has, in writing or by an express oral statement, threatened to terminate or advised it will terminate its relationship with the Company or any Subsidiary.
4.19Licenses and Permits. To the Knowledge of the Company, the Company and each Subsidiary has validly and lawfully obtained and holds in full force and effect all material franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals from, and filings with, any Tribunal (“Permits”) which are necessary for the operation of their respective businesses as presently conducted in compliance with all Legal Requirements. Neither the Company nor any Subsidiary is in material violation of the terms of any such Permit.
4.20Personal Property. The Company and each Subsidiary has good and marketable title to all material personal property owned by it and valid leasehold or license interests in all material personal property leased by it, in each case free and clear of all Liens, except (i) for Permitted Liens and (ii) as set forth on Schedule 4.20 of the Disclosure Schedule. All material leases of personal property used by the Company or any Subsidiary in each of their respective businesses and operations are in all material respects valid and effective in accordance with their terms.
4.21Insurance. The Company and the Subsidiaries have obtained and maintained in full force and effect insurance in such amounts, on such terms and covering such risks as management of the Company believes is reasonable for its business.Schedule 4.21 of the Disclosure Schedule contains a description of the policies of insurance of the Company presently in force, specifying with respect to each such policy, the name of the insurer, type of coverage, term of policy, deductible amount, limits of liability and annual premium (and, if the owner of such policy is not the Company, the name of the owner of such policy). All such policies are valid, outstanding and enforceable and neither the Company nor any Subsidiary has agreed to modify or cancel any of such insurance policies nor has the Company received any notice of any actual or threatened modification or cancellation of such insurance other than in the ordinary course of business and consistent with past practice or such as is normal and customary in the Company’s industry. No such policy will terminate as a result of the Merger.
4.22Corporate Books and Records. The minute books and records of the Company in all material respects contain a true, complete and correct record of all material actions taken at all meetings and by all written consents in lieu of meetings of the Company Board, or any committees thereof, and stockholders of the Company. The stock ledger and related stock transfer records of the Company contain a true, complete and correct record of the original issuance, transfer and other capitalization matters of the capital stock of the Company.
4.23Bank Accounts. The list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship, and the list containing a description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company authorized to transact business with respect thereto previously provided to Parent are true and correct in all material respects.
4.24Real Property. Neither the Company nor any Subsidiary owns any real property.Schedule 4.24 of the Disclosure Schedule sets forth a complete list of all real property that is subject to any lease with respect to which the lessee is the Company or any Subsidiary or which is used in their respective businesses. The Company or a
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Subsidiary has a valid leasehold interest in all such leased real property free and clear of all Liens except for Permitted Liens.
4.25No Broker’s or Finder’s Fees. No broker, investment banker, financial advisor or other Person, other than Broadview International and Houlihan Lokey Howard & Zukin, the fees and expenses of which will be paid by the Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement, based upon arrangements made by or on behalf of the Company.
4.26Opinion of Financial Advisors. The Company has received the opinion of Broadview International, dated May 27, 2004, and the Special Committee has received the opinion of Houlihan Lokey Howard & Zukin, dated May 27, 2004, in each case to the effect that, as of that date, the consideration to be received in the Merger by the Company’s Common Stock holders, other than the Principal Stockholder, is fair from a financial point of view, and a complete and correct signed copy of each of such opinions have been, or promptly upon receipt thereof will be, delivered to Parent.
4.27Information Supplied. The Proxy Statement will not, at the time the Proxy Statement is first mailed to the Company’s stockholders or, at the time of the Company Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the requirements of all applicable Legal Requirements, including the Exchange Act and the rules and regulations thereunder. No representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent, Merger Subsidiary or the Principal Stockholder specifically for inclusion or incorporation by reference therein.
4.28Voting Requirements. The only vote required of the holders of the Company’s capital stock to adopt this Agreement and to approve the Merger is the affirmative majority vote of the outstanding shares of Company Common Stock and the outstanding shares of Company Preferred Stock, voting together as a single class.
4.29Anti-Takeover Laws. Prior to the date of this Agreement, the Company has taken all actions necessary to exempt under or make not subject to (a) the provisions of Section 203 of the DGCL and (b) any other state takeover law or state law that purports to limit or restrict business combinations or the ability to acquire or vote shares: (i) the execution and delivery of this Agreement and the Principal Stockholder Agreement to be executed concurrently herewith; (ii) the Merger; and (iii) the transactions contemplated hereby and thereby. The Company does not have any stockholder or shareholder rights agreement or any similar type of anti-takeover agreement.
4.30Disclaimer of Other Representations and Warranties. The Company does not make, and has not made, any representations or warranties in connection with the Merger and the transactions contemplated hereby other than those expressly set forth herein. Except as expressly set forth herein, no Person has been authorized by the Company to make any representation or warranty relating to the Company or any Subsidiary or their respective businesses, or otherwise in connection with the Merger and the transactions contemplated hereby and, if made, such representation or warranty may not be relied upon as having been authorized by the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND THE MERGER SUBSIDIARY
Parent and Merger Subsidiary, jointly and severally, hereby represent and warrant to the Company as follows:
5.1Organization, Standing, etc. of Parent. Parent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite power and authority to own its assets
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and to carry on its business as presently conducted. Parent has all requisite power and authority to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
5.2Organization, Standing, etc. of Merger Subsidiary. The Merger Subsidiary is a newly formed corporation duly incorporated, validly existing with active status under the laws of the State of Delaware and has all requisite corporate power and authority to own its assets and to carry on its business as presently conducted. The Merger Subsidiary has all requisite corporate power and authority to execute and deliver, and perform its obligations under, this Agreement and to consummate the transactions contemplated hereby.
5.3Authorization and Execution. The execution and delivery of this Agreement and the performance of each of Parent and Merger Subsidiary of this Agreement and the consummation by each of them of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of Parent and Merger Subsidiary. This Agreement has been duly and validly executed and delivered by each of Parent and Merger Subsidiary and constitutes a legal, valid and binding agreement of each of Parent and Merger Subsidiary enforceable against Parent and Merger Subsidiary, as applicable, in accordance with its terms, assuming this Agreement is enforceable against the Company, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, rearrangement, reorganization, fraudulent conveyance, fraudulent transfer, moratorium, liquidation, conservatorship or similar laws or by general principles of equity.
5.4Absence of Conflicts; Governmental Authorizations.
(a) The execution and delivery by each of Parent and Merger Subsidiary of this Agreement, the performance by each of them of their respective obligations hereunder and the consummation by each of them of the transactions contemplated hereby will not (i) conflict with or result in any violation of any provision of the Certificate of Incorporation or Bylaws or equivalent organizational documents, each as amended to date, of Parent or Merger Subsidiary, (ii) materially conflict with, result in any material violation or material breach of, constitute a default under, give rise to any right of termination or acceleration (with or without notice or the lapse of time or both) pursuant to, or result in being declared void or voidable, any term or provision of any note, bond, mortgage, indenture, lease, license, Contract or other instrument to which Parent or Merger Subsidiary is a party or by which any of their respective properties or assets are or may be bound, (iii) materially violate any term of any Legal Requirement applicable to Parent or Merger Subsidiary or their respective properties or assets or (iv) result in the creation of, or impose on Parent or Merger Subsidiary the obligation to create, any Lien upon any properties or assets of Parent or Merger Subsidiary.
(b) Except for applicable requirements, if any, of the Securities Act, the Exchange Act, the premerger notification requirements of the HSR Act, the filing and recordation of appropriate merger documents as required by the DGCL, filings required pursuant to any state securities or “blue sky” laws, and such other Consents, notices, reports or other filings the failure of which to be made would not have a material adverse effect on Parent or prevent or materially impair the consummation of the transactions contemplated hereby, neither Parent nor Merger Subsidiary is required to obtain any Consent from or submit any notice, report or other filing to any Tribunal in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby.
5.5Financing. Prior to the date hereof, Parent has delivered to the Company (i) a commitment letter from Wells Fargo Foothill, Inc, and Bank of America, N.A. (the “Senior Lenders”), dated May 13, 2004 (the “Senior Financing Commitment Letter”), establishing terms under which the Senior Lenders commit to provide to Merger Subsidiary and the Surviving Corporation a senior secured, asset based credit facility (the “Senior Financing”) and (ii) a letter from Jefferies & Company, Inc., dated May 27, 2004 (the “Highly Confident Letter” and, together with the Senior Financing Commitment Letter, the “Financing Letters”), confirming that it is highly confident in its ability to arrange for $35 million of notes to fund a portion of the Total Consideration (the “Notes Financing”
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and, together with the Senior Financing, the “Financing”). As of the date hereof, Parent is not aware of any facts or circumstances that Parent believes or has reason to believe are reasonably likely to (x) prevent the conditions described in the Financing Letters from being satisfied, (y) prevent Parent or Merger Subsidiary from receiving the Financing pursuant to the terms of the Financing Letters or (z) make any of the conditions or assumptions set forth in the Financing Letters unreasonable, and the providers of the Financing Letters have not advised Parent or Merger Subsidiary as of the date hereof of any facts that cause them to believe that the financings contemplated by the Financing Letters will not be consummated substantially in accordance with the terms thereof. The aggregate proceeds of the Financing, when taken together with the cash of the Company and its Subsidiaries that is currently anticipated to be available as of the Closing Date and funds that will be made available to Parent and Merger Subsidiary by, or through arrangements made by, Platinum Equity, LLC, on or prior to the Closing Date, will be sufficient to pay the Total Consideration, to make the payments contemplated by Section 3.6, to pay all fees and expenses in connection with the Merger, to pay all amounts required to be paid under the senior executive employment agreements as of the Closing Date and to provide additional financing sufficient in the reasonable judgment of Parent for the future working capital and general corporate needs of the Surviving Corporation and its Subsidiaries.
5.6Information Supplied. The Proxy Statement will not, at the respective times it or any amendments or supplements thereto are filed with the SEC, are first sent or given to stockholders or at the time of the Company Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. No representation or warranty is made by Parent or Merger Subsidiary with respect to statements made or incorporated by reference therein based on information supplied by the Company for inclusion or incorporation by reference therein.
5.7Disclaimer of Other Representations and Warranties. Parent and Merger Subsidiary do not make, and have not made, any representations or warranties in connection with the Merger and the transactions contemplated hereby other than those expressly set forth herein. Except as expressly set forth herein, no Person has been authorized by Parent or Merger Subsidiary to make any representation or warranty relating to Parent or Merger Subsidiary or their respective businesses, or otherwise in connection with the Merger and the transactions contemplated hereby and, if made, such representation or warranty may not be relied upon as having been authorized by Parent or Merger Subsidiary.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1Access to Information. The Company will provide Parent and Parent’s counsel, accountants and other representatives and agents with reasonable access, upon prior notice and during normal business hours, to the facilities, officers, directors, accountants, assets, properties, books and records of the Company and will furnish Parent with such financial and operating data and other information with respect to the business and properties of the Company or the transactions contemplated hereby as Parent shall from time to time reasonably request; provided, however, that such investigation (a) shall be conducted in such manner as not to interfere unreasonably with the operation of the business of the Company and (b) shall not include speaking with employees, customers or suppliers of the Company without the prior consent of management of the Company. In the event of termination of this Agreement, Parent will return or cause to be returned to the Company all documents and other material obtained from the Company in connection with the transactions contemplated hereby and will keep confidential any such information unless such information is ascertainable from public or published information or is required to be disclosed by applicable Legal Requirements; provided however, that Parent shall have the right to destroy (with written certification of such destruction executed and delivered to the Company by an officer of Parent) any documents and other materials created by it that incorporate any confidential information rather than return such materials to the other party.
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6.2Conduct of Business. The Company covenants and agrees that prior to the Effective Time, except (i) as expressly provided in this Agreement or contemplated by the parties in connection with obtaining financing for the Merger, (ii) as set forth inSchedule 6.2 of the Disclosure Schedule or (iii) as agreed in writing by Parent, after the date hereof:
(a) The Company will not, and will not permit any Subsidiary to: (i) authorize, issue or commit to issue any shares of its capital stock of any class (whether or not from treasury stock) or other equity interests in the Company, except for the issuance of shares of Company Common Stock upon the exercise of, and in accordance with, the Options or in accordance with the Company ESP Plan, or Company Common Stock issued upon the conversion of outstanding shares of Company Preferred Stock; (ii) split up, combine or reclassify any of its capital stock or other equity interests in the Company; (iii) grant, commit to grant, issue or commit to issue any options, warrants or other rights to subscribe for or purchase any shares of its capital stock, other equity interests in the Company or any security directly or indirectly convertible into or exchangeable for, or which in any manner confers upon the holder thereof the right to acquire, any shares of any class of its capital stock or other equity securities, other than pursuant to the Company ESP Plan; (iv) purchase, redeem or otherwise acquire any shares of its capital stock of any class or any equity interests in the Company, or any interest in or right to acquire any such shares or other equity interests in the Company; (v) declare, set aside for payment or pay any dividend on, or make any other distribution or payment with respect to, any share of its capital stock of any class or any other equity interests (including Company Preferred Stock dividends), except for the distribution of quarterly dividends consistent with past practice with respect to the outstanding shares of Company Preferred Stock; (vi) take any action to institute any new severance or termination pay practice with respect to its employees, agents or consultants, or increase the benefits payable under its severance or termination pay practices applicable to its employees; (vii) grant any increase (other than as previously disclosed to Parent or immaterial increases in the ordinary course of business consistent with past practices) in the pension, retirement or other employment benefits or compensation of any character of, or grant any new material benefits to, any of its officers, directors, or employees other than benefits to new employees no greater than those provided to existing employees, or, other than as contemplated bySection 3.6; (viii) dispose of or assign any of its material assets or properties or permit any of its assets and properties to be subjected to any Liens, other than Permitted Liens, except to the extent such disposition or Lien is made or incurred in the ordinary course of business; (ix) change or remove certified public accountants for the Company; (x) amend, modify or repeal, or propose to do, or permit or consent to any amendment, modification or repeal of its Certificate of Incorporation or Bylaws (or equivalent organizational document) or take any action with respect to such action other than is contemplated in connection with the Merger; (xi) acquire all or substantially all, or a portion of all, the assets, capital stock or other equity securities of any other Person, or any business division of any other Person or otherwise organize or acquire control or ownership of any other Person; (xii) enter into, or become obligated under, or change, amend, terminate or otherwise modify any Material Contract, except in the ordinary course of business consistent with past practice; (xiii) incur any indebtedness for borrowed money, except with respect to the incurrence of indebtedness for working capital purposes in the ordinary course of business; (xiv) pay amounts owed to its three largest vendors other than on their respective due dates during the period commencing 30 days prior to the date scheduled for the Company Stockholders’ Meeting unless required to do so under any applicable credit limits; (xv) make or commit to make capital expenditures in excess of the Company’s 2004 Capital Expenditure Budget absent prior consultation with Parent; (xvi) settle any material pending claim or other material disagreement absent prior consultation with Parent; (xvii) grant any Lien on the capital stock of the Company or any Subsidiary except for a Permitted Lien; (xviii) enter into, directly or indirectly, any new material transaction with any Affiliate of the Company (excluding those transactions related to the sale of accounts receivable to CSI Funding, Inc., and other transactions with the Subsidiaries in the ordinary course of business and (other than with respect to Northern NEF, Inc.) consistent with past practice); or (xix) take, undertake, incur, authorize, commit or agree to take any of the foregoing actions.
(b) The Company will promptly advise Parent of the commencement or, to the Knowledge of the Company, threat of any material claim, litigation, action, suit, inquiry or proceeding involving the
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Company, any Subsidiary, their respective properties or assets, or, to the Knowledge of the Company, involving any of their respective directors, officers or agents (in their capacities as such).
(c) The Company will, and will cause each Subsidiary to, use reasonable commercial efforts to preserve substantially intact in all material respects its present business organization, reputation and key customer and supplier relations and keep available in all material respects the services of its present key officers, directors, employees, agents, consultants and other similar representatives.
(d) The Company will, and will cause each Subsidiary to, comply, in all material respects, with all Legal Requirements applicable to its business.
6.3Acquisition Proposals.
