SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AmeriQuest Technologies, 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):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[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:
$125.00
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(2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement
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(3) Filing Party:
AmeriQuest Technologies, Inc.
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(4) Date Filed:
January 13, 1995
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Notes:
AMERIQUEST TECHNOLOGIES, INC.
3 IMPERIAL PROMENADE, STE. 300
SANTA ANA, CALIFORNIA 92707
(714) 437-0099
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 1995
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
AmeriQuest Technologies, Inc. ("AmeriQuest"), to be held at the offices of
AmeriQuest, 3 Imperial Promenade, Ste. 300, Santa Ana, California 92707, on
June __, 1995, at 10:00 a.m., local time.
Shareholders will be asked to consider and vote on (i) an increase in the
number of shares of Common Stock authorized for issuance by AmeriQuest from
30,000,000 shares to 65,000,000 shares and (ii) the possible issuance of shares
of AmeriQuest Common Stock and certain option rights to purchase additional
shares (the "Transaction") pursuant to an Investment Agreement between
AmeriQuest and Computer 2000 AG, a company organized under the laws of the
Federal Republic of Germany ("Computer 2000"), the third largest distributor
worldwide of computer products ($2.6 billion in sales in fiscal 1994). The
Investment Agreement provides for, among other things, an investment of up to
$50 million by Computer 2000 in consideration for shares of AmeriQuest Common
Stock which when added to the shares already held by Computer 2000 could result
in Computer 2000 owning up to 51% of the issued and outstanding capital stock of
AmeriQuest. This is effectively a world-wide alliance between AmeriQuest (U.S.
based) and Computer 2000 (world-wide except in the U.S.), which hopefully should
allow AmeriQuest to participate in the world-wide competition for market share
in its industry. If Computer 2000 elects to acquire 51% of AmeriQuest's capital
stock, it will be in a position to elect a majority of AmeriQuest's Board of
Directors. Details of the proposed transaction are fully described in the
accompanying Notice of Meeting, Proxy Statement, and the documents attached
thereto. You are requested to give your prompt and careful consideration to the
materials so provided in order that you may make an informed decision concerning
this matter.
In recommending the transaction with Computer 2000 to you, your Board of
Directors has considered the history of the industry, including the decreasing
profit margins and the resultant direction towards oligopoly in the industry,
the potential synergies that could exist between AmeriQuest and Computer 2000,
including, but not limited to (i) the possibility of a broader representation of
significant vendors, which could give rise to a high incremental volume of
business without an associated increment in costs of distribution (ii) the
possibility of improved margins through combined purchase discounts and soft-
dollar services, (iii) potential access to Computer 2000's transnational
customer base for AmeriQuest's value-added storage devices, (iv) potential
access to money markets worldwide, and (v) the potential of providing AmeriQuest
with up to $50 million in financing. Your Board of Directors believes that the
Transaction and the increase in the authorized number of shares of Common Stock
are in the best interests of AmeriQuest and its shareholders and strongly
recommends a vote FOR the proposals. An affirmative vote of the majority of the
outstanding shares of AmeriQuest is required for approval of the proposals.
The Board of Directors has fixed the close of business on May 15, 1995 as
the record date for determination of shareholders entitled to notice of and to
vote at the Meeting.
IN VIEW OF THE IMPORTANCE OF MATTERS TO BE ACTED UPON AT THE MEETING, YOU ARE
INVITED TO PERSONALLY ATTEND THE MEETING, BUT IF YOU DO NOT EXPECT TO BE PRESENT
IN PERSON, PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, WHETHER OR
NOT YOU INTEND TO BE PRESENT AT THE MEETING.
Sincerely yours,
Harold L. Clark,
Chief Executive Officer
Santa Ana, California
May __, 1995
AMERIQUEST TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 1995
TO THE SHAREHOLDERS OF AMERIQUEST TECHNOLOGIES, INC.:
Notice is hereby given that the Special Meeting of Shareholders of
AmeriQuest Technologies, Inc. will be held at the offices of AmeriQuest, 3
Imperial Promenade, Ste. 300, Santa Ana, California 92707, on June __, 1995, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to amend the Certificate of
Incorporation of AmeriQuest Technologies, Inc. ("AmeriQuest") to
increase the number of shares of Common Stock that is authorized for
issuance by AmeriQuest from 30,000,000 shares of Common Stock to
65,000,000 shares of Common Stock.
2. To consider and vote upon the approval of the issuance by AmeriQuest
of shares of AmeriQuest Common Stock and the granting of certain
option rights to Computer 2000 AG ("Computer 2000") pursuant to an
Investment Agreement dated as of November 14, 1994 by and between
AmeriQuest and Computer 2000, as it may be amended from time-to-time
(the "Investment Agreement") and the performance by AmeriQuest of all
transactions and acts contemplated by the Investment Agreement
(collectively, the "Transaction"). Pursuant to the Investment
Agreement, Computer 2000 has loaned $18 million to AmeriQuest and, if
the Transaction is approved by the AmeriQuest shareholders, may invest
an additional $32 million in addition to canceling AmeriQuest's
obligations under the $18 million loan in consideration for shares of
AmeriQuest Common Stock, which shares when added to the shares already
held by Computer 2000, could result in Computer 2000 owning up to 51%
of the issued and outstanding capital stock of AmeriQuest. A copy of
the Investment Agreement, as amended, is attached as Appendix I to the
accompanying Proxy Statement.
3. To transact such other business as may properly come before the
Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on May 15, 1995,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting.
By ORDER OF THE BOARD OF DIRECTORS
May __, 1995
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING OR IF YOU DO NOT PLAN TO
ATTEND BUT WISH TO VOTE BY PROXY, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
INTRODUCTION................................................................ 1
PURPOSES OF THE MEETING..................................................... 1
VOTING AND PRINCIPAL SHAREHOLDERS........................................... 1
COSTS OF SOLICITATION OF PROXIES............................................ 4
CAPITALIZATION.............................................................. 4
PROPOSAL 1 - TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.............................. 5
PROPOSAL 2 - APPROVAL OF THE INVESTMENT AGREEMENT........................... 5
BACKGROUND TO AND REASONS FOR THE TRANSACTION
Background............................................................. 5
Reasons for the Transaction............................................ 8
Opinion of AmeriQuest's Financial Advisor.............................. 9
IMPACT OF THE TRANSACTION ON AMERIQUEST AND EXISTING SHAREHOLDERS......... 11
Voting and Other Rights of Shareholders................................ 11
Certain Tax Consequences............................................... 11
Shareholder's Derivative Action........................................ 12
THE INVESTMENT AGREEMENT.................................................. 12
Background for the $18 Million Loan.................................... 12
Computer 2000's Proposed Investment.................................... 13
$18 Million Secured Loan Exchangeable for Common Stock............ 13
$32 Million Additional Equity Infusion............................ 14
Stock Option A.................................................... 14
Stock Option B.................................................... 14
Other Negotiations................................................ 14
Board Representation.............................................. 15
Registration Rights............................................... 15
Certain Legal Matters.................................................. 16
Antitrust......................................................... 16
Stock Exchange Listing............................................ 16
Appraisal Rights.................................................. 16
SHAREHOLDER PROPOSALS....................................................... 16
OTHER MATTERS............................................................... 16
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................... 16
AVAILABLE INFORMATION....................................................... 17
APPENDIXES
Appendix I - Investment Agreement dated November 14, 1994 between
AmeriQuest and Computer 2000, as amended as of
March 30, 1995.......................................... I-1
Appendix II - Opinion of L.H. Friend, Weinress & Frankson, Inc. dated
December 14, 1994.......................................II-1
Appendix III - Proposed Amendment to the Certificate of Incorporation
of AmeriQuest..........................................III-1
i
PROXY STATEMENT
MAY __, 1995.
AMERIQUEST TECHNOLOGIES, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 1995
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of AmeriQuest Technologies, Inc., a Delaware corporation
("AmeriQuest"), of proxies to be voted at the Special Meeting of Shareholders of
AmeriQuest to be held on June __, 1995, and at any postponement or adjournments
thereof.
THIS PROXY STATEMENT AND THE ACCOMPANYING NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS AND PROXY WERE FIRST MAILED TO SHAREHOLDERS ON MAY __, 1995.
PURPOSES OF THE MEETING
The shareholders of AmeriQuest will be asked to vote on and approve (i) an
increase in the number of authorized shares of AmeriQuest Common Stock and (ii)
the issuance of shares of AmeriQuest Common Stock and certain option rights to
Computer 2000 AG, a company organized under the laws of the Federal Republic of
Germany ("Computer 2000") upon the terms and conditions set forth in the
Investment Agreement dated as of November 14, 1995 between AmeriQuest and
Computer 2000 (the "Investment Agreement").
VOTING AND PRINCIPAL SHAREHOLDERS
Unless a shareholder specifies otherwise, a Proxy in the accompanying form
which is properly executed and duly returned by a shareholder of AmeriQuest will
be voted (i) in favor of amending the Certificate of Incorporation of AmeriQuest
to increase the number of shares of Common Stock that is authorized for issuance
by AmeriQuest from 30,000,000 shares of Common Stock to 65,000,000 shares of
Common Stock and (ii) for the approval of the issuance of shares of AmeriQuest
Common Stock and certain option rights pursuant to the Investment Agreement
(collectively, the "Transaction"), and (iii) on such other matters as may
properly come before the Meeting in the discretion of the persons named in the
Proxy. In each case where the shareholder has appropriately specified how the
Proxy is to be voted, it will be voted in accordance with the specifications so
made. Any shareholder has the power to revoke his Proxy at any time before it
is voted by giving written notice to the Secretary of AmeriQuest, by
substitution of a new Proxy bearing a later date, or by request for return of
the Proxy at the Meeting. A shareholder who votes in favor of the Proposals may
later be estopped from challenging the Transaction before the courts. The
address of AmeriQuest is 3 Imperial Promenade, Ste. 300, Santa Ana, California
92707.
On May 15, 1995, the record date for the determination of shareholders
entitled to notice of and to vote at the AmeriQuest Meeting, AmeriQuest had
outstanding 21,035,523 shares of Common Stock of $.01 par value, each share
being entitled to one vote. An affirmative vote of the holders of at least a
majority of the quorum present in person or by proxy at the meeting is necessary
to approve the increase in the number of authorized shares; and pursuant to the
rules of the New York Stock Exchange ("NYSE"), the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy and
entitled to vote at the Meeting is required to approve the Transaction, provided
that the total vote cast on the proposal represents
1
a majority of the issued and outstanding shares of Common Stock of AmeriQuest.
Abstentions and broker non-votes are counted for purposes of determining the
presence of a quorum for the transaction of business. Abstentions may be
specified on the proposal with respect to the Transaction and will be counted as
present for purposes of the item on which the abstention is noted, and therefore
counted in the tabulation of the votes cast on the proposal with the effect of a
negative vote. Under applicable Delaware law, broker non-votes are not counted
for purposes of determining the votes cast on a proposal.
The following table sets forth, as of May 15, 1995, information relating to
the beneficial ownership of AmeriQuest's Common Stock by (i) each person known
to AmeriQuest to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock of AmeriQuest, (ii) each director, (iii) each
of the named executive officers for which executive compensation information is
provided in AmeriQuest's Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1994, and (iv) all directors and executive officers as a group.
AmeriQuest knows of no agreements among its shareholders which relate to voting
or investment power over its Common Stock.