(a) The Company agrees that neither it nor any Subsidiary nor any of the officers, directors and employees of the Company or any Subsidiary shall, and that the Company shall use its reasonable best efforts to cause its and the Subsidiaries’ agents and representatives (including any investment banker, attorney or accountant retained by it or any Subsidiary) not to initiate or solicit any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, tender offer, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving it or any Subsidiary to acquire all or a substantial part of the business or properties of the Company or any Subsidiary or 5% or more of any capital stock of the Company or any capital stock of any Subsidiary (other than a proposal or offer made by Parent, Merger Subsidiary or any of their Affiliates), any such inquiry, proposal or offer being hereinafter referred to as an “Acquisition Proposal.” The Company further agrees that neither it nor any Subsidiary nor any of the officers, directors and employees of it or the Subsidiaries shall, and that it shall cause its and the Subsidiaries’ agents and representatives (including any investment banker, attorney or accountant retained by it or any of the Subsidiaries) not to, directly or indirectly, (i) have any discussion with or provide any information or data to any Person relating to an Acquisition Proposal, or (ii) engage in any negotiations concerning an Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, and prior to the receipt of the required stockholder approval of the Merger, the Company, any Subsidiary, the Company Board or a committee of the Company Board and the Company’s and any Subsidiary’s officers, directors, employees, agents and representatives shall be permitted (i) to engage in discussions or negotiations with a third party who seeks, without prior solicitation (other than solicitations occurring prior to the date of this Agreement) by the Company, any Subsidiary or any of their directors, officers, employees, agents or representatives, to initiate such discussions or negotiations and may furnish such third party information concerning the Company and its business, properties, and assets if, and only to the extent that, in response to a bona fide written Acquisition Proposal, (A) the Company Board has determined in good faith, after consultation with its legal and financial advisors, that such discussions may reasonably lead to a Superior Proposal and (B) prior to furnishing such information to, or entering into discussions with, such third party, the Company receives from such third party an executed confidentiality agreement containing terms customary in transactions of such nature, and the Company notifies Parent of its intention to provide information to a third party one (1) Business Day prior to providing such information, and (ii) to comply with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Except as set forth below, neither the Company Board nor any committee thereof may (i) effect a change in its recommendation to holders of the Company Common Stock because of receipt of an Acquisition Proposal, (ii) approve or recommend or propose publicly to approve or recommend an Acquisition Proposal or (iii) cause the Company or any Subsidiary to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Acquisition Proposal. Notwithstanding the foregoing, in response to a bona fide unsolicited written Acquisition Proposal from a third party that the Company Board determines in good faith, after consultation with its legal and financial advisors, is a Superior Proposal, the Company Board may change its recommendation and may enter into a definitive agreement with respect to such Acquisition Proposal, but only if the Company notifies Parent, in writing of its intention to take such action at least two (2) Business Days prior to taking such action, specifying the material terms of such
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Superior Proposal and identifying the Person making such Superior Proposal, and if Parent does not make, within two (2) Business Days of receipt of such written notification, an offer that the Company Board determines, in good faith after consultation with its legal and financial advisors, is at least as favorable to the stockholders of the Company as such Superior Proposal, it being understood that the Company shall not change its recommendation as a result of such Superior Proposal or enter into any binding agreement with respect to such Superior Proposal prior to the expiration of such two (2) Business Day period, and that the Company shall postpone or adjourn the Company Stockholders’ Meeting, as necessary, to accommodate the procedures set forth in this sentence.
(c) In addition to the notification required under the final sentence ofSection 6.3(b), the Company shall notify Parent promptly after receipt by the Company (or any of its advisors) of any inquiry relating to any potential Acquisition Proposal and the terms of such proposal or inquiry, including the identity of the Person and its Affiliates making the same, that it may receive in respect of any such transaction, and shall keep Parent informed on a current basis with respect to any significant developments with respect to the foregoing.
(d) The Company shall, and shall cause the Subsidiaries and the officers, directors, advisors, employees, representatives and other agents of the Company and the Subsidiaries to, cease and cause to be terminated any and all existing activities, discussions or negotiations with third parties conducted prior to the date hereof with respect to any Acquisition Proposal.
(e) “Superior Proposal” means a bona fide unsolicited written Acquisition Proposal which the Company Board determines, in good faith, after consultation with its legal and financial advisors, and after taking into account any conditions to and risks of consummation and the ability of the party making such proposal to obtain financing for such Acquisition Proposal, is more favorable to its stockholders than the transactions contemplated by this Agreement.
(f) Notwithstanding anything in thisSection 6.3 to the contrary, the parties agree that the Company Board may change its recommendation to the extent required by its fiduciary duty as set forth inSection 8.1(other than in connection with a Superior Proposal which shall be governed by thisSection 6.3).
6.4Closing Efforts. The Company will, and will cause its officers and agents to, use commercially reasonable efforts to effect the Closing as soon as reasonably practicable after the date hereof, including, but not limited to, its efforts relating to (i) completing and filing the Proxy Statement, (ii) responding to comments and/ or requests, if any, of the SEC, and (iii) scheduling the Company Stockholders’ Meeting. The Company may take such actions as it, after due consultation with Parent, deems appropriate to maximize certainty of the Closing, and the Company shall consult with Parent regarding any actions that Parent wants the Company to undertake to maximize such certainty.
ARTICLE VII
COVENANTS OF PARENT AND THE MERGER SUBSIDIARY
Parent covenants and agrees with the Company that, at all times before the Closing and to the extent specified, after the Closing, Parent at its expense will comply and will cause Merger Subsidiary or the Surviving Corporation, as the case may be, to comply with all covenants and provisions of thisArticle VII, except to the extent otherwise expressly required or permitted by this Agreement.
7.1Conduct of Business of Merger Subsidiary. During the period from the date of this Agreement to the Effective Time, Merger Subsidiary shall not engage in any activities of any nature except as provided in or contemplated by this Agreement.
7.2Obligation of Parent to Make Merger Effective and Merger Subsidiary’s Stockholder Consent. Parent shall cause Merger Subsidiary to take all actions necessary on its part to carry out the transactions contemplated
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hereby. Parent, as the sole stockholder of Merger Subsidiary, will consent in writing to the approval of this Agreement and the Merger in accordance with the DGCL.
7.3Information for Proxy Statement for the Company’s Stockholders. Parent will furnish to the Company such data and information relating to it and Merger Subsidiary as the Company may reasonably request for the purpose of including such data and information in the Proxy Statement and any amendments or supplements thereto used by the Company to obtain the necessary stockholder approval of the Merger.
7.4Indemnification Rights.
(a) From and after the Effective Time, Parent shall cause the Surviving Corporation to, and the Surviving Corporation (or any successor) shall, indemnify, defend and hold harmless the officers, directors, employees and agents of the Company or any of the Subsidiaries against all Damages arising out of claims brought or made by third parties, including, without limitation, derivative claims, in connection with the transactions contemplated by this Agreement to the fullest extent permitted or required under applicable law and shall advance expenses prior to the final disposition of such claims and liabilities to which this sentence applies. Parent and the Surviving Corporation agree that all rights to indemnification and advancement of expenses and exculpation and release now existing in favor of the directors, officers or employees of the Company or any of the Subsidiaries (including, without limitation, any Person who was or becomes a director, officer or employee prior to the Effective Time) (the “Indemnified Parties”) under Delaware Law or as provided in the Company’s or any Subsidiary’s Certificate of Incorporation, Bylaws, resolutions or any other written agreement between them with respect to matters occurring on or prior to the Effective Time shall survive the Merger and shall continue in full force and effect for a period of not less than six years after the Effective Time (or, in the case of claims or other matters occurring on or prior to the expiration of such six year period which have not been resolved prior to the expiration of such six year period, until such matters are finally resolved), and Parent shall cause the Surviving Corporation and its Subsidiaries to, and the Surviving Corporation shall, honor all such rights. Parent shall cause to be maintained in effect for not less than six years from the Effective Time the current policies of the directors’ and officers’ liability insurance maintained by the Company (provided that Parent may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous and provided further that in no event shall Parent be required to pay annual premiums for such insurance in excess of 200% of the annual premiums currently paid by the Company provided, further, that if the annual premiums of such insurance coverage exceed such amount, Parent and Merger Subsidiary shall be obligated to obtain policies with the greatest coverage available for a cost not exceeding such amount) with respect to matters occurring on or prior to the Effective Time.
(b) Without limiting the foregoing, in the event any claim, action, suit, proceeding or investigation to which the provisions of thisSection 7.4 are applicable is brought against any Indemnified Party (whether arising before or after the Effective Time), (i) any counsel retained by the Indemnified Parties for any period after the Effective Time shall be subject to the approval of the Surviving Corporation (such approval to not be unreasonably withheld), (ii) after the Effective Time, the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (iii) after the Effective Time, the Surviving Corporation will use commercially reasonable efforts to assist in the vigorous defense of any such matter, provided that the Surviving Corporation shall not be liable for any settlement of any claim effected without its written consent, which consent, however, shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under thisSection 7.4, upon learning of any such claim, action, suit, proceeding or investigation, shall notify Parent or the Surviving Corporation (but the failure so to notify Parent or the Surviving Corporation shall not relieve it from any liability which it may have under thisSection 7.4 except to the extent such failure materially prejudices the Surviving Corporation). The Surviving Corporation shall be liable for the fees and expenses hereunder with respect to only one law firm, in addition to local counsel in each applicable jurisdiction, to represent the Indemnified Parties as a group with respect to each such matter unless there is, under applicable standards of professional conduct, as determined by counsel for the Indemnified Parties, a
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conflict between the positions of any two (2) or more Indemnified Parties that would preclude or render inadvisable joint or multiple representation of such parties.
7.5Employee Benefits.
(a) Parent agrees that, during the period commencing at the Effective Time and ending six months thereafter, the employees of the Company and any Subsidiary will continue to be provided with salary and benefits under employee benefit and commission or similar plans that are no less favorable in the aggregate than those currently provided by the Company or any Subsidiary to such employees under the Employee Benefit Plans listed inSchedule 4.16(a)of the Disclosure Schedule; provided, however, that Parent shall not be obligated to provide any equity incentive plans to the employees of the Company or any Subsidiary.
(b) Parent agrees to cause the Company to honor all written contracts listed inSchedule 7.5(b) of the Disclosure Schedule in accordance with their terms, which are applicable with respect to any employee, officer, director or executive or former employee, officer, director, or executive of the Company or any Subsidiary. Neither thisSection 7.5 nor any other provision of this Agreement shall limit the ability or right of the Company and the Subsidiaries to terminate the employment of any of their respective employees after the Effective Time (subject to any rights of any such employees pursuant to any binding contract, agreement, arrangement, policy, plan or commitment).
(c) For purposes of all employee benefit plans, programs and agreements maintained by or contributed to by Parent and its subsidiaries (including, after Closing, the Surviving Corporation), Parent shall, or shall cause its subsidiaries to cause each such plan, program or arrangement to treat the prior service with the Company or any Subsidiary immediately prior to the Closing of any employee of the Company or any Subsidiary (a “Company Employee”) (to the same extent such service is recognized under analogous plans, programs or arrangements of the Company or any Subsidiary prior to the Effective Time) as service rendered to Parent or its subsidiaries, as the case may be, for all purposes; provided, however, that (i) such crediting of service shall not operate to duplicate any benefit or the funding of such benefit under any plan or (ii) require the crediting of past service for benefit accrual purpose under any defined benefit pension plan. Company Employees shall also be given credit for any deductible or co-payment amounts paid in respect of the plan year in which the Closing occurs, to the extent that, following the Closing, they participate in any other plan for which deductibles or co-payments are required. Parent shall also cause each Parent Plan (as hereinafter defined below) to waive any preexisting condition which was waived under the terms of any Employee Benefit Plan immediately prior to the Effective Time or waiting period limitation which would otherwise be applicable to a Company Employee on or after the Effective Time. Parent shall recognize any accrued but unused vacation of the Company Employees as of the Effective Time, and Parent shall cause the Company and the Subsidiaries to provide such paid vacation. For purposes of this Agreement, a “Parent Plan” shall mean such employee benefit plan, as defined in Section 3(3) of ERISA, or a nonqualified employee benefit or deferred compensation plan, stock option, bonus or incentive plan or other employee benefit or fringe benefit program, that may be in effect generally for employees of Company and the Subsidiaries from time to time.
(d) Parent shall satisfy or Parent shall cause the Company to satisfy any liability for all change in control, severance and similar obligations payable to any Company Employee, including for any Company Employee who is terminated by Parent or the Company, or any of their respective Subsidiaries on terms no less favorable than those provided under the applicable Company change in control provision or severance plan.
(e) Except as provided in thisSection 7.5, nothing in this Agreement shall limit or restrict the rights of Parent or the Company to modify, amend, terminate or establish employee benefit plans or arrangements, in whole or in part, at any time after the Effective Time.
7.6Financing. Parent and Merger Subsidiary each hereby agrees to use commercially reasonable efforts to arrange and obtain the Financing on the terms set forth in the Financing Letters. Parent and Merger Subsidiary will duly pay any and all commitment and other fees required or contemplated by the Financing Letters, or that
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otherwise arise in connection with the Notes Financing, that become due after the date hereof and prior to the Effective Time. Parent and Merger Subsidiary will keep the Company informed on a reasonably current basis in reasonable detail of the status of their efforts to arrange the Financing and shall not permit any material adverse amendment or modification to be made to, or any waiver of any provision or remedy under, the Senior Financing Commitment Letter without the prior written consent of the Company, which consent shall not be unreasonably withheld. In the event that Parent and Merger Subsidiary are unable to obtain the Financing on the terms set forth in the Financing Letters, Parent and Merger Subsidiary shall use commercially reasonable efforts to obtain alternative financing with overall pricing, amortization, cost and maturity terms that are no less favorable, and other terms that are no less favorable in any material respect, to Parent and Merger Subsidiary than those contained in the Financing Letters. The Company hereby agrees to use commercially reasonable efforts to assist and cooperate with Parent and Merger Subsidiary in their efforts to arrange and obtain the Financing.
7.7No Amendment to Principal Stockholder Agreement. Each of Parent and Merger Subsidiary agrees not to amend, restate, modify, consent to or waive any provision of the Principal Stockholder Agreement in any material respect without the prior written consent of the Company.
7.8Closing Efforts. Parent and Merger Subsidiary will, and will cause their respective officers and agents to, use commercially reasonable efforts to effect the Closing as soon as reasonably practicable after the date hereof, including, but not limited to, its efforts relating to (i) reviewing and commenting upon the Proxy Statement, and (ii) responding to comments and/or requests, if any, of the SEC. Parent shall consult with the Company regarding any actions that the Company deems appropriate to maximize certainty of the Closing.
ARTICLE VIII
COVENANTS OF ALL PARTIES
8.1Stockholder Approval; Preparation of Company Proxy Statement.
(a) The Company shall, as promptly as practicable following the date hereof, prepare and file with the SEC the Proxy Statement. The Company, acting through the Company Board shall, subject to its fiduciary duties under applicable Legal Requirements, include in the Proxy Statement, the recommendation of the Company Board that the stockholders of the Company approve the Merger and adopt this Agreement. No filing of, or amendment or supplement to, or correspondence to the SEC will be made by the Company without providing Parent with an opportunity to review and comment thereon. The Company will advise Parent, promptly after it receives notice thereof, of any request by the SEC for the amendment of the Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. If at any time prior to the Company Stockholders’ Meeting any information relating to the Company or Parent, or any of their respective Affiliates, officers or directors, should be discovered by the Company or Parent which should be set forth in an amendment or supplement to the Proxy Statement, so that it would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of the Company.
(b) The Company shall, as promptly as practicable following the execution of this Agreement, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of adopting the Merger Agreement and approving the Merger (the “Company Stockholders’ Meeting”). The Company shall (i) use its best efforts to solicit from stockholders of the Company proxies in favor of adoption of the Merger Agreement and approval of the Merger for the Company Stockholders’ Meeting and (ii) recommend to its stockholders the adoption of the Merger Agreement and approval of the Merger; provided, however, that nothing contained in thisSection 8.1 shall prevent the Company Board from discharging its fiduciary duties.
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(c) The parties acknowledge that it is intended that the meeting of the shareholders of the Principal Stockholder to be called as provided in the Principal Stockholder Agreement (the “Principal Stockholder’s Shareholder Meeting”) will be held immediately before the Company Stockholders’ Meeting. Consequently, the Company agrees to schedule the Company Stockholders’ Meeting on the same day as, and no later than three (3) hours after the time at which the Principal Stockholder’s Shareholder Meeting is scheduled to commence, unless Parent and the Company mutually agree not to hold the Company Stockholders’ Meeting at that time. In the event the Principal Stockholder’s Shareholder Meeting is at any time or from time to time rescheduled, or commenced and adjourned, or has not concluded as of the time at which the Company Stockholders’ Meeting is scheduled to commence, or in the event the Company needs to postpone or adjourn the Company Stockholders’ Meeting in accordance withSection 6.3(b), the Company shall promptly take all such action as may be necessary and permitted by the Company’s Bylaws and applicable law to reschedule (or, if appropriate, to commence and adjourn) the Company Stockholders’ Meeting so that the Company Stockholders’ Meeting will commence immediately following the Principal Stockholder’s Shareholder Meeting.
8.2HSR Act Filings; Reasonable Efforts.
(a) Each of Parent and the Company shall (i) promptly make the filings required of such party and use reasonable commercial efforts to cause any of its Affiliates to make such filings under the HSR Act and any other Antitrust Laws with respect to the Merger and the other transactions contemplated by this Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act or such other Antitrust Laws for additional information, documents, or other material received by such party or any of its Affiliates from the Federal Trade Commission or the Department of Justice or any other Tribunal in respect of such filings, the Merger or such other transactions and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Tribunal under any Antitrust Laws with respect to any such filing, the Merger or such other transactions. Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking, or agreement with, any Tribunal regarding any such filings, the Merger or such other transactions. Neither party shall participate in any meeting with any Tribunal in respect of any such filings, investigation, or other inquiry without giving the other party notice of the meeting and, to the extent permitted by such Tribunal, the opportunity to attend and participate.
(b) Each of Parent and the Company shall use all reasonable efforts to resolve such objections, if any, as may be asserted by any Tribunal with respect to the Merger or any other transactions provided for in this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, “Antitrust Laws”). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging the Merger or any other transactions provided for in this Agreement as violative of any Antitrust Law, and, if by mutual agreement, Parent and the Company decide that litigation is in their best interests, each of Parent and the Company shall cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any Order that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other transactions. Each of Parent and the Company shall use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to the Merger and such other transactions as promptly as possible after the execution of this Agreement.
(c) Each of the parties agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under Legal Requirements applicable to such party and otherwise to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or non-actions, extensions, waivers, Permits, Consents from Persons, including third parties (provided that the
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Company shall not make any payments or make any other concessions or amend or waive the provisions of any Material Contract to obtain a Consent) and the making of all other necessary registrations, notices and filings (including other filings with governmental entities, if any), (ii) the preparation of the Proxy Statement, and (iii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carryout the purposes of, this Agreement.
(d) Notwithstanding anything to the contrary in thisSection 8.2, in connection with any action requested by any Tribunal applying the Antitrust Laws, (i) neither Parent nor any of its subsidiaries or Affiliates shall be required to divest any of their respective businesses, product lines or assets, (ii) neither Parent nor any of its subsidiaries or Affiliates shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a material adverse effect on Parent, its subsidiaries or Affiliates, (iii) neither the Company nor any Subsidiary shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect and (iv) none of Parent, Merger Subsidiary or the Company shall be required to waive any of the conditions to the Merger.
8.3Notifications.
(a) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.
(b) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the Merger or the transactions contemplated by this Agreement;
(ii) any notice or other communication relating to an investigation or restraint from any Tribunal in connection with the Merger or the transactions contemplated by this Agreement; and
(iii) any Actions commenced or, to the best of its Knowledge threatened against, relating to or involving or otherwise affecting the Company or any Subsidiary, on the one hand, and Parent or Merger Subsidiary, on the other hand, which, if pending on the date of this Agreement would have been required to have been disclosed pursuant toArticle IV orArticle V, as the case may be, or which relate to the consummation of the transactions contemplated by this Agreement.
8.4Confidentiality. Each of Parent and Merger Subsidiary will hold, and will cause its representatives to hold, any Information (as defined in the Non-Disclosure Agreement entered into between the Company and Parent prior to the date hereof, as amended from time to time) in confidence to the extent specified under the terms of the Non-Disclosure Agreement.
ARTICLE IX
CONDITIONS
9.1General Conditions. Notwithstanding any other provisions of this Agreement, the obligations of all of the parties hereto to effect the Merger shall be subject to satisfaction of the following conditions:
(a)The Company’s Stockholder Approval. The stockholders of the Company shall have approved the Merger as provided for inSection 8.1.
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(b)HSR Act Waiting Period Expired. All applicable waiting periods specified under the HSR Act with respect to the transactions provided for in this Agreement shall have expired or been terminated.
(c)Restraints. No temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of the Merger shall have been issued since the date of this Agreement by any U.S. federal or state court of competent jurisdiction and shall remain in effect; and no U.S. federal or state Legal Requirement that makes consummation of the Merger illegal shall have been enacted or adopted since the date of this Agreement and shall remain in effect.
9.2Conditions to Obligations of Parent and Merger Subsidiary. Notwithstanding any other provisions of this Agreement, the obligations of Parent and Merger Subsidiary to effect the Merger shall be subject to satisfaction of the following conditions:
(a)Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects (without giving effect to any Material Adverse Effect or materiality qualifiers) as of the Closing (except for those representations and warranties that speak as of the date of this Agreement or a specified date, which shall be true and correct as of such specified date); provided, however, that even if a condition set forth in thisSection 9.2(a) is not satisfied, the condition to the obligations of Parent and Merger Subsidiary to consummate the Merger contained in thisSection 9.2(a) shall be deemed satisfied if such breaches of the representations and warranties (without giving effect to any Material Adverse Effect or materiality qualifiers but excluding any breach that is waived in writing by Parent or is otherwise permitted pursuant to this Agreement) would not be reasonably likely to result in a Material Adverse Effect or prevent or materially impair the consummation of the transactions contemplated hereby.
(b)Agreements and Covenants. The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Effective Time.
(c)Consents. The Company shall have obtained all Consents from any Tribunal required in connection with the consummation of the Merger contemplated hereby as of the Effective Time.
(d)Officer’s Certificate. The Company shall have delivered to Parent an officer’s certificate certifying that the conditions set forth inSection 9.2(a), (b)and(c) have been satisfied.
(e)Financing. As of the Closing Date, (i) Parent or Merger Sub shall have received gross proceeds of no less than $35 million from the Notes Financing (on overall pricing, amortization, cost and maturity terms and conditions that are no less favorable, and on other terms that are no less favorable in any material respect, to Parent, the Company or the Senior Lenders than the terms set forth in “Annex A” to the Highly Confident Letter) and (ii) the sum of the following amounts, determined as of the close of business on the Business Day immediately preceding the Closing Date shall be equal to or greater than $215 million: (a) the gross proceeds from the Notes Financing, plus (b) the amount of the Company’s Free Cash (as defined below), plus (c) an amount, equal to the lesser of (A) 85% of the accounts receivable of the Company that would constitute “Eligible Receivables” (as such term is defined in “Annex X” to the CompuCom Receivables Master Trust I Pooling and Servicing Agreement, dated May 7, 1999, as amended to date) and (B) 65% of the gross trade receivables of the Company (excluding (1) accounts receivable from vendors for rebates, price protection claims, co-op claims or warranty claims, and (2) accounts receivable related to Excell Data or CompuCom Federal Systems, Inc.). As used in thisSection 9.2(e), the term “Free Cash” shall mean the amount equal to the Company’s aggregate cash balances as of the close of business on the Business Day immediately preceding the Closing Date minus the sum of (x) any cash balances that are pledged to a third party, (y) the amount outstanding under the CompuCom Receivables Master Trust I or similar vehicles, and (z) $20 million.
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9.3Conditions to Obligations of the Company. Notwithstanding any other provisions of this Agreement, the obligations of the Company to effect the Merger shall be subject to satisfaction of the following conditions:
(a)Representations and Warranties. The representations and warranties of Parent and Merger Subsidiary contained in this Agreement shall be true and correct in all material respects (without giving effect to any material adverse effect or materiality qualifiers) as of the Closing (except for those representations and warranties that speak as of the date of this Agreement or a specified date, which shall be true and correct as of such specified date); provided, however, that even if a condition set forth in thisSection 9.3(a) is not satisfied, the condition to the obligations of the Company to consummate the Merger contained in thisSection 9.3(a) shall be deemed satisfied if such breaches of the representations and warranties (without giving effect to any material adverse effect or materiality qualifiers, but excluding any breach that is waived in writing by the Company or is otherwise permitted pursuant to this Agreement) would not be reasonably likely to prevent or materially impair the consummation of the transactions contemplated hereby.
(b)Agreements and Covenants. Each of Parent and Merger Subsidiary shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Effective Time.
(c)Consents. Each of Parent and Merger Subsidiary shall have obtained all Consents from any Tribunal or other Person required in connection with the consummation of the Merger contemplated hereby as of the Effective Time.
(d)Officer’s Certificate. Each of Parent and Merger Subsidiary shall have delivered to the Company an officer’s certificate certifying that the conditions set forth inSection 9.3(a), (b) and(c)have been satisfied.
ARTICLE X
TERMINATION; AMENDMENTS; WAIVERS; FEES AND EXPENSES
10.1Termination of Agreement and Abandonment of the Merger. Anything herein to the contrary notwithstanding, this Agreement and the Merger contemplated hereby shall or may be terminated at any time before the Effective Time, whether before or after approval of this Agreement by the stockholders of the Company (unless expressly limited to a specific time period), as follows:
(a)Mutual Consent. By mutual written consent of Parent and the Company.
(b)Parent or the Company. By either Parent or the Company, by written notice to the other party, (i) if the Merger is not consummated by December 31, 2004; provided, however, that this Agreement and the Merger contemplated hereby may not be terminated pursuant to this clause (i) of Section 10.1(b) by any party in breach, in any material respect, of any of its representations, warranties, covenants or other agreements in this Agreement, (ii) if any Tribunal shall have issued an Order permanently enjoining, restraining or otherwise prohibiting the Merger and such Order shall have become final and nonappealable, or (iii) if the Company Stockholders’ Meeting shall have been held and adoption of this Agreement and approval of the Merger shall not have been obtained at such meeting or any adjournment thereto, or the Principal Stockholder’s Shareholder Meeting shall have been held and approval of the proposal relating to the Principal Stockholder voting at the Company Stockholders’ Meeting to approve the Merger and adopt this Agreement shall not have been obtained at such meeting or any adjournment thereto.
(c)Parent. By Parent, by written notice to the Company, (i) if the Company shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or, if capable of being cured, has not been cured within thirty (30) days after the giving of written notice to the Company, and provided further that such termination may only occur, in the case of a breach of a representation or warranty, if such breach would have a Material Adverse Effect or would prevent or materially impair the consummation of
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the transactions contemplated hereby and, in the case of any failure to perform, if such failure would prevent or materially impair the consummation of the transactions contemplated hereby, (ii) at any time prior to the Company Stockholders’ Meeting, if the Company Board or any committee thereof shall have withdrawn its approval or recommendation of the Merger or this Agreement other than in connection with a Superior Proposal, (iii) at any time prior to the Company Stockholders’ Meeting, if the Company shall have approved or recommended a Superior Proposal or (iv) if the Company has entered into a definitive agreement with respect to a Superior Proposal (provided that the Company has complied withSection 6.3).
(d)The Company. By the Company, by written notice to Parent, (i) if Parent or Merger Subsidiary shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or, if capable of being cured, has not been cured within thirty (30) days after the giving of written notice to Parent or Merger Subsidiary, and provided further that such termination may only occur, if such breach or failure would prevent or materially impair the consummation of the transactions contemplated hereby, (ii) if the Company has approved or recommended a Superior Proposal, or (iii) if the Company has entered into a definitive agreement with respect to a Superior Proposal (provided that the Company has complied withSection 6.3).
(e)Automatically. By no action on the part of the parties if the Principal Stockholder Agreement is terminated in accordance with its terms.
10.2Effect of Termination.
(a) In the event of a termination of this Agreement as provided inSection 10.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Merger Subsidiary or the Company or their respective officers or directors, except with respect toSection 8.4, thisSection 10.2andArticle XI; provided, however, that nothing herein shall relieve any party for liability for any breach hereof occurring prior to such termination.
(b) In the event Parent or the Company terminates this Agreement pursuant to clause (iii) ofSection 10.1(b), and Parent and Merger Subsidiary are not in material breach at such time of their respective representations, warranties, covenants or other agreements contained in this Agreement, the Company shall pay Parent’s and Merger Subsidiary’s fees and expenses (including reasonable attorney’s fees) actually incurred with Persons who are not Affiliates of Parent in connection with the transactions contemplated by this Agreement (“Parent Expenses”) as liquidated damages. The Parent Expenses shall be paid in cash by the Company not later than two (2) Business Days after presentation to the Company of invoices or other evidence of Parent Expenses reasonably acceptable to the Company; provided, however, that in no event shall the Company be obligated to reimburse Parent Expenses in excess of $4 million (the “Parent Expense Cap”).
(c) In the event Parent or the Company terminates this Agreement pursuant to clause (iii) ofSection 10.1(b), and either (A) no change in recommendation or approval by the Company Board occurred before the Principal Stockholder’s Shareholder Meeting or the Company Stockholders’ Meeting, but an Acquisition Proposal was received by the Company after the date of this Agreement and was not withdrawn before the Principal Stockholder’s Shareholder Meeting or the Company Stockholders’ Meeting, or (B) a change in recommendation or approval by the Company Board occurred before the Principal Stockholder’s Shareholder Meeting or the Company Stockholders’ Meeting, and, in all cases, Parent and Merger Subsidiary at the time of termination are not in material breach of their respective representations, warranties, covenants or other agreements contained in this Agreement, and within two hundred twenty-five days of such termination, either (i) a Change of Control Transaction is consummated, (ii) a Change of Control Transaction is approved by the Company Board or a special committee thereof, or approved by the Company’s stockholders, (iii) the Company enters into an agreement with respect to a Change of Control Transaction, or (iv) a tender offer or exchange offer for outstanding shares of Company Common Stock is or was previously commenced, and the Company Board or a special committee thereof (A) recommends that
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the stockholders of the Company tender their shares in such tender offer or exchange offer or (B) within ten (10) Business Days after the commencement of such tender offer or exchange offer, the Company Board fails to recommend rejection of such offer, then the Company shall pay Parent the Alternate Transaction Fee (as defined below) calculated in accordance with thisSection 10.2(c)upon consummation of the Change in Control Transaction. The fee shall be the amount which is equal to fifty percent (50%) of the amount, if any, by which the aggregate consideration, including the fair market value of any non-cash consideration valued as of the date on which such Change of Control Transaction is consummated (the “Alternate Transaction Closing Date”), that is received by holders of the capital stock of the Company with respect to the shares of the capital stock of the Company upon consummation of such Change of Control Transaction exceeds the sum of (x) the aggregate Merger Consideration that holders of the capital stock of the Company would have received with respect to the shares of the capital stock of the Company if the Merger had been consummated in accordance with terms of this Agreement as in effect on the date this Agreement is terminated and (y) the aggregate amount that would have been paid to holders of Options pursuant toSection 3.6if the Merger had been consummated on the date of such termination (the result of such calculation, the “Total Consideration”); provided, however, that in no event shall such fee exceed an amount equal to three and one-half percent of the Total Consideration less the actual amount paid or to be paid by the Company to Parent as Parent Expenses (the fee as so calculated, the “Alternate Transaction Fee”). The Alternate Transaction Fee shall be paid to Parent no later than two (2) Business Days after the Alternate Transaction Closing Date by wire transfer of immediately available funds to such account as Parent may designate. For purposes hereof, (i) the “fair market value” of any publicly traded securities as of any date shall be the closing price or the last sale price, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, in either case as reported in the principal consolidated transaction reporting system with respect to the principal national securities exchange on which such securities are listed or admitted to trading or, if such securities are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, and the “fair market value” of any other non-cash consideration shall be determined in good faith by the Company Board, which determination shall be subject to the consent of Parent which consent shall not be unreasonably withheld, and in the absence of such determination, shall be determined in good faith by Parent, and (ii) a “Change of Control Transaction” shall mean any merger, reorganization, share exchange, tender offer, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company in which holders of the Company Common Stock are to receive cash or non-cash consideration for Company Common Stock (either directly, such as in a tender offer or merger, or indirectly, such as in a distribution or payment in liquidation following a sale of assets by the Company), other than a reorganization in which there is no material change in the ownership of the Company (e.g., a reincorporation to change the Company’s state of incorporation). The Company shall, upon the request of Parent, execute and deliver all such further documents and instruments, and take all such further action, as may be deemed by Parent to be necessary or desirable to carry out thisSection 10.2(c).