Beneficial Ownership as of May 15, 1995
-----------------------------------------
Number of Shares Percent of Class(13)
---------------- --------------------
Name and Address of Beneficial Owner
- ------------------------------------
DIRECTORS AND OFFICERS(11)(12)
- ------------------------------
Marc L. Werner 1,423,473(1) 6.70%
Eric J. Werner 1,349,473(1) 6.34%
Terren S. Peizer 1,096,000(2) 5.11%
William N. Silvis 15,000(3) *
William T. Walker, Jr. 35,000(4) *
Harold L. Clark 262,500(5) 1.25%
Robert H. Beckett 900,656 4.30%
Gregory A. White 882,302(6) 4.19%
Stephen G. Holmes 81,667(7) *
Peter D. Lytle 10,000(8) *
All officers and directors as
a group (25 persons)(11) 5,188,514(9) 24.36%
- ------------------------------
* Denotes less than 1%
(1) The Board of Directors of Manufacturers Indemnity and Insurance Company of
America is vested with the voting and investment powers relating to the
shares of AmeriQuest's Common Stock held by Manufacturers Indemnity and
Insurance Company of America. Messrs. Marc L. Werner and Eric J. Werner are
also directors of Manufacturers Indemnity and Insurance Company of America,
and may accordingly be deemed to have shared voting and investment powers
over the 1,003,473 shares of AmeriQuest Common Stock held by Manufacturers
Indemnity and Insurance Company of America. In addition, Manufacturers
Indemnity and Insurance Company of America holds (i) a stock option that is
currently exercisable to acquire 150,000 shares of Common Stock at $4.50
per share through March 3, 1999, and (ii) a four-year warrant to purchase
190,000 shares of Common Stock at $3.50 per share from May 14, 1995 to
November 14, 1998. The exercise price of the warrant was adjusted downward
to $2.22 per share because of the right of such purchasers to purchase at
the same price as other investors between November 14, 1994 and May 14,
1995. The Transaction price to Computer 2000 is deemed by AmeriQuest to
constitute such a "sale." Such shares are reflected in the table under both
Marc L. Werner's and Mark J. Werner's names individually, but are not
duplicated in the caption relating to "All Officers and Directors as a
Group."
(2) Mr. Terren S. Peizer is the sole shareholder of the corporate general
partner of Wendover Financial Company L.P., and may be deemed to have sole
voting and investment powers over the 596,000 shares of
2
AmeriQuest Common Stock held by Wendover Financial Company L.P. In
addition, Wendover Financial Company L.P. holds a four-year warrant to
purchase 100,000 shares of Common Stock at $3.50 per share from May 14,
1995 to November 14, 1998. The exercise price of the warrant was adjusted
downward to $2.22 per share because of the right of such purchasers to
purchase at the same price as other investors between November 14, 1994 and
May 14, 1995. The Transaction price to Computer 2000 is deemed by
AmeriQuest to consitute such a "sale." Mr. Peizer personally holds a stock
option that is currently exercisable to acquire 400,000 shares of Common
Stock at $4.50 per share through March 3, 1999. All such shares are
included in the foregoing table.
(3) All of the shares reflected in the name of Mr. Silvis are issuable upon
exercise of currently exercisable options to purchase Common Stock at
$3.375 per share granted to Mr. Silvis on October 14, 1994.
(4) Of the shares reflected in the name of Mr. Walker, 20,000 shares are
issuable upon exercise of currently exercisable options to purchase Common
Stock at $1.50 per share granted to Walker Associates, of which Mr. Walker
is the President and Chairman. The shares subject to that option were
increased on December 3, 1993 from 10,000 shares to 20,000 shares, and were
afforded immediate vesting. The remaining 15,000 shares are issuable upon
exercise of currently exercisable options to purchase Common Stock at
$3.375 per share granted to Mr. Walker on October 14, 1994.
(5) Includes 200,000 shares issued to Mr. Clark on October 14, 1994 for which
Mr. Clark paid $2,000 in cash and tendered to AmeriQuest a one-year
Promissory Note in the amount of $498,000. The balance of the shares are
subject to currently exercisable stock options, exercisable at $1.75 per
share.
(6) Includes 82,500 shares of Common Stock subject to currently exercisable
stock options exercisable at $.05 per share through December 31, 1995.
(7) Includes 50,000 shares issued to Mr. Holmes on October 14, 1994 for which
Mr. Holmes paid $500 in cash and tendered to AmeriQuest a one-year
Promissory Note in the amount of $124,500. The balance of the shares are
subject to currently exercisable stock options, exercisable at $1.75 per
share.
(8) Includes 10,000 shares subject to currently exercisable stock options,
exercisable at $1.75 per share.
(9) Includes 958,767 shares subject to stock options and warrants currently
vested and issuable upon exercise of such options and warrants.
(10) The address for the executive officers and directors and proposed directors
is: 3 Imperial Promenade, Ste. 300, Santa Ana, California 92707.
(11) Each executive officer and director has sole voting and investment power
with respect to the shares listed, unless otherwise indicated.
(12) For purposes of determining the percentage of outstanding Common Stock held
by each person or group set forth in the table, the number of shares held
by a person or group is divided by the sum of the number of shares of
AmeriQuest's Common Stock outstanding on May 15, 1995 (21,035,523 shares)
plus the number of shares of Common Stock subject to outstanding stock
options and warrants exercisable currently or within 60 days of May 15,
1995 by such person or group, in accordance with Rule 13d-3(d)(1) under the
Securities Exchange Act of 1934, as amended. Percentages of less than 1%
are represented by an asterisk.
It is the intention of all officers and directors of AmeriQuest, expressed
orally but not in any legally binding document or otherwise, to vote or cause to
be voted the shares over which they have beneficial ownership, as set forth in
the above table, in favor of the Proposals.
3
COSTS OF SOLICITATION OF PROXIES
This solicitation of Proxies is made by the Board of Directors of
AmeriQuest, and AmeriQuest will bear the costs of this solicitation, including
the expense of preparing, assembling, printing and mailing this Proxy Statement
and the material used in this solicitation of Proxies. It is contemplated that
Proxies will be solicited principally through the mails, but directors, officers
and regular employees of AmeriQuest may solicit Proxies personally or by
telephone. Although there is no formal agreement to do so, AmeriQuest may
reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding these proxy materials to their
principals. AmeriQuest may also pay for and use the services of other companies
or individuals not regularly employed by AmeriQuest in connection with the
solicitation of Proxies if the Board of Directors of AmeriQuest determines that
it is advisable.
CAPITALIZATION
The following table sets forth the capitalization of AmeriQuest as of
December 30, 1994, and as adjusted to give effect to the exchange of the
Computer 2000 loan of $18 million into approximately 8.1 million shares of
AmeriQuest Common Stock.
Historical Pro Forma
----------- ------------------------
AmeriQuest Adjustments Combined
----------- ------------ ---------
Short-term debt $ 72.7 - $ 72.7
Subordinated notes payable 18.0 (18.0) -
------ ----------- ------
Total debt 90.7 (18.0) 72.7
Minority interest 2.8 - 2.8
Shareholders' Equity
Common Stock 0.2 0.1 0.3
Additional paid-in capital 52.8 17.9 70.7
Retained earnings (deficit) (20.7) - (20.7)
Receivables from affiliates (1.1) - (1.1)
------ ----------- ------
Total shareholders' equity 31.2 18.0 49.2
------ ----------- ------
Total capitalization $124.7 $ - $124.7
====== =========== ======
______________________________________
4
PROPOSAL 1
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
On November 11, 1994, the Board of Directors unanimously approved the
Investment Agreement and Transaction with Computer 2000, recognizing that it
would be necessary to amend AmeriQuest's Certificate of Incorporation to
increase the number of shares of Common Stock that AmeriQuest is authorized to
issue. That same date, the Board of Directors of AmeriQuest resolved that the
increase should be from 30,000,000 shares to 65,000,000 shares in order to have
a sufficient number of shares authorized to consummate the Transaction and so
that AmeriQuest might have the flexibility to effect additional acquisitions in
the future, perhaps commencing in late 1995. The proposed Amendment to the
Certificate of Incorporation is attached as Appendix III and incorporated herein
by this reference.
AMERIQUEST'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF AMERIQUEST VOTE THEIR SHARES IN FAVOR OF THE PROPOSAL TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK THAT AMERIQUEST IS AUTHORIZED TO
ISSUE FROM 30,000,000 TO 65,000,000.
Pursuant to the terms and provisions of the Investment Agreement Computer
2000 loaned $18 million to AmeriQuest in November and December 1994. It is a
condition to the exchange of its $18 million loan into equity (as well as a
condition, among others, to Computer 2000's contemplated investment of an
additional $32 million in Common Stock of AmeriQuest) that this proposal be
approved by the shareholders of AmeriQuest. Absent approval of this proposal,
this condition will not be satisfied and AmeriQuest may be obligated to repay
the $18 million loan together with a "break-up fee" of $1.8 million or default
under the terms of that loan which may result in, among other things, the loss
of AmeriQuest's holdings in AmeriQuest/Kenfil Inc., Robec, Inc. and
AmeriQuest/NCD, Inc., the shares of which have been pledged to Computer 2000 to
secure the $18 million loan, and may result in a default under AmeriQuest's
other principal indebtedness. Additionally, it would not be possible for
AmeriQuest to pursue other acquisition candidates, which is an announced policy
of the Board of Directors, nor would AmeriQuest be able to issue additional
shares of its Common Stock beyond the 30,000,000 shares currently authorized to
secure additional financing. Such events would likely reduce AmeriQuest's
operations to sales levels below those which existed in December 1993, in which
event AmeriQuest would likely be unable to achieve a profitable level of
operations.
PROPOSAL 2
APPROVAL OF THE TRANSACTION
BACKGROUND TO AND REASONS FOR THE TRANSACTION
BACKGROUND
The computer hardware and software distribution industry in which
AmeriQuest competes has been dominated by Merisel and Ingram Micro, and certain
other significant competitors, all with sales and resources greater than those
available to AmeriQuest. Additionally, this industry has reflected trends in
the computer industry generally in that AmeriQuest has had a history of
decreasing profit margins. These conditions portend that the distribution
industry, of which AmeriQuest is a part, is becoming an oligopoly where only the
largest and best financed companies will survive. AmeriQuest must achieve a
sales level that will allow it to attain a profitable level of operations and
secure access to capital resources sufficient to adequately fund its ability to
successfully compete in such a market place.
In response to these factors, the Board of Directors of AmeriQuest decided
on December 3, 1993 to embark on a program of growth-by-acquisition coupled with
internal sales growth. The Board estimated that
5
it would be necessary to reach at least $500 million in yearly sales just to
reach a break-even level of operations, and at least $800 million in yearly
sales to achieve a reasonable level of profit to materially benefit
shareholders. At the time that the Directors decided to embark on this
strategy, AmeriQuest's sales were averaging approximately $80 million per year,
and AmeriQuest was without cash resources to effect any acquisitions for cash
consideration.
From December 3, 1993 to September 26, 1994, in pursuing and responding to
rapidly occurring opportunities, AmeriQuest caused its wholly-owned subsidiary,
CDS Distribution, Inc., to merge with Romel Technology, Inc. d/b/a Management
Systems Group ("MSG") and Rhino Distribution Corporation. Further, it acquired
by exchange and merger with other subsidiaries the business and assets of Kenfil
Inc. ("Kenfil") [100%] and Robec, Inc. ("Robec") [50.1%]. The acquisition of
the balance of the outstanding shares of Robec, Inc. is pending a vote by
Robec's shareholders scheduled for mid-May 1995. Further, by September 1994,
AmeriQuest had contracted for the acquisition of Ross White Enterprises, Inc.
d/b/a National Computer Distributors ("NCD"). The total aggregate sales of all
such entities is running at approximately $750 million on an annualized basis,
of which NCD accounts for approximately $300 million. (For the year-ended June
30, 1994 the combined entity on a pro forma basis would have reflected $613.6
million in sales for which NCD would have accounted for $218.8 million.)
Mr. Harold L. Clark was first contacted by Mr. Stephen DeWindt, a Co-
President of Computer 2000, on or about June 7, 1994. Mr. DeWindt had earlier
been acquainted personally with Mr. Clark when Mr. Clark served as President of
Ingram Micro. Mr. DeWindt explained that Computer 2000 was looking to purchase
or invest in a U.S. company that would give it a presence in the U.S. market.
Mr. Clark took the opportunity to explain to Mr. DeWindt his view of the
industry and the goals of AmeriQuest, including the acquisition strategy adopted
by the Board of Directors. This meeting was followed with a meeting on June 16,
1994 where Mr. DeWindt was introduced to the other members of management and
certain members of the Board of Directors of AmeriQuest.
On July 21-23, 1994, a delegation from the Board of Directors of AmeriQuest
including Messrs. Clark, Marc L. Werner, Stephen G. Holmes and select legal
counsel with experience in dealing with German investors, visited with Computer
2000 in Germany to explain to Computer 2000 the opportunity represented by
AmeriQuest and to explore the synergies which might exist between the two
companies. It appeared that an investment from Computer 2000 would secure
AmeriQuest's position in the industry as a result of a world-wide alliance
between AmeriQuest and Computer 2000, and that the potential synergies could
include the following: (i) the possibility of a broader representation of
significant vendors, which could give rise to a high incremental volume of
business without an associated increment in costs of distribution, (ii) the
possibility of improved margins through combined purchase discounts and soft-
dollar services, (iii) potential access to Computer 2000's transnational
customer base for AmeriQuest's value-added storage devices, (iv) potential
access to money markets worldwide, and (v) the impact on AmeriQuest of receiving
an infusion of funds as a result of Computer 2000's investment in AmeriQuest.
They also discussed with Computer 2000 AmeriQuest's need for financing to meet
its obligations and to implement its planned growth by acquisition. In light of
these considerations, it was decided to move forward with discussions and
negotiations with Computer 2000 while continuing to implement the Board of
Directors' growth-by-acquisition business plan.
From August 9, 1994 to August 16, 1994, Holger Heims, Computer 2000's Head
of Investments, visited AmeriQuest's offices. The Computer 2000 representatives
discussed further with AmeriQuest the possibility of Computer 2000 investing in
AmeriQuest, and they began their due diligence investigation of AmeriQuest,
Kenfil, Robec and NCD. On August 31, 1994, Computer 2000 purchased from
AmeriQuest 532,000 shares of newly issued AmeriQuest Series C Preferred Stock
for $1,330,000 ($2.50 per share), which shares were later converted into shares
of Common Stock.
During September 1994, Mr. Heims continued to visit AmeriQuest's offices.
On September 2, 1994, Computer 2000's lawyers contacted legal counsel for
AmeriQuest to begin Computer 2000's legal due diligence investigation. From
September 12, 1994 to September 16, 1994, Klaus Laufen and Stephen DeWindt, two
of Computer 2000's Co-Presidents, joined Mr. Heims at AmeriQuest's offices in
due diligence discussions with
6
representatives of AmeriQuest. On September 14, 1994, Messrs. Clark, Werner and
Holmes of AmeriQuest, and AmeriQuest's legal counsel, met with Messrs. Heims,
DeWindt and Laufen of Computer 2000, together with Computer 2000's legal
counsel, and discussed in broad terms Computer 2000's possible investment. On
September 23, 1994, Mr. Heims of Computer 2000 sent Mr. Clark of AmeriQuest a
proposed letter of intent outlining terms on which Computer 2000 might be
prepared to invest up to $45 million in AmeriQuest, 75% initially and with the
right to invest the balance over a period of up to two years, in return for 51%
of AmeriQuest's voting stock. The proposal was subject to further due diligence
and was conditioned upon the parties negotiating and closing a definitive
agreement. Computer 2000's proposal was not accepted by AmeriQuest, because,
among other things, the proposed pricing and the length of time over which
monies would be infused did not accommodate AmeriQuest's projected financial
needs, but discussions as to a possible investment by Computer 2000 continued.
On September 26, 1994, AmeriQuest executed a definitive Agreement and Plan
of Reorganization for the acquisition of NCD which required that the transaction
be closed on or before October 14, 1994. This accelerated closing date was
prompted by the need of NCD to secure an infusion of approximately $1.5 million
to comply with the provisions of its credit facility by October 30, 1994.
AmeriQuest then arranged on September 30, 1994 for a private placement of $11
million to fund its obligation to acquire NCD and certain other operational
requirements.
On October 3, 1994, the AmeriQuest Board of Directors resolved to reduce
the size of the private placement to approximately $3.9 million. In the
placement, AmeriQuest agreed to issue approximately 1,640,000 shares of Common
Stock at $2.40 per share and to issue warrants to purchase a like number of
shares of Common Stock at $3.50 per share. Jochen Tschunke, the Chairman of the
Board of Computer 2000, agreed to invest in the placement separately from and
not as a representative of Computer 2000. (He made the investment on October
17, 1994 at the closing of the placement, as indicated below.) AmeriQuest's
Board of Directors reduced the aggregate amount of the placement from $11
million to $3.9 million because it believed that by reducing the number of
shares to be issued in the placement, AmeriQuest would increase Computer 2000's
interest in investing a much larger sum in AmeriQuest, and because the Board
determined that AmeriQuest would need an infusion of substantially more than $11
million in order to meet its financial needs. The Board also believed that this
action was in the best interests of the shareholders of AmeriQuest because it
would have reduced the number of shares that AmeriQuest needed to issue in order
to acquire NCD if Computer 2000 could be persuaded to pay more than the private
placement investors were paying. The Board also believed there was a
possibility that a loan from Computer 2000 would be effected in sufficient time
to allow for the NCD closing. However, as time elapsed, it became clear that
the Computer 2000 investment could not be negotiated and closed before the
October 14, 1994 deadline for the NCD acquisition. This then placed the NCD
closing in jeopardy. The Board of Directors believed that the acquisition of
NCD was critical to AmeriQuest's business strategy. AmeriQuest ultimately
negotiated an extension of the NCD closing from October 14, 1994 to November 10,
1994 (later extended to November 14, 1994) in return for AmeriQuest's payment of
$2 million, which would be lost to AmeriQuest should it fail to close the NCD
transaction by that date. AmeriQuest procured such $2 million from the proceeds
of the private placement referred to above, which closed on October 17, 1994;
then at that time the private placement was changed from an equity placement to
a short-term (30 days) convertible debt placement, convertible to equity upon
the consummation of the acquisition of NCD.
Messrs. DeWindt and Heims met with all of AmeriQuest's Board of Directors
in an all-day meeting on October 21, 1994, held for the purpose of gathering
information and conducting negotiations. Computer 2000 indicated that it was
prepared to pay $50 million for additional shares, which when added to its then
current holdings, would total 51% of AmeriQuest's issued and outstanding shares.
AmeriQuest's Board of Directors expressed interest in Computer 2000's proposal,
but resolved to continue to seek additional financing to fund the NCD
acquisition rather than relying solely on the prospect of closing a definitive
agreement with Computer 2000 before the deadline for the NCD closing. After a
search for alternative financing sources, it became apparent to AmeriQuest that
such financing would not be available within the time frame necessary to close
the NCD acquisition. AmeriQuest was able to identify only one alternative
financing source, but the terms of the proposed financing ($.25 per share) were
unacceptable.
7
Discussions between Computer 2000 and AmeriQuest proceeded on a daily basis
from October 21, 1994 through November 14, 1994, the date of the definitive
Investment Agreement . During this period, Mr. Heims of Computer 2000 worked
out of AmeriQuest's offices, conducting negotiations with AmeriQuest on behalf
of Computer 2000 and making arrangements for the proposed investment. Legal
counsel for Computer 2000 began preparing drafts of the Investment Agreement and
related documents on October 27, 1994. From October 28, 1994 through November
14, 1994, counsel for Computer 2000, Mr. Heims and Computer 2000's financial
advisor (joined by Mr. DeWindt from November 8, 1994 to November 14, 1994)
negotiated the terms of the proposed agreements with AmeriQuest's legal counsel
and representatives. During this period, numerous drafts of the proposed
agreements were prepared and exchanged.
AmeriQuest's Board of Directors was kept informed of the progress of the
negotiations. On November 11, 1994, AmeriQuest's Board met and approved the
proposed transactions with Computer 2000, and authorized AmeriQuest's management
to enter into the Investment Agreement and the related agreements with such
changes as might subsequently be negotiated. On November 14, 1994, those
agreements were signed, and Computer 2000 loaned $13 million to AmeriQuest
pursuant to the agreements. Computer 2000 loaned an additional $5 million at
the end of November and in early December 1994.
On March 30, 1995, Computer 2000 agreed to extend the due date of the $18
million loan from March 30, 1995 to June 30, 1995 in light of the fact that
AmeriQuest was required by the Staff of the Securities & Exchange Commission to
withhold use of this Proxy Statement (thereby delaying AmeriQuest's special
meeting of shareholders) until completion of the annual audit of Robec, Inc.
(whose Annual Report on Form 10-K for the year ended December 31, 1994 is
incorporated herein by reference) and the resolution of certain outstanding
comments of the Staff on AmeriQuest's periodic reports, pending registration
statements and this Proxy Statement. In connection with such
extension, Computer 2000 required that the "break-up" fee be increased from $1.3
million to $1.8 million.
REASONS FOR THE TRANSACTION
In reaching its decision, the Board compared the proposed price of $2.22
per share under the agreements with Computer 2000 to the price at which it had
been able to attract capital in the most recent private placement, i.e. $2.40
per Unit, with each Unit comprised of one (1) share of Common Stock and (1)
four-year warrant to purchase an additional share at $3.50 per share, with the
exercise price to be reduced to a level equal to that at which AmeriQuest might
sell shares between November 14, 1994 and May 14, 1995, i.e. the $2.22 to be
paid by Computer 2000, and analyzed the possible benefits to be derived from the
potential synergies described above that could result from an alliance with
Computer 2000 and AmeriQuest's future prospects absent such an alliance. The
Board also considered the critically important nature of the NCD acquisition and
that a failure to close the NCD acquisition would have left AmeriQuest short of
its annual sales goal by approximately $300 million and lost to it the $2
million paid to secure an extension of the NCD closing date. The Computer 2000
transaction also provided a source of payment of the 30-day private placement
described above and a source of funds necessary to retire the loan facility for
Kenfil, Inc. In reaching its decision, the Board considered the fact that the
Investment Agreement contains a "fiduciary out" proviso to the "no shop" clause,
which enables the Board of Directors to consider alternative transactions if
required to do so by applicable fiduciary duties. The Board of Directors also
considered the fact that the Investment Agreement provided for a $1.3 million
"break up" fee, but does not contain other material "lock-up" provisions. The
$1.3 million "break-up" fee was increased to $1.8 million as consideration for
the extension of the due date of the $18 million loan from March 30, 1995 to
June 30, 1995.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION IS FAIR TO, AND IN THE
BEST INTERESTS OF, AMERIQUEST AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED
THE TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF AMERIQUEST
VOTE "FOR" APPROVAL OF THE TRANSACTION.