(d) In the event Parent terminates this Agreement pursuant to clause (ii), clause (iii) or clause (iv) ofSection 10.1(c) prior to the Company Stockholders’ Meeting or the Company terminates this Agreement pursuant to clause (ii) or clause (iii) ofSection 10.1(d), and Parent and Merger Subsidiary are not in material breach at such time of their representations, warranties, covenants or other agreements contained in this Agreement, the Company shall pay Parent $8,880,000 (the “Break-Up Fee”) in cash as liquidated damages for such termination not later than two (2) Business Days after termination.
(e) In the event that (i) an SSI Superior Proposal (as defined in the Principal Stockholder Agreement) could also reasonably be construed as a Superior Proposal and (ii) either (A) the board of directors of the Principal Stockholder or any committee thereof has withdrawn its approval or recommendation of the SSI Shareholder Proposal (as defined in the Principal Stockholder Agreement) at any time before the Principal Stockholder’s Shareholder Meeting or the Principal Stockholder enters into a definitive agreement with respect to an SSI Superior Proposal or (B) the Company has approved or recommended a Superior Proposal
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prior to the Company Stockholder’s Meeting or the Company enters into a definitive agreement with respect to a Superior Proposal and (iii) the Principal Stockholder Agreement or this Agreement is terminated pursuant to (x) clause (iii) of Section 5.1(c) or clauses (ii) or (iv) of Section 5.1(d) of the Principal Stockholder Agreement or (y) clauses (iii) or (iv) ofSection 10.1(c) or clauses (ii) or (iii) ofSection 10.1(d)of the Merger Agreement and (iv) Parent and Merger Subsidiary are not in material breach at such time of any of their respective representations and warranties, covenants or other agreements contained in the Principal Stockholder Agreement and this Agreement, Parent shall receive in cash as liquidated damages (A) the Break-up Fee from the Company not later than two (2) Business Days after such termination by wire transfer of immediately available funds to such account as Parent may designate and (B) if the SSI Alternate Transaction Fee (as defined in the Principal Stockholder Agreement) is greater than the Break-Up Fee, the difference between the SSI Alternate Transaction Fee and the Break-Up Fee from the Principal Stockholder not later than two (2) Business Days after the SSI Alternation Transaction Date (as defined in the Principal Stockholder Agreement) by wire transfer of immediately available funds to such account as Parent may designate. For reason of avoidance of any doubt, the parties agree that an SSI Superior Proposal could not be reasonably construed as a Superior Proposal if the SSI Superior Proposal relates to an acquisition of the capital stock of the Principal Stockholder or the acquisition of shares of Company Common Stock from only the Principal Stockholder.
(f) In no event shall Parent be entitled to receive from the Company both the Alternate Transaction Fee and the Break-Up Fee, multiple Break-Up Fees or Parent Expenses if a Break-Up Fee is payable. In no event shall the amount payable by the Company in respect of the Alternate Transaction Fee and Parent Expenses exceed the amount of the Break-Up Fee.
10.3Amendment. This Agreement may be amended, supplemented or modified by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after obtaining the approval of the Company’s stockholders (if required by law), but, after any such approval, no amendment, supplement or modification shall be made which by law requires further approval by such stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.
10.4Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (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, (c) waive compliance with any of the covenants or agreements contained herein or (d) waive any condition to such party’s obligations hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights.
10.5Fees and Expenses. Except as otherwise expressly provided to the contrary in this Agreement, all fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated.
ARTICLE XI
GENERAL
11.1Release of Information. The parties shall cooperate with each other in the development and distribution of, and consult with each other before issuing, any press release or making any public statement with respect to this Agreement and the transactions contemplated hereby, and shall not issue any such press release or make any
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such public statement without the prior consent of the other parties (which shall not be unreasonably withheld or delayed), except as may be required by applicable law or any listing agreement with or other rule or regulation of any national securities exchange.
11.2Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly given or made (i) as of the date and time delivered or sent by facsimile if delivered personally or by facsimile and (ii) on the third business day after deposit in the U.S. Mail, if mailed by registered or certified mail (return receipt requested), in each case to the parties at the following addresses (or at such other address for a party as shall be specified by written notice):
(a) | If to Parent or Merger Subsidiary, to: |
c/o Platinum Equity, LLC
2049 Century Park East, Suite 2700
Los Angeles, California 90067
Attention: Eva M. Kalawski, Esq.
Fax No.: (310) 712-1863
With a copy (which shall not constitute effective notice) to:
Bingham McCutchen LLP
600 Anton Boulevard, 18th Floor
Costa Mesa, California 92626
Attention: James W. Loss, Esq.
Fax No.: (714) 549-3244
(b) | If to the Company, to: |
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, Texas 75230
Attention: M. Lazane Smith
Fax No. : 972-856-5395
With a copy (which shall not constitute effective notice) to each of:
Willkie Farr & Gallagher LLP | Montgomery, McCracken Walker & | |
787 7th Avenue | Rhoads LLP | |
New York, NY 10019 | 123 South Broad Street | |
Attention: William H. Gump | Philadelphia, PA 19109 | |
Fax No.: (212) 728-8111 | Attn: William F. Drake Fax No.: (215) 772-7620 |
11.3Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors, heirs, executors, administrators, legal representatives and permitted assigns, provided that neither this Agreement nor any rights or obligations hereunder may be assigned without the written consent of the other parties except that, without the written consent of the Company, (i) Parent may assign any or all of its rights hereunder to any Affiliate of Parent or to any other Person that is a direct or indirect wholly owned subsidiary of Platinum Equity, LLC or of Platinum Equity Capital Partners, L.P., a private equity fund of which an Affiliate of Platinum Equity, LLC is the general partner, (ii) Merger Subsidiary may assign any or all of its rights hereunder to any other newly organized corporation under the laws of the State of Delaware, all of the capital stock of which is owned directly or indirectly by Parent or any permitted assignee of Parent and (iii) Parent and Merger Subsidiary may make a collateral assignment of any rights or benefits hereunder to any lender; provided, however, Parent shall remain liable on a direct and primary basis for the performance of any such direct or indirect subsidiary. Nothing in this Agreement, express or implied, is intended to or shall confer
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upon any Person (other than the parties hereto, any permitted assignee, holders of shares of Company Common Stock or Company Preferred Stock, holders of Options and indemnitees) any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement, and no Person (other than as so specified) shall be deemed a third party beneficiary under or by reason of this Agreement.
11.4Specific Performance. All remedies, either under this Agreement or by law or otherwise afforded to any party hereto, shall be cumulative and not alternative. Each party hereto acknowledges and agrees that any breach of the agreements and covenants contained in this Agreement would cause irreparable injury to the other parties hereto for which such parties would have no adequate remedy at law. In addition to any other remedy to which any party hereto may be entitled, each of the parties hereto acknowledges and agrees that, in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (i) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (ii) will be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement.
11.5Severability. If any provision of this Agreement or the application of any such provision to any Person or circumstance, shall be declared judicially to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, it being the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefor another provision that is valid, legal and enforceable and that achieves the same objective.
11.6Entire Agreement. This Agreement (including the exhibits and schedules including, without limitation, the Disclosure Schedule hereto) and the documents and instruments executed and delivered in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings, whether written or oral, among the parties or any of them with respect to the subject matter hereof, and there are no representations, understandings or agreements relating to the subject matter hereof that are not fully expressed in this Agreement and the documents and instruments executed and delivered in connection herewith. All exhibits and schedules attached to this Agreement are expressly made a part of, and incorporated by reference into, this Agreement.
11.7Governing Law. This Agreement shall be construed in accordance with, and the rights of the parties shall be governed by, the substantive laws of the State of Delaware, without giving effect to any choice-of-law rules that may require the application of the laws of another jurisdiction.
11.8Certain Construction Rules. The article and section headings and the table of contents contained in this Agreement are for convenience of reference only and shall in no way define, limit, extend or describe the scope or intent of any provisions of this Agreement. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. In addition, as used in this Agreement, unless otherwise provided to the contrary, (a) all references to days, months or years shall be deemed references to calendar days, months or years and (b) any reference to a “Section,” “Article,” “Exhibit” or “Schedule” shall be deemed to refer to a section or article of this Agreement or an exhibit or schedule attached to this Agreement. The words “hereof,” “herein,” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specifically provided for herein, the term “or” shall not be deemed to be exclusive.
11.9Survival of Representations, Warranties and Pre-Effective Time Covenants.The respective representations, warranties and pre-Effective Time covenants of Parent, the Company and Merger Subsidiary contained herein shall expire and be terminated on the Effective Time, unless otherwise specifically herein provided.
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11.10Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall constitute one instrument binding on all the parties, notwithstanding that all the parties are not signatories to the original or the same counterpart. The signatures of the parties to this Agreement may be delivered by facsimile and any such facsimile signature shall be deemed an original.
[The remainder of this page has been intentionally left blank. Signature pages follow.]
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[Signature Page to Agreement and Plan of Merger]
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written.
COMPANY: | ||
COMPUCOM SYSTEMS, INC. | ||
By: | /S/ M. LAZANE SMITH | |
M. Lazane Smith Executive Vice President, Finance, and Chief Financial Officer | ||
PARENT: | ||
CHR HOLDING CORPORATION | ||
By: | /S/ JACOB KOTZUBEI | |
Jacob Kotzubei Vice President | ||
MERGER SUBSIDIARY: | ||
CHR MERGER CORPORATION | ||
By: | /S/ JACOB KOTZUBEI | |
Jacob Kotzubei Vice President |
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The undersigned, Platinum Equity, LLC, hereby agrees to be responsible for the performance by Parent and Merger Subsidiary of, and to cause Parent and Merger Subsidiary to perform, all of their obligations under this Agreement that are to be performed by Parent or Merger Subsidiary on or prior to the Effective Time. The obligations of the undersigned pursuant to this undertaking shall terminate and be of no further force or effect immediately upon the Effective Time; provided that all obligations of Parent and Merger Subsidiary required to be performed on or prior to the Effective Time have been performed. This obligation is irrevocable, absolute and continuing until terminated in accordance with its terms, and may not be assigned, whether by operation of law or otherwise, without the prior written consent of the Company. Without impairing the rights of Parent and Merger Subsidiary under this Agreement, the undersigned’s responsibility shall not be discharged, released, diminished, or impaired in whole or in part by (a) any setoff, counterclaim, defense, act or occurrence which the undersigned may have against the Company as a result or arising out of this or any other transaction, (b) the renewal, extension, modification, waiver or alteration of this Agreement, with or without the knowledge or consent of the undersigned, or (c) the inaccuracy of any of the representations and warranties of the Company under the Agreement. The undersigned waives notice of (1) acceptance of this obligation; (2) the creation, renewal, extension, modification, waiver or alteration of this Agreement; (3) any breach of or default in the performance of Parent or Merger Subsidiary of their obligations under this Agreement; and (4) all other matters the notice of which the undersigned might otherwise be entitled to receive. The Company may enforce the undersigned’s obligation without first (A) suing Parent or Merger Subsidiary, (B) joining Parent or Merger Subsidiary in any suit against the undersigned, (C) enforcing any rights and remedies against Parent or Merger Subsidiary or (D) otherwise pursuing or asserting any claims or rights against Parent or Merger Subsidiary or any of their respective property.
PLATINUM EQUITY, LLC | ||
By: | /S/ JACOB KOTZUBEI | |
Jacob Kotzubei Senior Vice President |
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SCHEDULE 1.1
DEFINITIONS
“2004 Capital Expenditure Budget” has the meaning specified inSection 4.7(k).
“Accounts Receivable” as of any specified date means the accounts receivable (including, without limitation, any “accounts” as defined under the Uniform Commercial Code of the State of Delaware) of the Company as of that date.
“Acquisition Proposal” has the meaning specified inSection 6.3(a).
“Action” has the meaning specified inSection 4.13.
“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by Contract or otherwise. For purposes of this Agreement, the Principal Stockholder and the Principal Stockholder Affiliates shall be deemed to be Affiliates of the Company except where otherwise expressly provided to the contrary.
“Agreement” has the meaning specified in the preamble hereof.
“Alternate Transaction Closing Date” has the meaning specified inSection 10.2(c).
“Alternate Transaction Fee” has the meaning specified inSection 10.2(c).
“Antitrust Laws” has the meaning specified inSection 8.2(b).
“Benefit Plans” has the meaning specified inSection 4.16(a).
“Break-Up Fee” has the meaning specified inSection 10.2(d).
“Business Days” means a date on which financial institutions are not required to be closed in Dallas, Texas.
“Certificate of Merger” has the meaning specified inSection 2.3.
“Change of Control Transaction” has the meaning specified inSection 10.2(c).
“Closing” has the meaning specified inSection 2.2.
“Closing Date” means the date on which the Closing occurs.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.
“Common Stock Per Share Merger Consideration” has the meaning specified in the recitals hereof.
“Company” has the meaning specified in the preamble hereof.
“Company Board” means the Board of Directors of the Company.
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“Company Common Stock” has the meaning specified in the recitals hereof.
“Company Employee” has the meaning specified inSection 7.5(c).
“Company ESP Plan” means that certain CompuCom Systems, Inc. Employee Stock Purchase Plan.
“Company Option Plans” means CompuCom Systems, Inc. 2000 Equity Compensation Plan, CompuCom Systems, Inc. 1993 Stock Option Plan, CompuCom Systems, Inc. Option Plan for Directors, and stock options granted outside of the option plans for two directors of the Company.
“Company Preferred Stock” has the meaning specified in the recitals hereof.
“Company SEC Documents” has the meaning specified inSection 4.6.
“Company Stockholders’ Meeting” has the meaning specified inSection 8.1.
“Consent” means any consent, approval, permit, notice, action, authorization or giving of notice to any Person not a party to this Agreement.
“Contract” means, with respect to any Person, any written contract, agreement, understanding or other instrument or obligation to which such Person is a party or by which such Person or such Person’s properties or assets are or may be bound.
“Copyrights” has the meaning specified inSection 4.12(a).
“Credit Facilities” means the Pooling and Servicing Agreement dated as of May 7, 1999, as amended and restated as of August 20, 1999 between CSI Funding, Inc., the Company and Norwest Bank, N.A.; the Pooling and Servicing Agreement as of May 7, 1999, as amended and restated as of August 20, 1999 between CSI Funding, Inc., the Company, PNC Bank, N.A., Market Street Capital Corporation and Norwest Bank, N.A.—Series 1999-1 Supplement dated as of May 7, 1999; the Pooling and Servicing Agreement as of May 7, 1999, as amended and restated as of August 20, 1999 between CSI Funding, Inc., the Company, Lloyds TSB Bank PLC and Wells Fargo Bank Minnesota, N.A. (f/k/a/ Norwest Bank, N.A.)—Series 2000-1 Supplement dated as of October 2, 2000; the Inventory and Working Capital Financing Agreement dated as of May 11, 1999 between IBM Credit Corporation and the Company; the Receivables Contribution and Sale Agreement dated as of May 7, 1999 between CSI Funding and the Company; the Letter of Credit in the amount of $118,692 with Comerica Bank, Captive Insurance Group as the beneficiary for the account of Gateway Insurance Company; the Letter of Credit in the amount of $1,070,000 with Federal Insurance Company as the beneficiary relating to Worker’s Compensation coverage; and floor planning arrangements entered into from time to time.