IF THE TRANSACTION IS NOT APPROVED BY THE SHAREHOLDERS OF AMERIQUEST,
COMPUTER 2000 WILL HAVE THE RIGHT TO TERMINATE THE INVESTMENT AGREEMENT, AND
AMERIQUEST WILL BE OBLIGATED TO PAY COMPUTER 2000 ON JUNE 30, 1995, THE FULL
AMOUNT OF COMPUTER 2000'S $18 MILLION LOAN, TOGETHER WITH INTEREST, AND THE $1.8
8
MILLION BREAK-UP FEE. COMPUTER 2000 WILL HAVE THE RIGHT, BUT NOT THE
----------------------------------------------
OBLIGATION, TO APPLY A PORTION OF AMERIQUEST'S INDEBTEDNESS TO PURCHASE FROM
- ----------------------------------------------------------------------------
AMERIQUEST, FOR $2.00 PER SHARE, A NUMBER OF SHARES OF AMERIQUEST COMMON STOCK
- ------------------------------------------------------------------------------
WHICH WHEN ADDED TO ITS CURRENT HOLDINGS WOULD BE EQUAL TO 19.9% OF ALL OF
- --------------------------------------------------------------------------
AMERIQUEST'S THEN OUTSTANDING SHARES OF AMERIQUEST COMMON STOCK, AND AMERIQUEST
- -------------------------------------------------------------------------------
WOULD BE OBLIGATED TO PAY IN EXCESS OF $12 MILLION TO COMPUTER 2000. AMERIQUEST
- --------------------------------------------------------------------
DOES NOT CURRENTLY HAVE THE FINANCIAL RESOURCES TO MEET THIS OBLIGATION.
AMERIQUEST WOULD NEED TO SEEK ADDITIONAL FINANCING TO RAISE THE NECESSARY FUNDS
BY JUNE 30, 1995 OR THE COMPUTER 2000 LOAN WOULD BE IN DEFAULT. IF SUCH A
DEFAULT OCCURS, COMPUTER 2000 COULD, IN ADDITION TO ITS OTHER REMEDIES, EXERCISE
ITS SECURITY INTEREST TO ACQUIRE AMERIQUEST'S OWNERSHIP OF KENFIL, ROBEC AND
NCD, WHICH WOULD NEGATE ALL EFFORTS TO DATE TO IMPLEMENT THE BUSINESS PLAN BY
REASON OF A LOSS OF APPROXIMATELY $550 MILLION IN ANNUAL SALES, WITHOUT WHICH
AMERIQUEST HAS NO REASONABLE EXPECTATION OF BEING ABLE TO ACHIEVE A PROFITABLE
LEVEL OF OPERATIONS. IN ADDITION, THE DEFAULT MAY CONSTITUTE AN EVENT OF
DEFAULT UNDER AMERIQUEST'S OTHER INDEBTEDNESS THEREBY CAUSING THAT INDEBTEDNESS
TO BECOME IMMEDIATELY DUE AND PAYABLE.
The funds advanced and which may be advanced to AmeriQuest from Computer
2000 are derived from its internally generated funds and existing credit
facilities. No special loan facility was created to fund its investment in
AmeriQuest.
OPINION OF AMERIQUEST'S FINANCIAL ADVISOR
L.H. Friend, Weinress & Frankson, Inc. ("L.H. Friend") has delivered a
written opinion to the Board of Directors of AmeriQuest that, as of December 14,
1994, the Investment Agreement and the Transaction with Computer 2000 was fair
to AmeriQuest and its shareholders, from a financial point of view. No
limitations were imposed by the Board of Directors of AmeriQuest upon L.H.
Friend with respect to the investigations made or procedures followed by L.H.
Friend in rendering its opinion.
THE FULL TEXT OF THE OPINION OF L.H. FRIEND, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX II TO THIS PROXY STATEMENT. AMERIQUEST SHAREHOLDERS ARE
URGED TO READ THIS OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY L.H. FRIEND IN
RENDERING SUCH OPINION. THE SUMMARY OF THE OPINION OF L.H. FRIEND SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In rendering its opinion, L.H. Friend, among other things, reviewed the
Investment Agreement and related documents, reviewed certain reports filed by
AmeriQuest with the SEC, examined certain operating information, financial
information and projections provided by the management of AmeriQuest, reviewed
the historical market prices and trading volume of AmeriQuest Common Stock,
analyzed publicly available financial and market data regarding certain
companies in the computer peripherals and software distribution industry and
compared them to AmeriQuest's financial and market data, conducted limited
interviews with certain members of AmeriQuest management and performed such
other studies, analyses, inquiries and investigations as it deemed appropriate.
In performing its analyses, L.H. Friend assumed that AmeriQuest was
receiving up to $50 million of cash from Computer 2000 in a two stage investment
that will result, assuming certain conditions are met, in Computer 2000
purchasing newly issued AmeriQuest Common Stock, at a per share price of
approximately $2.22.
L.H. Friend obtained and relied upon certain financial data on eight
companies, Arrow Electronics, Avnet, Inc., GBC Technologies Inc., Liuski
International Inc., Merisel Inc., Southern Electronics Corp., Tech Data Corp.,
and Western Micro Technology Inc., which because of their line of business or
financial and operating statistics, were considered generally comparable to
AmeriQuest, although no company was considered directly comparable in all
respects. All such information was obtained by L.H. Friend from public
9
data, including, with respect to future earning projections, Wall Street
securities analysts' research reports. L.H. Friend derived certain valuation
multiples for these comparable companies, including multiples of revenue,
earnings before taxes, interest, depreciation, and amortization ("EBITDA"),
earnings, future earnings and book value. L.H. Friend determined that the range
of multiples for the comparable companies was 0.08 to 0.61 times revenue, 2.6 to
78.6 times EBITDA, 4.2 to 17.8 times earnings (for the seven companies that
produced positive earnings), 5.2 to 12.1 times projected 1995 earnings (for the
seven companies for which earnings projections were available), and 0.7 to 2.6
times book value. L.H. Friend calculated median multiples for the comparable
companies of 0.3 times revenue, 7.8 times EBITDA, 7.8 times earnings, 6.1 times
projected 1995 earnings and 1.8 times book value, and indicated that the most
likely range of multiple valuations for AmeriQuest, based on this comparable
company analysis and the fact that AmeriQuest did not produce positive EBITDA or
net income, was 0.2 to 0.4 times revenue, and 1.6 to 2.0 times book value. L.H.
Friend determined a valuation range for AmeriQuest by this range of valuation
multiples, to be $24 million to $58 million. L.H. Friend noted the assumed value
of approximately $50 million for the Transaction to be within the valuation
range.
L.H. Friend also identified a group of eight acquisitions of companies in
the computer peripherals and software distribution industry with which to
compare AmeriQuest; the acquisition of Hall-Mark Electronics Corp. by Avnet,
Inc. in April 1993; the acquisition of Corporate Software, Inc. by CS
Acquisition Group in October 1993; the acquisition of Egghead, Inc. by Investor
Group, Inc. in January 1994; the pending acquisition of Autronica AS by Whessoe
PLC in March 1994; the acquisition of MFP Technical Services Ltd. by Commoncorp
Financial Services in April 1994; the acquisition of Transmark Corp. Ltd. by
Siegen Investments in May 1994; the acquisition of Gates/FA Distributing, Inc.
by Arrow Electronics, Inc. in June 1994; and the acquisition of Anthem
Electronics, Inc. by Arrow Electronics, Inc. in September 1994; and reviewed
certain financial data with respect to those transactions. All of such
information was obtained by L.H. Friend from public data. L.H. Friend derived
certain valuation multiples for these comparable companies, including multiples
of revenue, EBITDA, earnings and book value. L.H. Friend determined that the
range of multiples for the comparable companies was 0.2 to 1.7 times revenue,
2.5 to 31.7 times EBITDA (for the seven companies for which EBITDA figures were
available), 8.1 to 25.3 times earnings, and 1.1 to 3.5 times book value. L.H.
Friend calculated median multiples for the comparable transactions of 0.5 times
revenue, 8.1 times EBITDA, 17.1 times earnings, 2.0 times book value, and
indicated that the most likely range of multiples for AmeriQuest, based on this
comparable transaction analysis and the fact that AmeriQuest did not produce
positive EBITDA or net income, was 0.4 to 0.6 times revenue and 1.8 to 2.2 times
book value. L.H. Friend determined the transaction range for AmeriQuest based
on this range of transaction multiples, to be $40 million to $70 million. L.H.
Friend noted the assumed value of approximately $50 million for the Transaction
to be within the valuation range.
The preparation of a fairness opinion is complex. L.H. Friend believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the processes
underlying its opinion. Estimates of values of companies do not purport to be
appraisals and do not necessarily reflect the prices at which companies may
actually be sold. The estimates of value were prepared solely for use in
determining whether the sale of AmeriQuest Common Stock to Computer 2000 is fair
to AmeriQuest and its shareholders from a financial point of view.
L.H. Friend relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information provided to it
by the management of AmeriQuest, including financial projections for AmeriQuest.
These financial projections were based on assumptions AmeriQuest believes are
reasonable. Some assumptions inevitably will not materialize, and unanticipated
events and circumstances may occur subsequent to the date of such projections.
Accordingly, the actual results achieved during the period covered by these
projections may vary from the projections and the variations may be material and
adverse.
In the course of its review, L.H. Friend relied, without independent
verification, upon the accuracy and completeness of all the financial and other
information reviewed by it for purposes of the opinion.
10
L.H. Friend was not requested to, and did not, solicit any indications of
interest from third parties with respect to the sale of AmeriQuest, but
discussed with AmeriQuest its history of raising capital and its prospects for
additional capital infusions. In addition, L.H. Friend did not participate in
the discussion or negotiations leading to execution of the Investment Agreement,
and its opinion is limited to the fairness from a financial point of view of the
consideration to be received for the shares of AmeriQuest and does not address
AmeriQuest's underlying business decision to effect the Transaction. L.H.
Friend assumed that Computer 2000 will have the financial capability to perform,
and will perform, its obligations under the Investment Agreement.
L.H. Friend is a firm specializing in institutional research and investment
banking services for middle market companies. The firm's focus is on all
aspects of traditional corporate finance transactions, including initial and
secondary public offering, institutional private placements, mergers and
acquisitions, evaluation and fairness opinions and related corporate advisory
services. The AmeriQuest Board of Directors selected L.H. Friend to provide the
fairness opinion as a result of the firm's familiarity and expertise with public
technology companies and its experience in analyzing such companies.
AmeriQuest paid L.H. Friend a fee of $96,000.00. AmeriQuest has also
agreed to indemnify L.H. Friend and certain related persons against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under federal securities laws.
IMPACT OF THE TRANSACTION ON AMERIQUEST AND EXISTING SHAREHOLDERS
While the Board of Directors is of the opinion that the Transaction is fair
to, and its approval is advisable and in the best interests of AmeriQuest and
its shareholders, shareholders should consider the following possible effects in
evaluating the Transaction.
VOTING AND OTHER RIGHTS OF SHAREHOLDERS
The number of shares of Common Stock that could be issued to Computer 2000
in the Transaction could vest voting control of AmeriQuest in Computer 2000. In
such an event, Computer 2000 could effectively elect all directors and appoint
all officers of AmeriQuest, and only furnish existing shareholders with
Information Statements pursuant to Section 14 of the Securities Exchange Act of
1934, as amended, regarding such actions. Additionally, Computer 2000 would in
that event have the voting power necessary to take AmeriQuest "private" or merge
it with another entity without having to consult with the other shareholders; or
prevent the sale of AmeriQuest to other interested parties at a point in time
that minority shareholders might deem a sale to be advantageous to their
interests.
Although the foregoing represents possible actions that could be taken by
any shareholder having control of AmeriQuest, Computer 2000 has represented to
AmeriQuest that it has not historically interfered with the management of
companies that it has acquired; however, there can be no assurance that there
will be no changes in AmeriQuest management in the future. In addition, it may
be advantageous for Computer 2000 to maintain AmeriQuest as a public company so
as to obtain access to U.S. securities markets for additional funding of
AmeriQuest's future operations and growth, but is not obligated to do so.
CERTAIN TAX CONSEQUENCES
Under Section 382 of the Internal Revenue Code ("IRC"), the benefit of
AmeriQuest's net operating losses ("NOLs") can be reduced or eliminated if
AmeriQuest undergoes an "ownership change," as defined in Section 382.
Generally, an "ownership change" occurs if one or more shareholders, each of
whom owns five percent (5%) or more of a company's capital stock, and certain
"public groups" increase their aggregate ownership of the company by more than
50 percentage points over the lowest percentage of stock owned by such
shareholders or groups over the preceding three-year period (based on value).
The amount of taxable income in any year thereafter (or portion of a year) that
could be offset by NOLs or other carryovers existing
11
(or "built-in") prior to such ownership change could not exceed the product
obtained by multiplying (i) the aggregate value of AmeriQuest's stock
immediately prior to the ownership change (with certain adjustments) by (ii) the
federal long-term rate (currently 6.25%).
In an earlier acquisition of Kenfil Inc. (June 1994) by AmeriQuest, an
"ownership change" occurred for purposes of Section 382. Another "ownership
change" will potentially occur upon the contemplated infusion of $32 million by
Computer 2000 in the third quarter of 1995.
The exact date of ownership changes and the value of AmeriQuest on those
dates is currently being determined. The impact of the successive ownership
changes and the amount of the pre-change NOLs are also being calculated.
AmeriQuest would incur a corporate-level tax (current maximum federal rate
of 35 percent) on any taxable income during a given year in excess of such
limitation. While the NOLs not used as a result of this limitation would remain
available to offset taxable income in future years, the effect of an ownership
change, under certain circumstances, would be to significantly defer the
utilization of the NOLs, accelerate the payment of the federal income tax, cause
a portion of the NOLs to expire prior to their use and reduce stockholders'
equity.
SHAREHOLDER'S DERIVATIVE ACTION
On November 17, 1994, three days after the announcement of the proposed
investment by Computer 2000 pursuant to the Investment Agreement, an action was
filed against the Board of Directors of AmeriQuest, Computer 2000 and AmeriQuest
styled Erica Hartman vs. Marc L. Werner, Harold L. Clark, Stephen G. Holmes,
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Eric J. Werner, Terren S. Peizer, William N. Silvis, William T. Walker, Jr. and
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Computer 2000 AG, Defendants and AmeriQuest Technologies, Inc., Nominal
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Defendant, Court of Chancery of the State of Delaware, New Castle County, C.A.
- ---------
No. 13883. The Complaint seeks to have the Court either (i) enjoin the
consummation of the Investment Agreement or (ii) enter a monetary judgment for
damages in an unspecified amount against the Directors of AmeriQuest for an
alleged failure of the Board of Directors to discharge their fiduciary duties in
causing AmeriQuest to enter into the Investment Agreement. The director
Defendants filed a motion to dismiss the Complaint on January 15, 1995. Pending
resolution of that motion, discovery has been stayed. The Plaintiff has not
responded to the motion or taken any other action concerning same. The general
allegations of the Complaint relate solely to a comparison of the proposed sale
price with market value and book value and the sale of control without
extracting a premium and an allegation that the consideration to be paid by
Computer 2000 is inadequate. It is the opinion of the Board of Directors that
the Plaintiff fails to understand AmeriQuest's growth-by-acquisition strategy or
the synergies considered by the Board of Directors in approving the Transaction
and the value to AmeriQuest of a world-wide alliance with Computer 2000. In the
opinion of the Board of Directors, the proposed transaction with Computer 2000
is fair to and in the best interests of AmeriQuest and its shareholders for the
reasons set forth above. The Board of Directors and AmeriQuest intend to
vigorously defend against such litigation, and do not expect the litigation to
have a material adverse impact on AmeriQuest's financial condition or results of
operations, since AmeriQuest is only a nominal defendant.
POSSIBLE ADDITIONAL INDEBTEDNESS
AmeriQuest is currently negotiating a financing arrangement with IBM Credit
Corporation ("ICC") whereby AmeriQuest would be entitled to borrow up to $110
million (of which $30 million would be represented by AmeriQuest/NCD, Inc.
increasing its line from The Bank of Boston), subject to meeting certain
accounts receivable and inventory ratios, among other conditions. If the
proposed credit arrangements with ICC are entered into, AmeriQuest would use the
available proceeds to retire existing indebtedness, finance the purchase of
inventory and for working capital. AmeriQuest has an immediate need for
additional capital to finance its operations, and management believes that it
would be in AmeriQuest's best interests to consummate and maintain the proposed
ICC credit arrangements. Although the definitive terms of the ICC
12
financing have not yet been determined, it would be an event of default under
the proposed financing terms if AmeriQuest's shareholders fail to approve the
Computer 2000 Transaction, and if, as a result, Computer 2000's $18 million loan
becomes due and payable. This arrangement was not necessitated by AmeriQuest's
failure to satisfy the performance requirements of the Transaction, which had
they been achieved would have allowed AmeriQuest to require Computer 2000 to
infuse the additional $32 million.
THE INVESTMENT AGREEMENT
The following description of the Investment Agreement does not purport to
be complete and is qualified in its entirety by reference to the Investment
Agreement, a copy of which is attached hereto as Appendix I and incorporated
herein by reference. Shareholders of AmeriQuest are urged to read the
Investment Agreement in its entirety.
BACKGROUND FOR THE $18 MILLION LOAN
Rule 312.00 of the New York Stock Exchange ("NYSE") requires shareholder
approval of any issuance of Common Stock or securities convertible into Common
Stock if the resulting voting power will be equal to or in excess of 20% of the
voting power outstanding before the issuance of such securities. As indicated
above, the maximum number of shares that AmeriQuest will be obligated to issue
to Computer 2000 under the Investment Agreement will represent well in excess of
20% of AmeriQuest's outstanding voting power. Thus, under Rule 312.00, the vote
of AmeriQuest's shareholders is necessary to approve such issuance. The parties
recognized that preparing and processing the necessary paperwork for seeking
shareholder approval, together with the necessary notice periods, would take
several months. Since AmeriQuest's need for Computer 2000's initial investment
of $18 million was immediate, the parties decided to structure Computer 2000's
initial investment as a secured loan that will be exchanged for shares of
AmeriQuest Common Stock upon shareholder approval (and the fulfillment of
certain other conditions).
COMPUTER 2000'S PROPOSED INVESTMENT
Computer 2000 desires to secure, subject to the terms and conditions set
forth in the Investment Agreement, up to 51% ownership of AmeriQuest in exchange
for up to $50 million plus the $1,330,000 that it paid earlier for 532,000
shares of AmeriQuest Series C Preferred Stock on August 31, 1994 (which shares
were later converted into the same number of shares of Common Stock). Computer
2000 believes that the alliance with AmeriQuest will afford it an interest in
the U.S. marketplace on a favorable economic basis if the synergies of the
alliance can be realized.
$18 Million Secured Loan Exchangeable for Common Stock. The first tier of
-------------------------------------------------------
the proposed investment was structured as an $18 million secured loan to
AmeriQuest. The loan originally bore interest at the rate of 6.5% per annum,
which increased to 8.5% after February 1995 pursuant to the terms of the
original documents. The loan was originally due on the earlier of March 30,
1995 or 20 days after termination of the Investment Agreement. Computer 2000
agreed to extend the due date of the $18 million loan from March 30, 1995 to
June 30, 1995 in light of the fact that AmeriQuest was required by the Staff of
the Securities & Exchange Commission to withhold use of this Proxy Statement
(thereby delaying the notice of AmeriQuest's shareholders' meeting) until
completion of the annual audit of Robec, Inc. (whose Annual Report on Form 10-K
for the year ended December 31, 1994 is incorporated herein by reference) and
the resolution of certain outstanding comments of the staff on AmeriQuest's
periodic reports. In connection with such extension, Computer 2000 required that
the "break-up" fee be increased from $1.3 million to $1.8 million.
AmeriQuest pledged all of its ownership of Kenfil, Robec and NCD as
security for repayment of the loan. The loan will be exchanged for 8,108,108
shares of AmeriQuest Common Stock (subject to adjustment for changes in
capitalization) if (i) the AmeriQuest shareholders approve at the Meeting the
Transaction and the increase in the authorized number of shares of AmeriQuest
Common Stock from 30,000,000 shares to 65,000,000 shares as proposed herein, and
(ii) certain other conditions are met (the "General Conditions"), including the
conditions that the representations made by AmeriQuest in the Investment
Agreement and the related agreements will be true at the time of the exchange;
that AmeriQuest will have performed its
13
obligations under the Investment Agreement and the related agreements; that
there be no adverse change in AmeriQuest's business, operations, financial
condition or prospects; and that the shares issued to Computer 2000 be approved
for listing on the New York Stock Exchange. If any of the General Conditions
are not met, Computer 2000 will not be required exchange the loan for shares of
AmeriQuest Common Stock, although Computer 2000 might, in its discretion, elect
to waive the condition(s) and cause the loan to be exchanged. In addition,
AmeriQuest will be required, before exchange, to increase the number of its
directors from 9 to 11 and appoint as directors two persons designated by
Computer 2000.
Upon receipt of shareholder approval of the proposals referred to herein
and satisfaction (or waiver) of the other closing conditions, the $18 million
loan will be exchanged for 8,108,108 shares of AmeriQuest Common Stock (subject
to certain adjustments). Based on the number of shares of AmeriQuest Common
Stock currently outstanding (and assuming the completion of the acquisition of
Robec), Computer 2000 would receive in the exchange shares representing
approximately 26.5% of the then outstanding shares of AmeriQuest Common Stock,
so that Computer 2000 would then own beneficially approximately __% of such
outstanding shares (including the 532,000 shares of Common Stock previously
purchased by it, but not including the shares owned by or subject to warrants
granted to Computer 2000's Chairman).
$32 Million Additional Equity Infusion. Computer 2000 will have the right
---------------------------------------
to purchase an additional $32 million of Common Stock at approximately $2.22 per
share commencing on September 1, 1995 until the later of September 30, 1995 or
45 days after its receipt from AmeriQuest of certain financial information for
the period ended June 30, 1995, if the following conditions are fulfilled:
(a) The Transaction and the increase in the number of authorized shares
proposed herein shall have been approved by the shareholders of
AmeriQuest and the $18 million loan exchanged for shares of AmeriQuest
Common Stock.
(b) The General Conditions shall have been satisfied or waived, including
(i) the acquisition of Robec shall have been completed, (ii) the
receipt of necessary consents from lenders and governmental
authorities, (iii) the delivery of audited financial statements for
the six months ended June 30, 1995, (iv) providing Computer 2000
access to such other information as it may request, (v) the absence of
other negotiations (except under specific conditions necessary to
discharge the fiduciary duty of AmeriQuest's directors), (vi) the
absence of material defaults and (vii) the conduct of AmeriQuest's
business prior to closing in compliance with its representations,
warranties and covenants.
In its original form, the Investment Agreement would have obligated
Computer 2000 to invest the additional $32 million in AmeriQuest if AmeriQuest
met certain profitability criteria and other conditions. Since AmeriQuest did
not achieve the profit levels required under the Investment Agreement or meet
certain other conditions, Computer 2000 is no longer obligated to make the
investment. However, Computer 2000 continues to have the option (subject to the
shareholder vote referred to above) to purchase from AmeriQuest up to $32
million of Common Stock at approximately $2.22 per share, the same price
Computer 2000 would have paid had it been obligated to make the investment. The
option will be exercisable, in whole or in part, commencing on September 1, 1995
and until the later of September 30, 1995 or 45 days following its receipt from
AmeriQuest of the financial information for the period ended June 30, 1995.
If Computer 2000 invests the full $50 million referred to above (the
initial 18 million plus the additional $32 million), it will own a total of
approximately 23,000,000 shares of AmeriQuest Common Stock, representing
approximately 51% of the shares then outstanding.
Stock Option A. In the Investment Agreement, AmeriQuest granted Computer
---------------
2000, subject to the conditions referred to above, a Maintenance Option which
assures Computer 2000 that, should AmeriQuest issue additional shares pursuant
to outstanding options, warrants or otherwise, Computer 2000 would have the
right to acquire additional shares at any time prior to November 1, 1999 in
order to preserve its 51% ownership once it has acquired ownership of that
magnitude.