“Damages” means all losses, liabilities, obligations, demands, claims, damages, payments, Taxes, Liens, deficiencies, costs and expenses (including costs and expenses of actions, amounts paid in connection with any assessments, judgments or settlements relating thereto, interest, fines and penalties recovered by a third party with respect thereto and out-of-pocket expenses and reasonable attorneys’ fees and expenses reasonably incurred in defending against any such actions).
“DGCL” has the meaning specified inSection 2.1.
“Disbursing Agent” has the meaning specified inSection 3.2(a).
“Disclosure Schedule” has the meaning specified inSection 2.8.
“Dissenting Shares” has the meaning specified inSection 3.5.
“Effective Time” means the date and time at which the Merger becomes effective as provided inSection 2.3.
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“Employee Benefit Plans” has the meanings specified inSection 4.16(a).
“Employment Agreements” has the meaning specified inSection 4.16(a).
“Environmental, Health and Safety Laws” has the meaning specified inSection 4.15(b).
“ERISA” has the meaning specified inSection 4.16(a).
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Company or any Subsidiary and which, together with the Company or any Subsidiary, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair market value” has the meaning specified inSection 10.2(c).
“GAAP” means generally accepted United States accounting principles, consistently applied on a basis consistent with the basis on which the financial statements of the Company were prepared as of December 31, 2003.
“Hazardous Materials” has the meaning specified inSection 4.15(b).
“HSR Act” means the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended.
“Indebtedness” means, with respect to any Person, all obligations, contingent or otherwise in respect of borrowed money (other than preferred stock), letters of credit, guarantees, capital leases and any other indebtedness which is evidenced by a note, mortgage, bond, indenture or similar instrument.
“Indemnified Parties” has the meaning specified inSection 7.4(a).
“Intellectual Property” has the meaning specified inSection 4.12(a).
“Key Customer or Supplier” has the meaning specified inSection 4.11(a)(v).
“Know-How” means scientific, engineering, mechanical, electrical, financial, marketing or practical knowledge or experience useful in the business and operations of the Company.
“Knowledge” means with respect to a particular fact or other matter, the actual current knowledge of the executive officers and directors of the Company.
“Legal Requirement” means any law, statute, rule or regulation of any Tribunal or any Order.
“License Agreements” has the meaning specified inSection 4.12(c).
“Lien” means, with respect to any properties or assets, any mortgage, pledge, hypothecation, assignment, security interest, lien, tax lien, assessment, adverse claim, levy, charge, liability or encumbrance, or preference, priority or other security agreement (including, without limitation, any conditional sale or other title retention agreement, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction) in respect of such properties or assets.
“Material Adverse Effect” means a material adverse effect on the business, operations, financial condition, results of operations, properties, assets or liabilities of the Company and the Subsidiaries taken as a whole or, after the Effective Time, the Surviving Corporation and the Subsidiaries taken as a whole; provided, however, that this definition shall exclude any such material adverse effect to the extent arising out of, attributable to or
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resulting from (a) conditions generally affecting the business or industry in which the Company and any of its Subsidiaries operate (including economic, legal and regulatory changes); (b) U.S. or global general economic or political conditions, events or circumstances affecting the U.S. or global financial markets generally; or (c) any outbreak or escalation of hostilities (including, without limitation, any declaration of war by the United States) or act of terrorism.
“Material Contracts” has the meaning specified inSection 4.11(b).
“Merger” has the meaning specified in the recitals hereof.
“Merger Consideration” has the meaning specified inSection 3.1(a).
“Merger Subsidiary” has the meaning specified in the preamble hereof.
“Notes Financing” has the meaning specified inSection 5.5.
“Options” means options to purchase shares of Company Common Stock, as granted pursuant to the Company Option Plans.
“Order” means any decision, judgment, order, writ, injunction, decree, award or determination of any Tribunal.
“Parent” has the meaning specified in the preamble hereof.
“Parent Expenses” has the meaning specified inSection 10.2(b).
“Parent Plan” has the meaning specified inSection 7.5(c).
“Parent Expense Cap” has the meaning specified inSection 10.2(b).
“Patents” has the meaning specified inSection 4.12(a).
“Pension Plans” has the meaning specified inSection 4.16(a).
“Permits” has the meaning specified inSection 4.19.
“Permitted Liens” means (a) liens for utilities and current Taxes not yet due and payable, (b) mechanics’, carriers’, workers’, repairers’, materialmen’s, warehousemen’s, lessor’s, landlord’s and other similar liens arising or incurred in the ordinary course of business not yet due and payable, (c) liens for Taxes being contested in good faith by appropriate proceedings or which appropriate reserves have been included on the balance sheet of the applicable Person, (d) easements, restrictive covenants and similar encumbrances or impediments against any of the Company’s assets or properties which do not materially interfere with the business of the Company and its Subsidiaries, (e) minor irregularities and defects of title which do not materially interfere with the business of the Company and its Subsidiaries, (f) liens under the Company’s Credit Facilities, and (g) liens granted under floor plans from OEMs and distributors.
“Person” means any corporation, association, partnership, limited liability company, joint venture, organization, individual, business, trust or any other entity or organization of any kind or character, including a Tribunal.
“Preferred Stock Per Share Merger Consideration” has the meaning specified in the recitals hereof.
“Principal Stockholder” has the meaning specified in the recitals hereof.
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“Principal Stockholder Affiliates” mean Principal Stockholder and any Affiliate of Principal Stockholder other than the Company and the Subsidiaries.
“Principal Stockholder Agreement” has the meaning specified in the recitals hereof.
“Principal Stockholder’s Shareholder Meeting” has the meaning specified inSection 8.1(c).
“Proxy Statement” has the meaning specified inSection 4.4(b).
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Senior Financing” has the meaning specified inSection 5.5.
“Senior Financing Commitment Letter” has the meaning specified inSection 5.5.
“Senior Lenders” has the meaning specified inSection 5.5.
“Software” has the meaning specified inSection 4.12(a).
“Special Committee” has the meaning specified in the recitals hereof.
“Stock Certificates” has the meaning specified inSection 3.2(a).
“Subsidiaries” means collectively all of the subsidiaries of the Company.
“Superior Proposal” has the meaning specified inSection 6.3(e).
“Surviving Corporation” has the meaning specified inSection 2.1.
“Tax Returns” has the meaning specified inSection 4.10(a).
“Taxes” means all federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges or assessments of any nature whatsoever as well as any interest, penalties and additions thereto.
“Total Consideration” has the meaning specified inSection 10.2(c).
“Trade Secrets” has the meaning specified inSection 4.12(a).
“Trademarks” has the meaning specified inSection 4.12(a).
“Tribunal” means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of any state or the United States.
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PRINCIPAL STOCKHOLDER AGREEMENT
by and among
SAFEGUARD SCIENTIFICS, INC.
CHR HOLDING CORPORATION,
and
CHR MERGER CORPORATION
Dated as of May 27, 2004
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ARTICLE I | THE SSI SHAREHOLDERS’ MEETING | B-2 | ||
1.1. | The SSI Shareholders’ Meeting | B-2 | ||
1.2. | SSI Proxy Statement | B-2 | ||
1.3. | Voting of the Company Stock | B-2 | ||
ARTICLE II | ADDITIONAL COVENANTS | B-3 | ||
2.1. | No Inconsistent Action | B-3 | ||
2.2. | Acquisition Proposals | B-3 | ||
2.3. | Information for the Company’s Proxy Statement | B-4 | ||
2.4. | HSR Act Filings; Reasonable Efforts | B-4 | ||
2.5. | Notice of Breach of Merger Agreement | B-5 | ||
2.6. | Letter of Transmittal | B-5 | ||
2.7. | Notices under Merger Agreement | B-5 | ||
2.8. | Closing Efforts | B-5 | ||
ARTICLE III | REPRESENTATIONS AND WARRANTIES OF SSI | B-6 | ||
3.1. | The Company Stock | B-6 | ||
3.2. | Authority; No Conflicts | B-6 | ||
3.3. | Company Representations and Warranties in the Merger Agreement | B-6 | ||
3.4. | Opinion of Financial Advisor | B-6 | ||
ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY | B-7 | ||
4.1. | Authority; No Conflicts | B-7 | ||
4.2. | Representations and Warranties in the Merger Agreement | B-7 | ||
ARTICLE V | TERMINATION | B-7 | ||
5.1. | Termination | B-7 | ||
5.2. | Effect of Termination; Liquidated Damages | B-8 | ||
ARTICLE VI | INDEMNIFICATION | B-9 | ||
6.1. | Indemnification by SSI | B-9 | ||
ARTICLE VII | MISCELLANEOUS | B-10 | ||
7.1. | Further Assurances | B-10 | ||
7.2. | Capacity of SSI | B-10 | ||
7.3. | Specific Performance | B-10 | ||
7.4. | Entire Agreement | B-10 | ||
7.5. | Obligations of Successors; Assignment | B-10 | ||
7.6. | Amendment; Waiver | B-10 | ||
7.7. | Severability | B-11 | ||
7.8. | Notices | B-11 | ||
7.9. | Governing Law | B-12 | ||
7.10. | Cumulative Remedies | B-12 | ||
7.11. | Headings | B-12 | ||
7.12. | Survival | B-12 | ||
7.13. | Merger Agreement | B-12 | ||
7.14. | Counterparts | B-12 | ||
7.15. | Waiver of Appraisal Rights | B-12 |
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PRINCIPAL STOCKHOLDER AGREEMENT
THIS PRINCIPAL STOCKHOLDER AGREEMENT (this “Agreement”), is dated as of May 27, 2004, by and among SAFEGUARD SCIENTIFICS, INC., a Pennsylvania corporation (“SSI”), CHR HOLDING CORPORATION, a Delaware corporation (“Parent”), and CHR MERGER CORPORATION, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Subsidiary”). Unless otherwise indicated, capitalized terms used herein that are not otherwise defined herein shall have the meanings specified in the Merger Agreement (as such term is defined below) as in effect on the date hereof.
WHEREAS, concurrently with the execution hereof, Parent and Merger Subsidiary have entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CompuCom Systems, Inc., a Delaware corporation (the “Company”), which provides, among other things, for the merger of Merger Subsidiary with and into the Company (the “Merger”);
WHEREAS, SSI (individually, or through certain wholly-owned subsidiaries) owns 24,540,881 shares of Common Stock, par value $.01 per share, of the Company (“Company Common Stock”) and 1,500,000 shares of Preferred Stock, par value $.01 per share, of the Company (“Company Preferred Stock”) (such shares of Company Common Stock and Company Preferred Stock, together with any other shares of capital stock of the Company of which SSI or any of its subsidiaries acquires beneficial ownership (as such term is defined under Rule 13d-3 of the Securities Exchange Act of 1934, as amended), including pursuant to any agreement, arrangement or understanding, whether or not in writing, after the date hereof, whether upon the exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities, or by means of purchase, dividend, distribution or otherwise (but in any event excluding shares that have been pledged by a former SSI executive officer to SSI or its subsidiaries (the “Pledged Shares”)), being collectively referred to herein as the “Company Stock”);
WHEREAS, the Company is required to obtain the approval of the Merger and the adoption of the Merger Agreement by the Company’s stockholders under the Delaware General Corporation Law (the “DGCL”) and has agreed with Parent and Merger Subsidiary to call a special meeting of the Company’s stockholders to seek such approval and adoption (the “Company Stockholders’ Meeting”);
WHEREAS, the Company Stock represents sufficient voting power to approve the Merger and adopt the Merger Agreement under the DGCL;
WHEREAS, SSI has determined that the disposition of the Company Stock for cash in the Merger as contemplated by the Merger Agreement may constitute a transaction for which the approval of SSI’s shareholders is required under applicable Pennsylvania Law and has informed Parent and Merger Subsidiary that it will not vote to approve the Merger and to adopt the Merger Agreement at the Company Stockholders’ Meeting without the express prior approval of a majority of the votes cast by the holders of the common stock, par value $0.10, of SSI (“SSI Common Stock”) entitled to vote thereon;
WHEREAS, in contemplation of the execution of the Merger Agreement by Parent and Merger Subsidiary, the board of directors of the Company (the “Company Board”) and a special committee thereof has approved the negotiation, execution and delivery of this Agreement;
WHEREAS, in consideration of the direct and indirect benefits that will accrue to SSI and its shareholders as a result of the consummation of the Merger, SSI has agreed to enter into this Agreement with Parent and the Merger Subsidiary.
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
THE SSI SHAREHOLDERS’ MEETING
1.1.The SSI Shareholders’ Meeting. SSI shall, as promptly as practicable following the execution of this Agreement, duly call, give notice of, convene and hold a meeting of the shareholders of SSI (the “SSI Shareholders’ Meeting”) for the purpose of voting on a proposal that SSI (or its subsidiaries, as the case may be) vote at the Company Stockholders’ Meeting in favor of the Merger and adoption of the Merger Agreement and comply with the other terms and conditions of this Agreement for which approval of the shareholders of SSI is required under the Pennsylvania Business Corporation Law, as amended (such proposal is referred to herein as the “SSI Shareholder Proposal”) and thereby approve the disposition by SSI (or its subsidiaries, as the case may be) of the Company Stock for cash. Subject to the fiduciary duty requirements of the board of directors of SSI (the “SSI Board”) andSection 2.2, SSI shall use its reasonable best efforts to obtain the affirmative vote of a majority of the votes cast by the holders of the shares of SSI Common Stock entitled to vote thereon in favor of the SSI Shareholder Proposal and the SSI Board shall recommend to the shareholders of SSI that they vote in favor of the SSI Shareholder Proposal.
1.2.SSI Proxy Statement. SSI shall, as promptly as practicable following the date hereof, prepare and file with the SEC a proxy statement relating to the approval of the SSI Shareholder Proposal (the “SSI Proxy Statement”). No filing of, or amendment or supplement to, or correspondence to the SEC relating to the SSI Proxy Statement will be made by SSI without providing Parent with an opportunity to review and comment thereon. SSI will advise Parent, promptly after it receives notice thereof, of any request by the SEC for the amendment of SSI Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information. If, at any time prior to the SSI Shareholders’ Meeting, SSI, Parent or the Merger Subsidiary discover any information which should be set forth in an amendment or supplement to SSI Proxy Statement so that it would not include any misstatements of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the shareholders of SSI.
1.3.Voting of the Company Stock. If the SSI Shareholder Proposal is approved by a majority of the votes cast by the holders of the shares of SSI Common Stock entitled to vote thereon at the SSI Shareholders’ Meeting, SSI shall (or shall cause its subsidiaries to, as the case may be), unless this Agreement has been terminated in accordance with its terms, (i) vote the Company Stock in favor of the Merger and the adoption of the Merger Agreement at the Company Stockholders’ Meeting, and against any Acquisition Proposal and any other action that may reasonably be expected to impede, interfere with, delay, postpone, attempt to discourage or have a material adverse effect on the consummation of, the Merger or result in a breach in any material respect of any of the covenants, representations, warranties or other obligations and agreements of the Company under the Merger Agreement, (ii) if requested by Parent, execute (and not revoke) a proxy in favor of Parent or such other Person as Parent may designate in writing to vote the Company Stock in favor of the Merger and the adoption of the Merger Agreement at the Company Stockholders’ Meeting or, (iii) if requested by Parent and the Company, execute a written consent of stockholders pursuant to Section 228 of the DGCL approving the Merger and adopting the Merger Agreement. If the SSI Shareholder Proposal is not approved by a majority of the votes cast by the holders of the shares of SSI Common Stock entitled to vote thereon at the SSI Shareholders’ Meeting, SSI (or its subsidiaries, as the case may be) may (A) vote against the Merger and against the adoption of the Merger Agreement at the Company Stockholders’ Meeting or, (B) if requested by the Company, execute a written consent of stockholders pursuant to Section 228 of the DGCL voting against the Merger and against adopting the Merger Agreement.
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ARTICLE II
ADDITIONAL COVENANTS
2.1.No Inconsistent Action. Unless and until this Agreement is terminated in accordance with its terms and except as required by order of a court of competent jurisdiction, SSI shall not (or shall cause its subsidiaries not to, as the case may be): (i) sell, transfer, convey, assign, pledge or otherwise dispose of (or agree to sell, transfer, convey, assign, pledge or otherwise dispose of) any of the Company Stock or any rights therein (except to or among SSI and any wholly-owned subsidiaries of SSI), (ii) enter into any voting agreement with any Person with respect to any of the Company Stock, (iii) grant to any Person any proxy (revocable or irrevocable) or power of attorney with respect to any of the Company Stock, (iv) deposit any of the Company Stock in a voting trust or (v) otherwise enter into any agreement or arrangement with any Person limiting or affecting SSI’s (or any of its subsidiaries’) legal power, authority or right to vote the Company Stock or take any other action that could reasonably be expected to prevent or hinder the performance of SSI’s obligations hereunder.
2.2.Acquisition Proposals.
(a) SSI shall immediately terminate and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. SSI shall notify Parent immediately if any Acquisition Proposal is received by SSI, indicating the name of the Person making such proposal or inquiry and the terms and conditions thereof.
(b) From and after the date hereof, unless and until this Agreement is terminated according to its terms or except as expressly permitted by thisSection 2.2, SSI shall not, and shall not authorize or permit its officers, directors, employees, investment bankers, attorneys, accountants or other agents to, directly or indirectly: (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal that constitutes or is reasonably likely to lead to any Acquisition Proposal; (ii) enter into any agreement with respect to any Acquisition Proposal; (iii) approve, recommend, or propose publicly to approve or recommend, or execute or enter into any merger agreement, acquisition agreement or similar agreement resulting from any Acquisition Proposal; or (iv) in the event of an unsolicited written proposal in respect of an Acquisition Proposal, engage in negotiations or discussions with, or provide any information or data to, any Person (other than Parent, any of its Affiliates or representatives and except for information that has been previously publicly disseminated by the Company) relating to any Acquisition Proposal.
(c) Notwithstanding the provisions ofSection 2.2(b), SSI (and its officers, directors, employees, investment bankers, attorneys, accountants and other agents and representatives) may, at any time prior to the Company Stockholders’ Meeting, provide information to, and engage in discussions or negotiations concerning an Acquisition Proposal with any third party who seeks, without prior solicitation (other than solicitations occurring prior to the date hereof) by SSI or its directors, officers, employees, agents or representatives, to initiate such discussions or negotiations if, and only to the extent that, in response to a bona fide written Acquisition Proposal, (A) the SSI Board has determined in good faith, after consultation with its legal and financial advisors, that such discussions may reasonably lead to an SSI Superior Proposal and (B) prior to furnishing such information to, or entering into discussions with such third party, SSI receives from such third party an executed confidentiality agreement containing terms customary in transactions of such nature and SSI notifies Parent of its intention to negotiate with such third party one (1) Business Day prior to engaging in any such negotiations. Except as set forth below, neither the SSI Board nor any committee thereof may (i) effect a change in SSI’s recommendation to approve the SSI Shareholder Proposal, (ii) approve or recommend or propose publicly to approve or recommend voting in favor of a transaction set forth in any Acquisition Proposal or (iii) cause SSI to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Acquisition Proposal. Notwithstanding the foregoing, in response to a bona fide unsolicited written Acquisition Proposal from a third party that the SSI Board determines in good faith, after consultation with its legal and financial advisors, is an SSI Superior Proposal, the SSI Board may change its recommendation and may enter into a
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definitive agreement with respect to such Acquisition Proposal, but only if (x) SSI notifies Parent, in writing and at least two (2) Business Days prior to taking such action, of its intention to take such action, specifying the material terms of such SSI Superior Proposal and identifying the Person making such SSI Superior Proposal, and (y) Parent and the Company do not amend the Merger Agreement within two (2) Business Days of receipt of such written notification in a manner that the SSI Board determines, in good faith after consultation with its legal and financial advisors, is at least as favorable to the shareholders of SSI as such SSI Superior Proposal, it being understood that SSI shall postpone or adjourn the SSI Shareholders’ Meeting, as necessary, to accommodate the procedures set forth in this sentence. For purposes hereof, the term “SSI Superior Proposal” means a bona fide unsolicited written Acquisition Proposal which the SSI Board determines, in good faith, after consultation with its legal and financial advisors, and after taking into account any conditions to and risks of consummation and the ability of the party making such proposal to obtain financing for such Acquisition Proposal, is more favorable to its shareholders than the transactions contemplated by the Merger Agreement.
2.3.Information for the Company’s Proxy Statement. SSI shall furnish to the Company such data and information with respect to the Company Stock or SSI or its subsidiaries as the Company shall reasonably request for the purpose of including such data and information in the Company Proxy Statement and any amendments or supplements thereto used by the Company to obtain the approval of the Merger and the adoption of the Merger Agreement by the Company’s stockholders. The information provided by SSI specifically for inclusion or incorporation by reference therein, at the time the Company Proxy Statement is first mailed to the Company’s stockholders and at the time of the Company Stockholders’ Meeting, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. No representation or warranty is made by SSI hereby with respect to statements made or incorporated by reference therein based on information supplied by the Company, Parent or Merger Subsidiary for inclusion or incorporation by reference therein.
2.4.HSR Act Filings; Reasonable Efforts.
(a) Each of Parent and SSI shall (i) promptly after the date of the first public announcement of the Merger Agreement, make the filings required of such party, and use reasonable commercial efforts to cause any of its Affiliates (other than the Company) to make such filings, under the HSR Act and any other Antitrust Laws with respect to the Merger and the other transactions contemplated by the Merger, (ii) comply at the earliest practicable date with any request under the HSR Act or such other Antitrust Laws for additional information, documents, or other material received by such party or any of its Affiliates (other than the Company) from the Federal Trade Commission or the Department of Justice or any other Tribunal in respect of such filings, the Merger or such other transactions and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Tribunal under any Antitrust Laws with respect to any such filing, the Merger or such other transactions. Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking, or agreement with, any Tribunal regarding any such filings, the Merger or such other transactions. Neither party shall participate in any meeting with any Tribunal in respect of any such filings, investigation, or other inquiry without giving the other party notice of the meeting and, to the extent permitted by such Tribunal, the opportunity to attend and participate.
(b) Each of Parent and SSI shall use all reasonable efforts to resolve such objections, if any, as may be asserted by any Tribunal with respect to the Merger or any other transactions provided for in the Merger Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, “Antitrust Laws”). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging the
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Merger or any other transactions provided for in this Agreement or the Merger Agreement as violative of any Antitrust Law, and, if by mutual agreement, Parent and SSI decide that litigation is in their best interests, each of Parent and SSI shall cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any Order that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other transactions. Each of Parent and SSI shall use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to the Merger and such other transactions as promptly as possible after the execution of this Agreement.
(c) Each of the parties agrees to use its commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under Legal Requirements applicable to such party to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement and the Merger Agreement, including (i) the making of all other necessary registrations, notices and filings (including other filings with governmental entities, if any), (ii) the preparation of the SSI Proxy Statement, and (iii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement and the Merger Agreement.
(d) Notwithstanding anything to the contrary in thisSection 2.4, in connection with any action requested by any Tribunal applying the Antitrust Laws, (i) neither SSI nor any of its subsidiaries or Affiliates shall be required to divest any of their respective businesses, product lines or assets, (ii) neither Parent nor any of its subsidiaries or Affiliates shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a material adverse effect on Parent, its subsidiaries or Affiliates, (iii) neither SSI nor any subsidiary shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect and (iv) none of Parent, Merger Subsidiary or SSI shall be required to waive any of the conditions to the Merger.
2.5.Notice of Breach of Merger Agreement. SSI shall promptly notify Parent in writing if either Christopher J. Davis or Anthony L. Craig obtains actual knowledge (without any requirement of due inquiry) of any breach of any of the Company’s representations, warranties or covenants in the Merger Agreement. Parent shall promptly notify SSI in writing of any breach of any of the Parent or Merger Subsidiary’s representations, warranties or covenants in the Merger Agreement.
2.6.Letter of Transmittal. Parent shall, at least three (3) days prior to the Effective Date, deliver to SSI the form of transmittal letter to be delivered by the Disbursing Agent to the record holders of the Company Common Stock (as defined in the Merger Agreement) in accordance withSection 3.2 of the Merger Agreement.
2.7.Notices under Merger Agreement. Any notice sent by Parent or Merger Subsidiary in accordance with or with respect to the Merger Agreement shall be concurrently delivered to SSI hereunder.
2.8.Closing Efforts.
(a) SSI will, and will cause its officers and agents to, use commercially reasonable efforts to effect the Merger as soon as practicable after the date hereof, including but not limited to, its efforts relating to (i) completing and filing the SSI Proxy Statement, (ii) responding to comments and/or requests, if any, of the SEC, and (iii) scheduling the SSI Stockholders’ Meeting. SSI may take such actions as it, after due consultation with Parent, deems appropriate to maximize certainty of the Merger, and SSI shall consult with Parent regarding any actions that Parent wants SSI to consider taking to maximize such certainty.
(b) Parent and Merger Subsidiary will, and will cause their respective officers and agents to, use commercially reasonable efforts to effect the Merger as soon as practicable after the date hereof, including, but not limited to, its efforts relating to (i) reviewing and commenting upon the SSI Proxy Statement, and
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(ii) responding to comments and/or requests, if any, of the SEC. Parent shall consult with SSI regarding any actions that SSI deems appropriate to maximize certainty of the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SSI
3.1.The Company Stock. As of the date hereof, SSI (directly, or through its wholly-owned subsidiaries) is the sole record and beneficial owner of 24,540,881 shares of Company Common Stock and 1,500,000 shares of Company Preferred Stock, free and clear of any encumbrances, agreements, adverse claims, liens or other arrangements with respect to the ownership of or the right to vote or dispose of such shares of Company Common Stock and Company Preferred Stock (which shares of Company Preferred Stock represent all of the issued and outstanding shares of Company Preferred Stock) except as contemplated by this Agreement. Other than such shares of Company Common Stock and Company Preferred Stock, SSI (either directly, or through its wholly-owned subsidiaries) does not own, beneficially or of record any (i) other shares of capital stock of the Company or any securities convertible or exchangeable for shares of capital stock of the Company, or (ii) option, warrant or other right or obligation to acquire any securities of the Company, other than its interest in the Pledged Shares. Except for the terms of this Agreement, SSI is not subject to any contract, commitment, arrangement, voting trust or other understanding governing or affecting its right or ability to exercise the voting rights of the Company Stock.
3.2.Authority; No Conflicts. SSI has the full legal power, authority and right to enter into this Agreement, to execute and deliver this Agreement, and to perform its obligations hereunder. This Agreement has been duly and validly authorized, executed and delivered by SSI and constitutes a valid and binding obligation of SSI enforceable against it in accordance with its terms. Other than as set forth onSchedule 3.2 hereto, no filing with or notice to, and no permit, authorization, consent or approval of, any Tribunal or any other Person is necessary for the execution of this Agreement by SSI or the performance of SSI’s obligations hereunder. The execution and delivery of this Agreement by SSI and the performance of SSI’s obligations hereunder will not conflict with, or result in any violation or breach of, or default under (with or without notice or lapse of time or both) (i) any judgment, injunction, order, notice, decree, statute, law, ordinance, arrangement, rule or regulation applicable to SSI, (ii) any provision of the Articles of Incorporation or Bylaws of SSI, or (iii) any agreement to which SSI is a party or by which SSI (or any of its assets) is bound, including any voting agreement, stockholders agreement, voting trust, trust agreement, pledge agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license.
3.3.Company Representations and Warranties in the Merger Agreement. To the current actual knowledge (without any requirement of due inquiry) of either of Christopher J. Davis and Anthony L. Craig in their capacities as officers of SSI, each of the representations and warranties of the Company set forth in the Merger Agreement are true and correct as of the date hereof.
3.4.Opinion of Financial Advisor. SSI has received the opinion of Robert W. Baird & Co. Incorporated, dated May 27, 2004, to the effect that, as of that date, the consideration to be received in the Merger by SSI for the securities of the Company held by SSI, taken as a whole, is fair, from a financial point of view, to SSI, and a complete and correct signed copy of such opinion has been, or promptly upon receipt thereof will be, delivered to Parent.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUBSIDIARY
4.1.Authority; No Conflicts. Each of Parent and Merger Subsidiary has the full legal power, authority and right to enter into this Agreement, to execute and deliver this Agreement and to perform its respective obligations hereunder. This Agreement has been duly and validly authorized, executed and delivered by Parent and Merger Subsidiary and constitutes a valid and binding obligation of Parent and Merger Subsidiary enforceable against each of them in accordance with its terms. No filing with or notice to, and no permit, authorization, consent or approval of, any Tribunal or any other Person is necessary for the execution of this Agreement by Parent or Merger Subsidiary or the performance by Parent and Merger Subsidiary of their obligations hereunder. The execution and delivery of this Agreement by Parent and Merger Subsidiary and the performance of their obligations hereunder will not conflict with, or result in any violation or breach of, or default under (with or without notice or lapse of time or both) (i) any judgment, injunction, order, notice, decree, statute, law, ordinance, arrangement, rule or regulation applicable to Parent or Merger Subsidiary, (ii) any provision of the respective Certificates of Incorporation or Bylaws of Parent or Merger Subsidiary or (iii) any agreement to which either Parent or Merger Subsidiary is a party or by which either Parent or Merger Subsidiary (or any of their respective assets) is bound, including any voting agreement, stockholders agreement, voting trust, trust agreement, pledge agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license.
4.2.Representations and Warranties in the Merger Agreement. Each of the representations and warranties of the Parent and the Merger Subsidiary set forth in the Merger Agreement is true and correct as of the date hereof.
ARTICLE V
TERMINATION
5.1.Termination. The provisions of Article I andSection 2.1, Section 2.2, Section 2.3, Section 2.4, Section 2.5 andSection 2.8shall terminate at the Effective Time, but the other provisions of this Agreement shall survive the consummation of the Merger. This Agreement may also be terminated by as follows:
(a)Mutual Consent. By mutual written consent of Parent and SSI at any time.
(b)Parent or SSI. By either Parent or SSI, by written notice to the other party, if any Tribunal shall have issued an Order permanently enjoining, restraining or otherwise prohibiting the Merger and such Order shall have become final and nonappealable.
(c)SSI. By SSI, by written notice to Parent, (i) at any time, if Parent or Merger Subsidiary shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or if capable of being cured, has not been cured within thirty (30) days after the giving of written notice to Parent, and provided further that such termination may only occur, if such breach or failure would prevent or materially impair the consummation of the transactions contemplated by the Merger Agreement, (ii) at any time after the SSI Shareholders’ Meeting if the shareholders of SSI do not approve the SSI Shareholder Proposal at the SSI Shareholders’ Meeting, or (iii) at any time, if SSI has entered into a definitive agreement with respect to an SSI Superior Proposal (provided that SSI has complied withSection 2.2).
(d)Parent. By Parent, by written notice to SSI, (i) at any time, if SSI shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured, or if capable of being cured, has not been cured within thirty (30) days after the giving of written notice to SSI, and provided further that
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such termination may only occur, if such failure or breach would prevent or materially impair the consummation of the transactions contemplated by the Merger Agreement, (ii) at any time prior to the SSI Shareholders’ Meeting, if the SSI Board or any committee thereof withdraws its approval or recommendation of the SSI Shareholder Proposal, (iii) at any time after the SSI Shareholders’ Meeting if the shareholders of SSI do not approve the SSI Shareholder Proposal at the SSI Shareholders’ Meeting or (iv) at any time, if SSI has entered into a definitive agreement with respect to an SSI Superior Proposal.
(e)Automatically. By no action on the part of the parties if the Merger Agreement is terminated in accordance with its terms.
5.2.Effect of Termination; Liquidated Damages.
(a) If this Agreement is terminated as provided inSection 5.1(a) orSection 5.1(b), no party shall have any liability or obligation hereunder to any other party or their respective officers or directors.