Stock Option B. Computer 2000 would also have the right to acquire an
---------------
additional 4,000,000 shares of Common Stock at $10.00 per share at any time
between June 30, 1996 and June 30, 1998; and at a price of $20.00 per share at
any time between July 1, 1998 and November 30, 1999. Notwithstanding the
foregoing, the investment of Computer 2000 under this option would be capped at
55% of the issued and outstanding Common Stock of AmeriQuest.
14
Other Negotiations. The Investment Agreement, as amended, prohibits
-------------------
AmeriQuest until June 30, 1995 from directly or indirectly soliciting,
encouraging, initiating or participating in any discussions or negotiations
reasonably likely to facilitate the efforts of any person other than Computer
2000 relating to the possible acquisition of AmeriQuest or any of its
subsidiaries. AmeriQuest is also prohibited from providing non-public
information to such a party without providing the same information to Computer
2000. Notwithstanding the foregoing, however, should the Board of Directors
determine in good faith, after consultation with legal counsel and its financial
advisors, that any such action is required by the fiduciary duties imposed upon
the directors by Delaware law and is likely to result in a more favorable
transaction to the stockholders of AmeriQuest than the terms of the Investment
Agreement and provides for repayment in full of Computer 2000's $18 million loan
and payment to Computer 2000 of a $1.8 million break-up fee, then AmeriQuest is
free to pursue such a transaction, subject to AmeriQuest's obligation to keep
Computer 2000 informed as to any offer or request for information regarding such
transaction. If AmeriQuest's Board of Directors accepts any such offer or
recommends it to AmeriQuest's shareholders, or fails to recommend the
Transaction to the shareholders, either Computer 2000 or AmeriQuest may
terminate the Investment Agreement, in which event the $18 million loan will
become due and AmeriQuest will be required to pay the $1.8 million break-up fee.
Board Representation. Computer 2000 has the right to have an observer
---------------------
present at any meeting of the Board of Directors until the obligations of
AmeriQuest underlying the $18 million loan are extinguished. Such an observer
also has the right to address the Board with any concerns that Computer 2000 may
have, and to visit and inspect AmeriQuest facilities and examine its books and
records.
Upon the exchange of the $18 million loan for shares of AmeriQuest Common
Stock, AmeriQuest is obligated to appoint two new directors to the Board of
Directors as may be selected by Computer 2000; and Computer 2000 has the right
to require that the composition of the Board of Directors reflect its percentage
ownership of the issued and outstanding shares of AmeriQuest.
If Computer 2000 makes the $32 million investment in AmeriQuest referred to
above, it will hold a majority of AmeriQuest's voting stock and will be in a
position to elect all or a majority of AmeriQuest's directors.
Registration Rights. AmeriQuest is obligated to file a registration
--------------------
statement covering the shares of Common Stock to be issued to Computer 2000 upon
the receipt of requests for registration from persons holding 25% or more of
such shares. Additionally, should AmeriQuest proceed with a further public
offering of its shares for the benefit of AmeriQuest, Computer 2000 has the
right to "piggy-back" its shares on any such registration statement. All
expenses, other than underwriting discounts and commissions incurred in
connection with such registrations, are to be borne by AmeriQuest except for
expenses incurred in connection with a demand right which is subsequently
aborted or withdrawn.
CERTAIN LEGAL MATTERS
Antitrust. Pursuant to the requirements of the Hart-Scott-Rodino Antitrust
----------
Improvements Act of 1976, as amended (the "HSR Act"), on January 30, 1995,
Computer 2000 and AmeriQuest each filed a Notification and Report Form for
review under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division"). The
waiting period under the HSR Act with respect to such filing was terminated by
governmental action on February 10, 1995. Even though the HSR Act waiting
period has expired, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking divestiture of substantial assets of AmeriQuest.
AmeriQuest does not believe that consummation of the Merger will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Merger on antitrust grounds will not be made or, if such
a challenge is made, of the result.
15
Stock Exchange Listing. It is a condition to the issuance of shares to
-----------------------
Computer 2000 under the Investment Agreement that the shares of AmeriQuest
Common Stock to be issued in connection with the Investment Agreement be
authorized for listing on the NYSE.
Appraisal Rights. Under the General Corporation Law of the State of
-----------------
Delaware, the holders of AmeriQuest Common Stock are not entitled to any
appraisal rights with respect to the Transaction.
SHAREHOLDER PROPOSALS
Any AmeriQuest shareholder who wishes to submit a proposal for presentation
to AmeriQuest's 1995 Annual Meeting of Shareholders must submit the proposal to
AmeriQuest, 3 Imperial Promenade, Ste. 300, Santa Ana, California 92707,
Attention: Mr. Stephen G. Holmes, Secretary, not later than May __, 1995 for
inclusion, if appropriate, in AmeriQuest's proxy statement and form of proxy
relating to its 1995 Annual Meeting.
OTHER MATTERS
The accompanying form of Proxy is solicited by and on behalf of the
management of AmeriQuest whose Notice of Special Meeting is attached to this
Proxy Statement. AmeriQuest will bear the expenses of this solicitation of
Proxies. In addition to the use of the mails, Proxies may be solicited by
personal interview, telephone and by directors and officers and employees of
AmeriQuest. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and AmeriQuest
may reimburse them for reasonable out-of-pocket expenses incurred by them in
connection therewith.
The management of AmeriQuest has no information that other matters will be
brought before the Meeting. If, however, other matters are presented, the
accompanying Proxy will be voted in accordance with the best judgment of the
proxy holders.
16
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by this reference to
satisfy the requirements of Item 13(a) of Schedule 14A under the Securities
Exchange Act of 1934, as amended:
(1) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1 &
2) dated June 14, 1994, the most recent of which was filed May 9,
1995.
(2) AmeriQuest's Annual Report on Form 10-K (including Amendment Nos. 1
thru 6) for the fiscal year ended June 30, 1994, the most recent of
which was filed May 9, 1995.
(3) AmeriQuest's Current Report on Form 8-K (including Amendment No. 1)
dated July 18, 1994, the most recent of which was April 6, 1995.
(4) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1
thru 4) dated September 12, 1994, the most recent of which was filed
May 9, 1995.
(5) AmeriQuest's Quarterly Report on Form 10-Q (including Amendment Nos. 1
thru 3) for the three months ended September 30, 1994, the most recent
of which was filed May 9, 1995.
(6) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1
thru 5) dated November 14, 1994, the most recent of which was filed
May 9, 1995.
(7) AmeriQuest's Quarterly Report on Form 10-Q (including Amendment Nos. 1
thru 3) for the six months ended December 30, 1994, the most recent of
which was filed May 9, 1995.
(8) AmeriQuest's Registration Statement on Form S-4, SEC File No. 33-
57611.
(9) Robec, Inc.'s Annual Report on Form 10-K (including Amendment No. 1)
for the year ended December 31, 1994 (SEC File No. 0-18115), the most
recent of which was filed May 10, 1995.
(10) Kenfil Inc.'s Annual Report on Form 10-K for the year ended June 30,
1993 (SEC File No. 0-19905).
(11) Kenfil Inc.'s Quarterly Report on Form 10-Q for the three months ended
September 30, 1993.
(12) Kenfil Inc.'s Quarterly Report on Form 10-Q for the six months ended
December 31, 1993.
(13) Kenfil Inc.'s Quarterly Report on Form 10-Q (including Amendment No.
1) for the nine months ended March 31, 1994, the most recent of which
was filed May 9, 1995.
In addition, all reports and other documents filed by AmeriQuest prior to
the date of the Special Meeting pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act and after the date of this Proxy Statement, shall be deemed
to be incorporated by reference herein and shall be deemed to a part hereof from
the date of the filing of each such report or document.
The financial information in the above referenced reports is set forth
under the captions "Selected Financial Data," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," "Financial
Statements and Supplementary Data," and "Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure," and "Financial Statements,
Schedules and Reports on Form 8-K," as applicable to the particular report. It
is anticipated that a representative of Arthur Andersen LLP will be present at
the meeting, and will have the opportunity to make a statement should he so
desire and/or respond to appropriate questions from shareholders.
AmeriQuest undertakes to provide, without charge, to each person to whom a
Proxy Statement is delivered, upon written or oral request of such person and by
first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the information that has been
incorporated by reference in this Proxy Statement (exclusive of exhibits). These
documents are available from Stephen G. Holmes, Secretary, AmeriQuest
Technologies, Inc., 3 Imperial Promenade, Ste. 300, Santa Ana, CA 92707 (714)
437-0099.
17
AVAILABLE INFORMATION
AmeriQuest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by AmeriQuest can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street N.W., Washington,
D.C. 20549, and at the following Regional Offices of the SEC: New York Regional
Office, 7 World Trade Center, New York, New York 10048 and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the SEC,
450 Fifth Street N.W., Washington, D.C. 20549, at the SEC's prescribed rates.
Such material can also be inspected and copied at the offices of the New York
Stock Exchange, on which AmeriQuest's Common Stock is listed.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
MATTERS SUBJECT HEREOF, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERIQUEST. THIS PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES. THE DELIVERY OF THIS
PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
By Order of the Board of Directors
AmeriQuest Technologies, Inc.
Stephen G. Holmes,
Chief Financial Officer,
Secretary and Treasurer
Santa Ana, California
May __, 1995
18
AMENDMENT TO APPENDIX I
AMENDMENT OF INVESTMENT AGREEMENT
This amendment is made effective as of March 30, 1995 to that certain
Investment Agreement (the "Investment Agreement") dated as of November 14, 1994
--------------------
by and between Computer 2000 AG, a company duly organized under the laws of the
Federal Republic of Germany ("Computer 2000"), and AmeriQuest Technologies,
-------------
Inc., a Delaware corporation ("AmeriQuest").
----------
RECITALS
--------
A. The Investment Agreement provides for a series of transactions whereby
Computer 2000 will acquire a majority ownership interest in AmeriQuest.
B. The Investment Agreement provides that Computer 2000 has the obligation
to invest in AmeriQuest the sum of $32 Million if certain conditions are met,
including the achievement by AmeriQuest of certain profitability objectives.
C. The Investment Agreement further provides that AmeriQuest and other
specified parties will not enter into negotiations with any party other than
Computer 2000 related to the possible sale or merger of AmeriQuest prior to the
earlier of the First Equity Closing (as defined therein) or March 30, 1995,
which is the latest date contemplated by the Investment Agreement for the
approval by the stockholders of AmeriQuest of the transactions described
therein.
D. AmeriQuest has determined that it will be unable to obtain stockholder
approval of the transactions described in the Investment Agreement prior to
March 30, 1995 and that it will not achieve the profitability objectives set
forth in the Investment Agreement for the months of February and March.
E. Computer 2000 and AmeriQuest wish to amend the Investment Agreement to
reflect the change in circumstances described above.
NOW, THEREFORE, the parties hereto hereby agree to make the following
amendments to the Investment Agreement:
(a) The last sentence of Section 2.2(d) shall be amended to read in its
entirety as follows:
"All of the financial information and data required under this
Section 2.2(d) shall be provided promptly to Purchaser and in no
event later than August 31, 1995."
(b) The first sentence of Section 2.3(b) shall be amended to read in its
entirety as follows:
"The foregoing option to purchase the Additional Option Shares may
be exercised from time to time commencing on September 1, 1995 and
continuing thereafter until the later of (i) September 30, 1995 or
(ii) forty-five (45) days after receipt by Purchaser of all of the
financial information and data to be delivered to Purchaser under
Sections 2.2(c) and (d) for the period ended June 30, 1995."