(b) If (A) Parent terminates this Agreement pursuant to clause (i) ofSection 5.1(d) and Parent and Merger Subsidiary are not in material breach at such time of their respective representations, warranties, covenants or other agreements contained in this Agreement, or (B) SSI terminates this Agreement pursuant to clause (ii) or (iii) ofSection 5.1(c) or (C) Parent terminates this Agreement pursuant to clause (iii) or (iv) ofSection 5.1(d), or (D) Parent terminates this Agreement pursuant to clause (ii) ofSection 5.1(d) and the Company Board has withdrawn its approval or recommendation to vote for the Merger, or (E) the Merger Agreement is terminated in accordance with clause (iii) of Section 10.1(b) of the Merger Agreement, and in the case of such (A), (B), (C), (D) and (E), within two hundred twenty-five (225) days of such termination, either (w) a Change of Control Transaction is consummated, (x) a Change of Control Transaction is approved by the SSI Board or a special committee thereof or the shareholders of SSI, (y) the Company enters into an agreement with respect to a Change in Control Transaction, or (z) a tender offer or exchange offer for all outstanding shares of Company Common Stock is or previously was commenced, and the Company Board or a special committee thereof (1) recommends that the stockholders of the Company tender their shares in such tender offer or exchange offer or (2) within ten (10) Business Days after the commencement of such tender offer or exchange offer, the Company Board fails to recommend rejection of such offer, then SSI shall pay (and/or transfer, to the extent comprised of non-cash consideration, together with any registration or other rights pertaining thereto) to Parent upon consummation of such Change of Control Transaction an amount equal to (x) fifty percent (50%) of the amount, if any, by which the aggregate consideration, including the fair market value of any non-cash consideration valued as of the date on which such Change of Control Transaction is consummated (the “SSI Alternate Transaction Date”) that is received by SSI with respect to the shares of Company Stock upon consummation of such Change of Control Transaction exceeds the aggregate Merger Consideration that SSI would have received with respect to the shares of Company Stock if the Merger had been consummated in accordance with terms of the Merger Agreement as in effect on the date this Agreement is terminated minus (y) 51.83% of the aggregate of any Parent Expenses, Alternate Transaction Fee (as such term is defined in the Merger Agreement) and Break-Up Fee paid (the aggregate of such expenses and fees paid, being the “Credit”) in accordance with Article X of the Merger Agreement (such difference, being the “SSI Alternate Transaction Fee”), such payment (and/or transfer, to the extent comprised of non-cash consideration, together with any registration or other rights pertaining thereto) to be made no later than two (2) Business Days after the SSI Alternate Transaction Date by (A) wire transfer of immediately available funds to such account as Parent may designate, with respect to the cash portion of such aggregate consideration and/or (B) transfer to Parent of all rights associated with any portion of non-cash consideration, contractual or otherwise, to which Parent is entitled that constitute part of the SSI Alternate Transaction Fee; provided, that the Credit received hereunder shall be reduced to the extent that the sum of Parent Expenses, the Alternate Transaction Fee, the Break-Up Fee and the SSI Alternate Transaction Fee (calculated prior to giving effect to this proviso) does not exceed $4 million. (For the avoidance of doubt, the proportion of cash to non-cash consideration comprising the SSI Alternate Transaction Fee shall be equal to the proportion of cash to non-cash consideration received by SSI in the Change of Control Transaction pursuant to which SSI is paying over such SSI Alternate Transaction Fee.) For purposes hereof, (i) the “fair market value” of any publicly traded
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securities as of any date shall be the closing price or the last sale price, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, in either case as reported in the principal consolidated transaction reporting system with respect to the principal national securities exchange on which such securities are listed or admitted to trading or, if such securities are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, and the “fair market value” of any other non-cash consideration shall be determined in good faith by the Company Board, which determination shall be subject to the consent of Parent which consent shall not be unreasonably withheld, and in the absence of such determination, shall be determined in good faith by Parent and (ii) a “Change of Control Transaction” shall mean any merger, reorganization, share exchange, tender offer, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company in which SSI or its wholly-owned subsidiaries is to receive cash or non-cash consideration for the Company Stock (either directly, such as in a tender offer or merger, or indirectly, such as in a distribution or payment in liquidation following a sale of assets by the Company), other than a transfer among SSI and its wholly-owned subsidiaries and a reorganization in which there is no material change in the beneficial ownership of the Company (e.g., a reincorporation to change the Company’s state of incorporation). SSI shall, upon the request of Parent, execute and deliver all such further documents and instruments and take all such further action as may be deemed by Parent to be necessary or desirable to carry out the provisions of thisSection 5.2(b).
(c) In the event that (i) an SSI Superior Proposal could also reasonably be construed as a Superior Proposal for the Company and (ii) either (A) the SSI Board or any committee thereof has withdrawn its approval or recommendation of the SSI Shareholder Proposal at any time before the SSI Shareholders’ Meeting or SSI enters into a definitive agreement with respect to an SSI Superior Proposal or (B) the Company has approved or recommended a Superior Proposal prior to the Company Stockholder’s Meeting or the Company enters into a definitive agreement with respect to a Superior Proposal and (iii) the Merger Agreement or this Agreement is terminated pursuant to (x) clause (iii) ofSection 5.1(c) or clauses (ii) or (iv) ofSection 5.1(d) of this Agreement or (y) clauses (iii) or (iv) of Section 10.1(c) or clauses (ii) or (iii) of Section 10.1(d) of the Merger Agreement and (iv) Parent and Merger Subsidiary are not in material breach at such time of any of their respective representations and warranties, covenants or other agreements contained in the Merger Agreement and this Agreement, Parent shall receive in cash as liquidated damages (A) the Break-Up Fee from the Company not later than two (2) Business Days after such termination by wire transfer of immediately available funds to such account as Parent may designate and (B) if the SSI Alternate Transaction Fee is ultimately greater than the Break-Up Fee, the difference between the SSI Alternate Transaction Fee and the Break-Up Fee from SSI not later than two (2) Business Days after the SSI Alternate Transaction Date by wire transfer of immediately available funds to such account as Parent may designate. For reason of avoidance of any doubt, the parties agree that an SSI Superior Proposal could not be reasonably construed as a Superior Proposal for the Company if the SSI Superior Proposal relates to an acquisition of the capital stock of SSI or the acquisition of shares of Company Common Stock from only SSI.
ARTICLE VI
INDEMNIFICATION
6.1.Indemnification by SSI. SSI shall indemnify and hold harmless Parent and the Surviving Corporation and their respective officers, directors, agents, Affiliates and representatives (the “Indemnitees”) from and against, and shall reimburse the Indemnitees on demand for, any and all direct or indirect claims, suits, actions, proceedings, liabilities, obligations, judgments, fines, penalties, claims, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel, accountants and other experts whether incurred in connection with any of the foregoing or in connection with any investigative, administrative or adjudicative proceeding, whether or not such Indemnitee shall be designated a party thereto),
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together with any and all reasonable costs and expenses associated with the investigation of the same and/or the enforcement of the provisions hereof and thereof which may be incurred by such Indemnitee relating to, based upon, resulting from or arising out of the breach of any representation, warranty, agreement, covenant or other obligation of SSI contained in this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1.Further Assurances. Each party hereto shall, upon request of any other party, execute and deliver all such further documents and instruments and take all such further action as may be deemed by such requesting party to be necessary or desirable to carry out the provisions hereof.
7.2.Capacity of SSI. SSI is executing this Agreement solely in its capacity as the owner of the Company Stock. This Agreement shall not be construed to require any member of the SSI Board or the Company Board to take, or prohibit any member of the SSI Board or Company Board from taking, any action in his, her or its capacity as a member of the SSI Board or the Company Board.
7.3.Specific Performance. Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, each non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (i) will waive, in any action for specific performance, the defense of adequacy of a remedy at law and (ii) will be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement including, among SSI’s other obligations, covenants and agreements, SSI’s obligation to convene and hold the SSI Shareholders’ Meeting, in any action instituted in any state or federal court sitting in the Commonwealth of Pennsylvania.
7.4.Entire Agreement. This Agreement and, to the extent referred to herein, the Merger Agreement, constitute the entire agreement among Parent, Merger Subsidiary and SSI with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among Parent, Merger Subsidiary and SSI with respect to the subject matter hereof.
7.5.Obligations of Successors; Assignment. This Agreement shall be binding upon, inure solely to the benefit of, and be enforceable by, the parties hereto and their respective successors, legal representatives and assigns. Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned by operation of law or otherwise or by any of the parties hereto without the prior written consent of the other parties; provided, that SSI may assign this Agreement and any of the rights, interests or obligations under this Agreement to any wholly-owned subsidiary of SSI, but no such assignment shall relieve SSI of its obligations hereunder if such assignee does not perform such obligations. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
7.6.Amendment; Waiver. Any provisions of this Agreement may be waived at any time by the party that is entitled to the benefits thereof. No such waiver, amendment or supplement will be effective unless in writing and signed by the party or parties sought to be bound thereby. Any waiver by any party of a breach of any provision of this Agreement will not operate as or be construed to be a waiver of any other breach of such provisions or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement or one or more sections hereof will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
7.7.Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision
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is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the terms of this Agreement remain as originally contemplated to the fullest extent possible.
7.8.Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly given or made (i) as of the date and time delivered or sent by facsimile if delivered personally or by facsimile and (ii) on the third business day after deposit in the U.S. Mail, if mailed by registered or certified mail (return receipt requested), in each case to the parties at the following addresses (or at such other address for a party as shall be specified by written notice):
If to Parent or Merger Subsidiary:
c/o Platinum Equity, LLC
2049 Century Park East, Suite 2700
Los Angeles, California 90067
Telephone: (310) 712-1850
Fax: (310) 712-1863
Attention: Eva M. Kalawski, Esq.
With a copy (which shall not constitute effective notice) to:
Bingham McCutchen LLP
600 Anton Boulevard, 18th Floor
Costa Mesa, California 92626
Telephone: (714) 830-0600
Fax: (714) 830-0700
Attention: James W. Loss, Esq.
If to SSI:
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Telephone: (610) 975-4984
Fax: (610) 254-4301
Attention: Christopher J. Davis,
Executive Vice President and
Chief Administrative and Financial Officer
With a copy (which shall not constitute effective notice) to:
Morgan, Lewis & Bockius LLP
1701 Market St.
Philadelphia, PA 19103
Telephone: (215) 963-5694
Fax: (215) 963-5001
Attention: N. Jeffrey Klauder, Esq.
or to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with thisSection 7.8. A notice not given as provided above shall, if it is in writing, be deemed given if and when actually received by the party to whom it is given. Any party may unilaterally change any one or more of the addresses to which a notice to the party or its representative is to be delivered or mailed, by written notice to the other party hereto given in the manner stated above.
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7.9.Governing Law. This Agreement will be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts made and performed in that state. Each party hereto hereby (i) irrevocably and unconditionally submits in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the state and federal courts in the Commonwealth of Pennsylvania, and appellate courts from any thereof and (ii) consents that any action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same.
7.10.Cumulative Remedies. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity will be cumulative and not alternative, and the exercise of any thereof by either party will not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.
7.11.Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
7.12.Survival. The representations, warranties and covenants under this Agreement shall survive until the expiration of the twelve (12)-month period following the earlier of termination of this Agreement or the Effective Time and no action or claim for damages resulting from any misrepresentation or breach of warranty or covenant shall be brought or made after such period, except that such time limitation shall not apply to any claims for misrepresentations and breach of warranties or covenants which have been asserted and which are the subject of a written notice from the Parent to SSI prior to the expiration of such survival period, which notice specifies in reasonable detail the nature of the claim.
7.13.Merger Agreement. Each of Parent and Merger Subsidiary agrees not to amend, restate, modify, consent to or waive any provision of the Merger Agreement in any material respect without the prior written consent of SSI.
7.14.Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. The signatures of the parties to this Agreement may be delivered by facsimile and any such facsimile signature shall be deemed an original.
7.15.Waiver of Appraisal Rights. SSI hereby waives any appraisal rights it has under the Delaware General Corporation Law with respect to the Company Stock relating to the Merger.
[The remainder of this page has been intentionally left blank. Signature page follows]
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[Signature Page to Principal Stockholder Agreement]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers or representatives as of the day and year first written above.
SAFEGUARD SCIENTIFICS, INC. | ||
By: | /s/ CHRISTOPHER J. DAVIS | |
Christopher J. Davis, Executive Vice President and Chief Administrative and Financial Officer | ||
CHR HOLDING CORPORATION | ||
By: | /s/ JACOB KOTZUBEI | |
Jacob Kotzubei Vice President | ||
CHR MERGER CORPORATION | ||
By: | /s/ JACOB KOTZUBEI | |
Jacob Kotzubei Vice President |
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The undersigned, Platinum Equity, LLC, hereby agrees to be responsible for the performance by Parent and Merger Subsidiary of, and to cause Parent and Merger Subsidiary to perform, all of their obligations under this Agreement that are to be performed by Parent or Merger Subsidiary on or prior to the Effective Time. The obligations of the undersigned pursuant to this undertaking shall terminate and be of no further force or effect immediately upon the Effective Time; provided that all obligations of Parent and Merger Subsidiary required to be performed on or prior to the Effective Time have been performed. This obligation is irrevocable, absolute and continuing until terminated in accordance with its terms, and may not be assigned, whether by operation of law or otherwise, without the prior written consent of the Company. Without impairing the rights of Parent and Merger Subsidiary under this Agreement, the undersigned’s responsibility shall not be discharged, released, diminished, or impaired in whole or in part by (a) any setoff, counterclaim, defense, act or occurrence which the undersigned may have against SSI as a result or arising out of this or any other transaction, (b) the renewal, extension, modification, waiver or alteration of this Agreement, with or without the knowledge or consent of the undersigned, or (c) the inaccuracy of any of the representations and warranties of SSI under the Agreement. The undersigned waives notice of (1) acceptance of this obligation; (2) the creation, renewal, extension, modification, waiver or alteration of this Agreement; (3) any breach of or default in the performance of Parent or Merger Subsidiary of their obligations under this Agreement; and (4) all other matters the notice of which the undersigned might otherwise be entitled to receive. SSI may enforce the undersigned’s obligation without first (A) suing Parent or Merger Subsidiary, (B) joining Parent or Merger Subsidiary in any suit against the undersigned, (C) enforcing any rights and remedies against Parent or Merger Subsidiary or (D) otherwise pursuing or asserting any claims or rights against Parent or Merger Subsidiary or any of their respective property.
PLATINUM EQUITY, LLC | ||
By: | /s/ JACOB KOTZUBEI | |
Jacob Kotzubei Senior Vice President |
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Filings, Notices, Permit, Authorization, Consents and Approvals
Schedule 3.2
(a) | Requirements under the HSR Act |
(b) | Requirements under the Exchange Act |
(c) | Approval of the shareholders of SSI under the PA Business Corporation Act |
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[BROADVIEW INTERNATIONAL LETTERHEAD]
May 27, 2004
Board of Directors
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, TX 75230
Dear Members of the Board:
We understand that CompuCom Systems, Inc. (“CompuCom” or the “Company”), CHR Holding Corporation (the “Parent”) and CHR Merger Corporation, a wholly-owned subsidiary of the Parent (the “Merger Sub”), propose to enter into an Agreement and Plan of Merger (the “Agreement”) pursuant to which the Merger Sub will be merged with and into the Company (the “Merger”). The Parent and the Merger Sub are affiliates of Platinum Equity, LLC (“Platinum”). Pursuant to the Agreement, each outstanding share of Company Common Stock (other than shares owned by the Parent or the Merger Sub) will be converted into the right to receive $4.60 in cash (the “Per Share Merger Consideration”). The terms and conditions of the above-described Merger are more fully detailed in the Agreement.
You have requested our opinion as to whether the Per Share Merger Consideration is fair, from a financial point of view, to holders of Company Common Stock excluding Safeguard Scientifics, Inc. or its affiliates (“SSI”).
Broadview International (“Broadview”), a division of Jefferies & Company, Inc. (“Jefferies”), focuses on providing merger and acquisition advisory services to information technology (“IT”), communications, healthcare technology and media companies. In this capacity, we are continually engaged in valuing such businesses, and we maintain an extensive database of IT, communications, healthcare technology and media mergers and acquisitions for comparative purposes. We are currently acting as a financial advisor to CompuCom’s Board of Directors and will receive a fee from CompuCom upon the delivery of this opinion and the successful conclusion of the Merger. It is also currently contemplated that Jefferies will arrange for debt financing to fund a portion of the consideration payable in the Merger on behalf of affiliates of the Parent. In the ordinary course of its businesses, Jefferies and its affiliates may publish research reports regarding the securities of the Company and its affiliates, may trade or hold such securities for its own accounts and for the accounts of their customers and, accordingly, may at any time hold long or short positions in those securities.
In rendering our opinion, we have, among other things:
1) | reviewed the terms of the Agreement in the form of the draft dated May 25, 2004 and (the “Agreement”) furnished to us by CompuCom’s counsel on May 25, 2004 (which, for the purposes of this opinion, we have assumed, with your permission, to be identical in all material respects to the agreement to be executed); |
2) | reviewed CompuCom’s annual report on Form 10-K for the fiscal year ended December 31, 2003, including the audited financial statements included therein, and CompuCom’s quarterly report on Form 10-Q for the period ended March 31, 2004, including the unaudited financial statements included therein; |
3) | reviewed certain internal financial projections for the Company, including quarterly projections through December 31, 2004 prepared and provided to us by Company management; |
4) | participated in discussions with CompuCom management and SSI management concerning the operations, business strategy, financial performance and prospects for CompuCom; |
5) | discussed with CompuCom management its view of the strategic rationale for the Merger; |
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6) | reviewed the reported closing prices and trading activity for Company Common stock from May 27, 2003 to May 27, 2004; |
7) | compared certain aspects of the financial performance of CompuCom with public companies we deemed comparable; |
8) | analyzed available information, both public and private, concerning other mergers and acquisitions we believe to be comparable in whole or in part to the Merger; |
9) | reviewed recent equity analyst reports covering the Company, including quarterly projections through December 31, 2004 and annual projections through December 31, 2005, contained therein; |
10) | participated in negotiations and discussions related to the Merger among CompuCom, Platinum and their respective advisors; and |
11) | conducted other financial studies, analyses and investigations as we deemed appropriate for purposes of this opinion. |
In rendering our opinion, we have relied, without independent verification, on the accuracy and completeness of all the financial and other information (including without limitation the representations and warranties contained in the Agreement) that was publicly available or furnished to us by CompuCom. With respect to the financial projections examined by us that were provided to us by Company management, we have assumed, with your permission, that they were reasonably prepared and reflected the best available estimates of the Company’s management as to the future performance of CompuCom. We have neither made nor obtained an independent appraisal or valuation of any of CompuCom’s assets.
We understand that SSI beneficially owns approximately 24,540,881 shares of Company Common Stock and all of the outstanding shares of Preferred Stock of the Company and that, in the Merger, (i) each of the shares of Company Common Stock beneficially owned by SSI will be converted into the right to receive the Per Share Merger Consideration and (ii) the shares of Company Preferred Stock will be converted into the right to receive an aggregate of $15,000,000, in cash. Our opinion does not address the consideration payable in respect of the Company Preferred Stock or the consideration payable in respect of the Company Common Stock beneficially owned by SSI.
Based upon and subject to the foregoing and the limitations and assumption below, we are of the opinion that the Per Share Merger Consideration is fair, from a financial point of view, to holders of Company Common Stock, excluding SSI.
We understand that the Parent intends to finance the consideration and expenses necessary to consummate the Merger through the Financing (as defined in the Agreement), the cash of the Company that is anticipated to be available as of the closing of the Merger, and funds that will be made available to the Parent and the Merger Sub by Platinum (or other entities). In this regard, we have assumed, with your permission, that the Merger Sub will have sufficient funds to consummate the Merger and express no opinion as to the likelihood of the Parent or Merger Sub obtaining any such funds.
For purposes of this opinion, we have assumed that CompuCom is not currently involved in any material transactions other than the Merger (including any additional transactions contemplated by the Agreement) and those activities undertaken in the ordinary course of conducting its business. We also express no opinion as to the price at which Company Common Stock will trade at any time. Our opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this letter and any change in such conditions may impact this opinion.
This opinion speaks only as of the date hereof. It is understood that this opinion is for the information of the Board of Directors of CompuCom in connection with its consideration of the Merger and does not constitute a
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recommendation to any holder of Company Common Stock as to how such stockholder should vote on the Merger. This opinion may not be published or referred to, in whole or part, without our prior written permission, which shall not be unreasonably withheld. Broadview hereby consents to references to and the inclusion of this opinion in its entirety in the Proxy Statement to be distributed to Company stockholders in connection with the Merger.
Sincerely,
Broadview International
A Division of Jefferies & Company, Inc.
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[HOULIHAN LOKEY LETTERHEAD]
May 27, 2004
Special Committee of the Board of Directors
CompuCom Systems, Inc.
Attention: Mr. Edwin L. Harper, Chairman
7171 Forest Lane
Dallas, TX 75230
Dear Members of the Special Committee:
We understand that CompuCom Systems, Inc., (“CompuCom” or the “Company”) is contemplating a transaction with Platinum Equity, LLC (“Platinum”) whereby Platinum, through its affiliates, CHR Holding Corporation and CHR Merger Corporation, would acquire by the merger of CHR Merger Corporation with and into the Company all of the Company’s common stock for cash consideration of approximately $230.9 million and all of the Company’s preferred stock for cash consideration of $15 million. We further understand that approximately 49 percent of the Company’s outstanding common shares and all of its preferred shares are held by Safeguard Scientifics, Inc. (the “Majority Stockholder”). We also understand that the shares of the Company’s common stock not held by the Majority Stockholder are held by numerous other stockholders (collectively, the “Public Stockholders”), and that the Public Stockholders will receive in the Transaction (as defined below) $4.60 in cash, without interest, for each share of the Company’s common stock held by them. Such transaction is referred to herein as the “Transaction.” It is our understanding that the Company has formed a special committee (the “Committee”) to consider certain matters relating to the Transaction.
The Committee has requested that Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (“Houlihan Lokey”) render an opinion (the “Opinion”) as to the fairness, from a financial point of view, to the Public Stockholders of the consideration to be received by them in the Transaction. The Opinion does not address the Company’s underlying business decision to effect the Transaction. The Opinion also does not address the fairness of the Transaction to the Majority Stockholder. The Opinion is not a recommendation to any stockholder as to how to vote on the Transaction. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company. Furthermore, at your request, we have not negotiated the Transaction or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have:
1. | spoken with certain members of the senior management of the Company about the Transaction and operations, financial condition, future prospects and projected operations and performance of the Company, and spoken with representatives of the Company’s investment bankers about certain matters; |
2. | reviewed the Company’s annual reports to stockholders and on Form 10-K for the four fiscal years ended December 31, 2003 and the quarterly report on Form 10-Q for the quarter ended March 31, 2004, which the Company’s management has identified as being the most current financial statements available; |
3. | reviewed forecasts and projections prepared by the Company’s management with respect to the Company for the year ended December 31, 2004, which the Company has identified as being the most current forecasts and projections available; |
4. | reviewed certain financial and other information provided by the Company and Broadview International LLC (“Broadview”) regarding the Company; |
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5. | reviewed copies of the following agreements: |
— | May 27, 2004 draft of the Agreement and Plan of Merger; and |
— | May 24, 2004 draft of the Principal Stockholder Agreement; |
6. | reviewed copies of the following documents: |
— | Certificate of Designation Establishing Series B Cumulative Convertible Preferred Stock of CompuCom Systems, Inc. dated March 1994; |
— | Presentation to CompuCom by Broadview, dated August 1, 2002; and |
— | May 13, 2004 Commitment Letter for $175,000,000 Senior Secured Credit Facility; |
7. | reviewed the historical market prices and trading volume for the Company’s publicly traded securities for the past two years ended May 27, 2004; |
8. | reviewed certain other publicly available financial data for certain companies that we deem comparable to the Company, and publicly available prices and premiums paid in other transactions that we considered similar to the Transaction; and |
9. | conducted such other studies, analyses and inquiries as we have deemed appropriate. |
As you are aware the Agreement and Plan of Merger and the related Transaction documents have not been finalized. Accordingly, this Opinion is subject to the following assumptions and is qualified to the extent thereof:
• | the final Agreement and Plan of Merger and the related Transaction documents will be executed in form and substance substantially similar to the most recent drafts of such agreement and documents reviewed by Houlihan Lokey; |
• | there will not be any reverse split of the shares of the Company’s common stock after the date hereof; |
• | the Public Stockholders will receive $4.60 in cash consideration at the close of the Transaction for each share of the Company’s common stock held by them; and |
• | the holder of all of the Company’s outstanding shares of preferred stock will receive $15 million in aggregate consideration for these shares at the close of the Transaction. |
We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company, and that there has been no material change in the assets, financial condition, business or prospects of the Company since the date of the most recent financial statements made available to us. We have also relied upon and assumed, without independent verification, that the data, material and other information with respect to the Company, its subsidiaries or any of their respective business operations furnished to Houlihan Lokey by or on behalf of the Company and each of its agents, counsel, employees and representatives (the “Information”) is true, correct and complete in all material respects. Furthermore, we have relied upon and assumed, without independent verification, that the representations and warranties of the Company made to Houlihan Lokey in our engagement letter are true, correct and complete in all material respects.
We have not independently verified the accuracy and completeness of the Information and do not assume any responsibility with respect to the accuracy or completeness of it. We have not made any physical inspection or independent appraisal of any of the properties, assets or liabilities (contingent or otherwise) of the Company. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter. Subsequent events that could affect the conclusions set forth in this letter include changes in industry performance or market conditions and changes to the business, financial condition and results of operations of the Company. We are under no obligation to update, revise or reaffirm our Opinion.
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Based upon the foregoing, and in reliance thereon, it is our opinion as of the date of this letter, that, assuming the Transaction is consummated as proposed, the consideration to be received by the Public Stockholders in the Transaction is fair to them from a financial point of view.
This Opinion is furnished for your benefit and may not be used for any other purpose, reproduced, disseminated, quoted from or referred to at any time without our express, prior written consent. This Opinion is delivered to you subject to the conditions, scope of engagement, limitations and understandings set forth in this Opinion and our engagement letter, and subject to the understanding that the obligations of Houlihan Lokey in the Transaction are solely corporate obligations, and no officer, director, employee, agent shareholder or controlling person of Houlihan Lokey shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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SUPPORT AGREEMENT
This SUPPORT AGREEMENT (this “Agreement”), dated as of May 27, 2004, is by and between CHR Merger Corporation, a Delaware corporation (“Parent”), and the undersigned holder (“Holder”) of shares of common stock of CompuCom Systems, Inc., a Delaware corporation (the “Company”).
A. Parent, the Company, and other parties have entered into an Agreement and Plan of Merger, dated as of the date hereof (the “Merger Agreement”), pursuant to which Parent will merge with and into the Company (the “Merger”), with the Company surviving the Merger, on the terms and subject to the conditions set forth in the Merger Agreement.
B. As of the date hereof, Holder is the beneficial owner of, and is entitled to vote (or to direct the voting of), the number of shares of Common Stock, par value $0.01 per share, of the Company (the “Common Stock”) set forth beneath Holder’s name on the signature page hereto (such shares of Common Stock, together with any other shares of Common Stock the voting power over which is acquired by Holder during the period from and including the date hereof through and including the date on which this Agreement is terminated in accordance with its terms, being collectively referred to herein as the “Subject Shares”).
C. As a condition to the willingness of Parent to enter into the Merger Agreement, and as an inducement and in consideration therefor, Parent has required that Holder agree, and Holder has agreed, to enter into this Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as follows:
1.Voting Agreement. Holder, solely in Holder’s capacity as a stockholder of the Company, hereby agrees that, during the period commencing on the date hereof and continuing until the termination of this Agreement (such period being the “Voting Period”), at any meeting (or any adjournment or postponement thereof) of the holders of the Common Stock, however called, or in connection with any written consent of the holders of the Common Stock, Holder shall vote (or cause to be voted) the Subject Shares in favor of the approval and adoption of the terms of the Merger Agreement and each of the other transactions contemplated by the Merger Agreement (and any actions required in furtherance thereof) at every opportunity to so vote (or cause to be voted). Holder agrees not to enter into any agreement, letter of intent, agreement in principle, or understanding with any person that violates or conflicts with, or could reasonably be expected to violate or conflict with, the provisions and agreements contained in this Agreement or the Merger Agreement. This Agreement is intended to constitute a voting agreement entered into under Section 218(a) of the Delaware General Corporation Law for the duration of the Voting Period. Nothing in this Agreement shall limit or affect the ability of a Holder in his or her capacity as a director or officer of the Company to take any action as may be advisable or necessary in the discharge of his or her fiduciary duties as such director or officer.
2.Representations and Warranties of Holder. Holder hereby represents and warrants to Parent that Holder has the capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby.
3.Publication. Holder hereby permits Parent to publish and disclose in the Proxy Statement (as such term is defined in the Merger Agreement), including all documents and schedules filed with the SEC, Holder’s identity and ownership of shares of Common Stock and the nature of Holder’s commitments, arrangements, and understandings pursuant to this Agreement.
4.Further Assurances. Each party hereto shall, upon request of any other party, execute and deliver all such further documents and instruments and take all such further action as may be deemed by such requesting party to be necessary or desirable to carry out the provisions hereof.
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5.Governing Law. This Agreement shall be construed in accordance with, and the rights of the parties shall be governed by, the substantive laws of the State of Delaware, without giving effect to any choice-of-law rules that may require the application of the laws of another jurisdiction.
6.Termination. This Agreement shall terminate, and neither Parent nor Holder shall have any rights or obligations hereunder, and this Agreement shall become null and void and have no effect, upon the earliest to occur of (i) the mutual consent of Parent and Holder, (ii) the Effective Time (as such term is defined in the Merger Agreement), or (iii) the termination of the Merger Agreement pursuant to its terms; provided, further, that termination of this Agreement shall not prevent any party hereto from seeking any remedies (at law or in equity) against any other party hereto for such party’s breach of any of the terms of this Agreement.
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[ Signature page to Support Agreement ]
IN WITNESS WHEREOF, this Agreement is executed as of the date first stated above.
PARENT: |
CHR MERGER CORPORATION |
By: Name: Title: |
HOLDER:
|
Name: |
Number of Shares of Common Stock owned:
|
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SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word “stockholder” means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words “stock” and “share” mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words “depository receipt” mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 257, § 258, § 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of § 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228 or § 253 of this title, then, either a constituent corporation before the effective date of the merger or consolidation, or the surviving or resulting corporation within 10 days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is
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given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder’s written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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The Board of Directors recommends a vote FOR Proposal 1. | Please Mark Here for Address Change or Comments | ¨ | |||
SEE REVERSE SIDE |
1. PROPOSAL
FOR | AGAINST | ABSTAIN | ||||
¨ | ¨ | ¨ | Proposal to adopt the Agreement and Plan of Merger, dated as of May 27, 2004, by and among CompuCom Systems, Inc., CHR Holding Corporation and CHR Merger Corporation and approve the merger of CHR Merger Corporation with and into CompuCom Systems, Inc. as provided therein, as such merger agreement may be amended from time to time. |
Signature Signature Date , 2004
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD. If shares are jointly owned, you must both sign. Include title if you are signing as an attorney, executor, administrator, trustee or guardian, or on behalf of a corporation or partnership.
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FOLD AND DETACH HERE
Whether or not you plan to attend the meeting in person, please complete,
date and sign the above proxy card and return it without delay in the
enclosed envelope.
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PROXY
COMPUCOM SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back of this card. Please return this card promptly in the enclosed envelope.
When you sign and return this proxy card, you
• | appoint J. Edward Coleman and M. Lazane Smith, and each of them (or any substitutes they may appoint), as proxies to vote your shares, as you have instructed, at the special meeting of stockholders to be held on August 19, 2004, and at any and all postponements, continuations and adjournments of that meeting, |
• | authorize the proxies to vote, in their discretion, upon any other business properly presented at the meeting, and |
• | revoke any previous proxies you may have signed. |
If you do not indicate how you wish to vote, this proxy will be voted for the proposal to adopt the agreement and plan of merger and approve the merger as provided therein, and as the proxies may determine, in their discretion, with regard to any other matter properly presented at the meeting. If specific instructions are indicated, this proxy will be voted in accordance therewith.
Address Change/Comments (Mark the corresponding box on the reverse side) |
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FOLD AND DETACH HERE