(c) The first sentence of Section 5.2 shall be amended to change the
reference to "March 30, 1995" to "June 30, 1995".
(d) Section 7.3 shall be amended to read in its entirety as follows (the
amended language as underscored):
"If (i) the First Equity Closing does not occur by the close of
business on June 30, 1995 for any reason other than a material
breach by the Purchaser of its obligations hereunder or (ii) if
this Agreement is terminated by the Purchaser pursuant to Section
7.1(c)(i) or (e) or by either party pursuant to Section 7.1(c)(ii)
or (f), then the Company shall pay to the Purchaser (by wire
transfer or cashier's check) a fee of $1,800,000 on the earlier of
June 30, 1995 or 20 days after the date of termination and, if such
termination shall have occurred, then the Company shall also repay
the Loan or cause the Loan to be repaid within 20 days after such
termination."
(e) In as much as AmeriQuest has failed to meet the conditions to the
obligations of Purchaser to purchase Additional Shares (as defined in
the Investment Agreement) pursuant to Section 2.2 of the Investment
Agreement, the parties further agree that, notwithstanding anything to
the contrary in the Investment Agreement, Computer 2000 shall have the
option and right pursuant to and as provided in Section 2.3 of the
Investment Agreement to purchase up to the number of Additional Option
Shares (as defined in the Investment Agreement) and shall have no
obligation under Section 2.2 of the Investment Agreement to purchase
the Additional Shares.
Except as amended hereby, the Investment Agreement will continue in full
force and effect. This amendment will be deemed to be a part of the Investment
Agreement, and therefore subject to all of the other terms and conditions of the
Investment Agreement.
[THE REST OF THIS PAGE HAS INTENTIONALLY
BEEN LEFT BLANK]
2
IN WITNESS WHEREOF, the parties have executed this amendment effective as of
the date and year first above written.
COMPUTER 2000 AG
- ----------------
By: /s/ STEVEN DEWINDT
----------------------------
Steven DeWindt
Co-President
By: /s/ KLAUS LAUFEN
----------------------------
Klaus Laufen
Co-President
AMERIQUEST 2000, INC.
- ---------------------
By: /s/ HAROLD CLARK
----------------------------
Harold Clark
President
3
AMENDMENT OF LOAN AGREEMENT AND
EXCHANGEABLE PROMISSORY NOTES
This amendment is made effective as of March 30, 1995 to that certain Loan
Agreement (the "Loan Agreement") dated as of November 14, 1994 by and between
--------------
Computer 2000 AG, a company duly organized under the laws of the Federal
Republic of Germany ("Computer 2000"), and AmeriQuest 2000, Inc., a Delaware
-------------
corporation ("AmeriQuest 2000").
---------------
RECITALS
--------
A. Computer 2000 entered into an Investment Agreement dated as of November
14, 1994 with AmeriQuest Technologies, Inc. ("AmeriQuest"), of which AmeriQuest
----------
2000 is a wholly-owned subsidiary, which provides for a series of transactions
whereby Computer 2000 will acquire a majority ownership interest in AmeriQuest.
B. One of the transactions contemplated in the Investment Agreement was
the loan of $18 Million (the "Loan") by Computer 2000 to AmeriQuest 2000, which
----
is to be exchanged for shares of Common Stock of AmeriQuest upon the
satisfaction of certain conditions contained in the Investment Agreement.
Pursuant to the Loan and the Loan Agreement, AmeriQuest 2000 delivered two
Exchangeable Promissory Notes to Computer 2000 in the aggregate principal amount
of $18,000,000 (the "Exchangeable Promissory Notes").
-----------------------------
C. Section 6.5(a) of the Investment Agreement provides that the obligation
of Computer 2000 to exchange the Loan for shares of AmeriQuest Common Stock is
conditioned upon the approval by the stockholders of AmeriQuest of the
Stockholder Actions as described in the Investment Agreement prior to March 30,
1995, which is also the maturity date of the Loan.
D. AmeriQuest has determined that it will be unable to obtain requisite
stockholder approval of the Stockholder Actions described in the Investment
Agreement prior to March 30, 1995.
E. Computer 2000, AmeriQuest 2000 and AmeriQuest wish to extend the
maturity date of the Loan and make certain changes in the Exchangeable
Promissory Notes.
NOW, THEREFORE, the parties hereto hereby agree as follows:
(a) Section 1.2, part (ii) of the Loan Agreement is amended to change
"March 30, 1995" to "June 30, 1995".
(b) In order to clarify the parties intent, Section 4.1 of each of the
Exchangeable Promissory Notes is hereby amended as follows (the amended language
is in italics):
"4.1 Exchange of Note . At any time after the earlier of (i) twenty days
----------------
after termination of the Investment Agreement or (ii) upon the closing by
AmeriQuest of any Acquisition Transaction (as defined in the Investment
Agreement), and so long as any principal or accrued interest remains outstanding
under this Note, Holder shall have the right, at the Holder's option and to the
extent provided herein, to exchange and assign all or a portion of the
outstanding principal and accrued interest on this Note for common stock of
AmeriQuest ("Exchange Shares") at an Exchange Price equal to $2.00 per share, as
---------------
adjusted hereunder ("Exchange Price"). The maximum number of shares of Exchange
--------------
Shares that Holder may acquire hereunder shall be that number of shares which,
when added to the number of shares of AmeriQuest Common Stock held by Holder and
purchased from AmeriQuest, equals 19.9% of the total number of shares of
AmeriQuest Capital Stock outstanding as of November 14, 1994; provided, however,
-----------------
that if additional shares of Capital Stock of AmeriQuest are issued after
November 14, 1994 (other than pursuant to the events described in Section 4.3),
the maximum number of Exchange Shares shall be adjusted so that, after such
issuance, when combined with any other shares acquired by Lender in exchange of
any other Exchangeable Promissory Note issued pursuant to the Loan Agreement,
and when added to the number of shares of AmeriQuest Common Stock held by Holder
and purchased from AmeriQuest, it equals 19.9% of the aggregate number of shares
of Capital Stock then issued and outstanding. In order to exercise the exchange
right hereunder, Holder shall provide written notice of an election to exchange
to Borrower and AmeriQuest setting forth the number of shares of Exchange Shares
it desires to acquire through such exchange and the date on which it desires the
exchange to take effect. Such exchange shall be deemed to have been made on the
date so requested by Holder. The amount of the principal and interest of the
Note exchanged with and assigned to AmeriQuest shall be equal to the number of
shares of Exchange Shares issuable upon such exchange multiplied by the then
applicable Exchange Price. In any exchange and assignment of a Note by Lender
with and to AmeriQuest, Lender shall be deemed to have assigned and exchanged
first the accrued interest and then all or a portion (as is required) of the
principal amount of the Note. If a portion of the Note is exchanged the
Borrower agrees to issue new promissory notes to Lender and AmeriQuest in
cancellation of the exchanged Note, in the same form as the exchanged Note
except with the appropriate principal balances reflecting the exchange and will
also acknowledge its obligation to pay any accrued interest under the exchanged
Note which was assigned."
2
Except as amended hereby, the Loan Agreement and the Exchangeable
Promissory Notes will continue in full force and effect. This amendment will be
deemed to be a part of the Loan Agreement and the Exchangeable Promissory Notes,
and therefore subject to all of the other terms and conditions of the Loan
Agreement and the Exchangeable Promissory Notes.
IN WITNESS WHEREOF, the parties have executed this amendment effective as
of the date and year first above written.
COMPUTER 2000 AG
- ----------------
By: /s/ STEVEN DEWINDT
----------------------------
Steven DeWindt
Co-President
By: /s/ KLAUS LAUFEN
----------------------------
Klaus Laufen
Co-President
AMERIQUEST 2000, INC.
- ---------------------
By: /s/ HAROLD CLARK
----------------------------
Harold Clark
President
Agreed to and Accepted:
AMERIQUEST TECHNOLOGIES, INC.
- -----------------------------
By: /s/ HAROLD CLARK
----------------------------
Harold Clark
President
3
PROXY
YOUR PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AMERIQUEST TECHNOLOGIES, INC.
The undersigned hereby appoints Harold L. Clark and Stephen G. Holmes, and each
of them, the attorney and proxy of the undersigned, with full power of
substitution, to vote all the shares of Common Stock of AmeriQuest Technologies,
Inc. ("AmeriQuest"), which the undersigned is entitled to vote at the Special
Meeting of Shareholders of AmeriQuest to be held at the offices of AmeriQuest on
June __, 1995, at 10:00 a.m., local time, and at any and all adjournments
thereof, with all of the powers the undersigned would possess if personally
present, as follows:
For Against Abstain
---- ------- --------
[_] [_] [_] In favor of the proposal to amend the
Certificate of Incorporation of AmeriQuest
Technologies, Inc. to increase the number of
shares of Common Stock that is authorized for
issuance by AmeriQuest from 30,000,000 shares
of Common Stock to 65,000,000 shares of Common
Stock.
[_] [_] [_] In favor of the proposal to approve the
issuance by AmeriQuest to Computer 2000 AG of
shares and option rights (the "Transaction")
pursuant to an Investment Agreement dated
November 14, 1994 by and between AmeriQuest and
Computer 2000 AG, as it may be amended from
time-to-time (the "Investment Agreement") and
the performance by AmeriQuest of its
obligations under the Investment Agreement with
respect to the Transaction. Pursuant to the
Transaction Computer 2000 may invest up to $50
million in consideration for shares of
AmeriQuest Common Stock which when added to the
shares already held by Computer 2000 could
result in Computer 2000 owning up to 51% of the
outstanding shares of AmeriQuest.
TO VOTE IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS, JUST
SIGN AND DATE THIS PROXY FORM.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS (i) TO
AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK AND (ii) TO APPROVE THE TRANSACTION WITH COMPUTER 2000.
If you expect to attend the Meeting, please check this box [_].
PLEASE SIGN EXACTLY AS NAME APPEARS ON THIS PROXY. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
Dated:____________________, 1995
___________________________________
Signature
___________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
FORM 8-K/A
AMENDMENT NO. 2
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: June 14, 1994
AMERIQUEST TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
- ------------------------------------------------------------------------------
(State of other jurisdiction of incorporation)
1-10397 33-0244136
- ------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
2722 Michelson Drive, Irvine, CA 92715
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 222-6000
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
CMS ENHANCEMENTS, INC.
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective June 6, 1994, AmeriQuest Technologies, Inc. ("AQS") issued 1.1
million shares of its Common Stock in exchange for 3.3 million shares (51
percent) of Kenfil Inc. ("Kenfil") Common Stock held by certain principal
shareholders of Kenfil in a first-stage exchange pursuant to AmeriQuest's two
phase acquisition of Van Nuys, California-based Kenfil.
Subject to AmeriQuest and Kenfil stockholders' approvals, the remaining
shares of Kenfil Common Stock will be exchanged in a merger transaction (the
"Merger") at the same conversion ratio of 0.34 shares of AmeriQuest for each
share of Kenfil common stock. The Merger is expected to be completed in August,
1994.
Simultaneously with the Merger, holders of approximately $7.3 million of
Kenfil subordinated debt are expected to exchange their debt for additional
shares of AmeriQuest Common Stock. The transactions would result in AmeriQuest
issuing a total of approximately 3.1 million shares to the Kenfil stockholders
and debtholders.
Kenfil is a distributor of microcomputer software. Its key vendors include
Corel, Broderbund, Symantec, Quarterdeck Office Systems and IBM.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) The financial statements of Kenfil required to be filed pursuant to
Item 7(a) of Form 8-K are incorporated herein by reference to the following
periodic reports of Kenfil filed by it under the Securities Exchange Act of
1934, as amended, SEC File No. 0-19905:
(i) Annual Report on Form 10-K for the fiscal year ended June 30, 1993
(ii) Quarterly Reports on Form 10-Q for the quarters ended September
30, 1993, December 31, 1993 and March 31, 1994.
(b) The pro forma financial information required to be filed pursuant to
Item 7(b) of Form 8-K and Rule 601 of Regulation S-K are attached hereto and
incorporated herein by this reference, including:
Pro Forma Condensed Balance Sheet at March 31, 1994
Pro Forma Condensed Statements of Operations for the fiscal year ended
June 30, 1993
Pro Forma Condensed Statements of Operations for the nine months ended
March 31, 1994
Exhibit No. Description of Exhibit
- ----------- ----------------------
2 Agreement and Plan of Reorganization dated March 31, 1994, as
amended, by and between AmeriQuest, Kenfil and certain
principal shareholders of Kenfil.
28 Kenfil's financial statements as contained in its Annual Report
on Form 10-K for the fiscal year ended June 30, 1993 and its
Quarterly Reports on Form 10-Q for the quarters ended September
30, 1993, December 31, 1993 and March 31, 1994.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
/s/ Stephen G. Holmes
---------------------------------
Stephen G. Holmes
Secretary, Treasurer and
Chief Financial Officer
Dated: May 8, 1995
3
AMERIQUEST AND KENFIL PRO FORMA FINANCIAL INFORMATION
AMERIQUEST TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial statements
reflect the purchase of a 51% interest in Kenfil, Inc. ("Kenfil") by AmeriQuest
Technologies, Inc. ("AmeriQuest") facilitated by an exchange of 1,110,093 shares
of AmeriQuest Common Stock for 51% of the outstanding shares of Kenfil common
stock. The transaction will be accounted for using the purchase method of
accounting. AmeriQuest is the acquiror for accounting purposes. The pro forma
financial statements also give effect to the issuance of approximately 2 million
shares of AmeriQuest common stock in exchange for the outstanding subordinated
debt of Kenfil with a book value of $7.3 million and a fair value of $3.7
million.
The unaudited pro forma condensed consolidated balance sheet is based upon
AmeriQuest and Kenfil historical balance sheets as of March 31, 1994 and is
presented as if the transaction had been consummated on March 31, 1994.
The unaudited pro forma condensed consolidated statements of operations for the
year ended June 30, 1993 and the nine months ended March 31, 1994 give effect to
the 51% purchase of Kenfil by AmeriQuest as if the transaction had occurred at
the beginning of AmeriQuest's fiscal year ended June 30, 1993. The statements
of operations combine historical results of operations of AmeriQuest and Kenfil
for the year ended June 30, 1993 and for the nine months ended March 31, 1994,
respectively.
The pro forma adjustments are based on available information and upon certain
assumptions which management believes are reasonable. However, the pro forma
condensed consolidated financial statements do no purport to be indicative of
the results which would have been achieved if the transaction had been completed
on the respective dates above or the results which may be achieved in the
future.
4
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
March 31, 1994 (Unaudited)
(Dollars in thousands except shares)
(Dollars in thousands, except
per share data)
ASSETS
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Kenfil Inc. Adjustments Combined
------------------ ----------- ------------- ------------
CURRENT ASSETS
Cash $ 387 $ 720 $ $ 1,107
Accounts receivable, net 13,688 20,777 34,465
Inventories 16,276 19,441 35,717
Income taxes receivable 0 1,258 0 1,258
Prepaid expenses and other 816 1,967 (110)(D) 2,673
---------- ---------- ------------- -----------
Total current assets 31,167 44,163 (110) 75,220
---------- ---------- ------------- -----------
PROPERTY AND EQUIPMENT, NET 5,250 1,268 6,518
OTHER ASSETS 3,719 356 4,075
---------- ---------- ------------- -----------
$ 40,136 $ 45,787 $ (110) $ 85,813
========== ========== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Kenfil Inc. Adjustments Combined
----------------- ----------- ------------- ------------
CURRENT LIABILITIES
Line of credit $ 0 $ 16,267 $ $ 16,267
Notes payable 16,263 6,056 (6,056)(B) 16,263
Accounts payable 8,727 18,929 957 (A) 28,613
Accrued expenses and other 1,233 1,091 2,324
---------- ---------- ------------- -----------
Total current liabilities 26,223 42,343 (5,099) 63,467
---------- ---------- ------------- -----------
LONG-TERM DEBT 0 1,437 (1,325)(B) 112
DEFERRED INCOME TAXES 267 0 267
MINORITY INTEREST 0 0 2,815 (E) 2,815
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding
7,865,916 shares 79 0 32 (A,B) 111
Common stock, $.01 par value;
authorized 25,000,000 shares;
issued and outstanding
6,401,918 shares 0 64 (64)(G) 0
5,474 (A,B)
Additional paid-in capital 24,851 21,301 (21,301)(G) 30,325
Retained deficit (11,284) (19,358) 19,358 (G) (11,284)
---------- ---------- ------------- -----------
Total stockholders' equity 13,646 2,007 3,499 19,152
---------- ---------- ------------- -----------
$ 40,136 $ 45,787 $ (110) $ 85,813
========== ========== ============= ===========
5
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For year ended June 30, 1993
(Unaudited)
(Dollars in thousands, except
per share data)
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Kenfil Inc. Adjustments Combined
------------------ ------------- ----------- ------------
NET SALES $ 73,082 $ 184,054 $ 0 $ 257,136
COST OF SALES 61,539 160,319 0 221,858
------------- ------------- ----------- ------------
Gross profit 11,543 23,735 0 35,278
OPERATING EXPENSES
Selling, general and administrative 10,274 18,936 29,210
Research and development 782 0 0 782
------------- ------------- ----------- ------------
11,056 18,936 0 29,992
------------- ------------- ----------- ------------
Income from operations 487 4,799 0 5,286
OTHER INCOME (EXPENSE)
Other income 26 0 0 26
Interest expense (277) (3,163) 930 (C) (2,510)
------------- ------------- ----------- ------------
(251) (3,163) 930 (2,484)
------------- ------------- ----------- ------------
Income before taxes and
minority interest 236 1,636 930 2,802
PROVISION FOR INCOME TAXES 0 550 0 550
------------- ------------- ----------- ------------
Income before minority interest 236 1,086 930 2,252
MINORITY INTEREST IN EARNINGS
OF SUBSIDIARY 0 0 (532)(E) (532)
------------- ------------- ----------- ------------
Net income $ 236 $ 1,086 $ 398 $ 1,720
============= ============= =========== ============
Net income (loss) per common share and
common share equivalent $0.08 $0.28
============= ============
Common and common equivalent share 3,060,908 6,207,139
============= ============
6
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For nine months ended March 31, 1994
(Unaudited)
(Dollars in thousands, except
per share data)
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Kenfil Inc. Adjustments Combined
------------------ ------------- ----------- ------------
NET SALES $ 62,976 $ 124,171 $ 0 $ 187,147
COST OF SALES 53,344 115,685 0 169,029
------------- ------------- ----------- ------------
Gross profit 9,632 8,486 0 18,118
OPERATING EXPENSES
Selling, general and administrative 8,981 14,311 0 23,292
Earthquake loss 0 2,821(F) 0 2,821
Research and development 5,000 484 0 5,484
------------- ------------- ----------- ------------
13,981 17,616 0 31,597
------------- ------------- ----------- ------------
Income (loss) from operations (4,349) (9,130) 0 (13,479)
OTHER INCOME (EXPENSE)
Other income 45 0 0 45
Interest expense (382) (2,097) 700 (C) (1,779)
------------- ------------- ----------- ------------
(337) (2,097) 700 (1,734)
------------- ------------- ----------- ------------
Income before taxes and
minority interest (4,686) (11,227) 700 (15,213)
INCOME TAX BENEFIT 0 88 0 88
------------- ------------- ----------- ------------
Income (loss) before minority interest (4,686) (11,139) 700 (15,125)
MINORITY INTEREST IN LOSS
OF SUBSIDIARY 0 0 2,815 (E) 2,815
------------- ------------- ----------- ------------
Net income (loss) $ (4,686) $ (11,139) $ 3,515 $ (12,310)
============= ============= =========== ============
Net income (loss) per common share and
common share equivalent $(0.90) $(1.47)
============= ============
Common and common equivalent share 5,226,471 8,372,702
============= ============
7
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF AMERIQUEST TECHNOLOGIES, INC. AND KENFIL, INC.
(A) To effect the purchase of a 51% interest in Kenfil, AmeriQuest issued
1,110,093 shares of Common Stock in exchange for 3,264,978 shares of Kenfil
common stock. The common stock consideration reflects a per share valuation
of $1.75, representing a discounted quoted market price, based upon
discounts received on recently completed private equity cash transactions.
At the time of the transaction, the Company incurred approximately
$957,000 in direct acquisition costs for a total purchase price of
$2,899,663. The Kenfil purchase price allocation is based upon management's
preliminary estimate of the fair value of Kenfil net assets. Management is
currently in process of completing its detailed analysis of the fair value
of Kenfil net assets acquired and therefore the related purchase price
allocation presented herein may materially change as a result of the
completed analysis. For each $1 million of goodwill recorded due to future
purchase price allocation adjustments, the pro forma net income for the
year ended June 30, 1993 would decrease by $100,000.
(B) In conjunction with the purchase of the 51% interest in Kenfil, AmeriQuest
will issue 2,036,138 additional shares of Common Stock in satisfaction of
certain Kenfil subordinated debt with a book value of $7,381,000. The
number of AmeriQuest Common Stock Shares issuable to Kenfil debtholders is
based upon the Quoted Market Price of AmeriQuest Common Stock at the date
of exchange. The AmeriQuest common stock issued to Kenfil debtholders is
valued at $1.75 per share, representing a discounted quoted market price,
based on the valuation method discussed in Note (A).
(C) Savings of interest expense on notes payable and long-term debt retired
through the issuance of AmeriQuest Common Stock in (B) above, interest
ranging from 9.5% to 13.91%.
(D) To record the expiration of $110,000 in commitment fees paid in connection
with obtaining the subordinated debt. See (B) above.
(E) To record 49% minority interest in earnings of subsidiary. The minority
interest included in the pro forma balance sheet is based upon Kenfil's
historical net assets adjusted for the fair value of the subordinated debt
retired as part of the acquisition.
(F) The earthquake loss included in Kenfil's historical financials included
charges of $2,821,000 for losses sustained in the Southern California
earthquake.
(G) To eliminate the historical equity of Kenfil.
8
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 6)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1994
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _______
COMMISSION FILE NO. 1-10397
AmeriQuest Technologies, Inc.
------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 33-0244136
- ------------------------------------------------------ --------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2722 Michelson Dr. Irvine, California 92715
- ------------------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 222-6000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--------- --------
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of September 22, 1994 is approximately $47,950,480. For purposes
of making this calculation only, the Registrant has defined "affiliates" as
including all officers, directors and beneficial owners of more than 10% of the
outstanding Common Stock of the Registrant.
The number of shares outstanding of the Registrant's Preferred and Common Stock
as of September 22, 1994: Common Stock, $.01 par value, 17,181,453 shares.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Exhibit Index is on page 034. Page 001 of 75 pages.
PART I
ITEM 1. BUSINESS.
--------
THE COMPANY
- -----------
AmeriQuest Technologies, Inc., a Delaware corporation ("AmeriQuest"),
maintains its principal executive offices at 2722 Michelson Drive, Irvine,
California, and its telephone number is (714) 222-6000. AmeriQuest conducts its
business through its subsidiaries.
CDS Distribution, Inc., a Delaware corporation ("CDS Distribution") and
Robec, Inc., a Pennsylvania corporation ("Robec") market and sell, as
distributors, hardware products for the personal computer market.
AmeriQuest/Kenfil Inc. ("Kenfil"), markets and sells, as a distributor, software
products for the personal computer market.
CMS Enhancements, Inc., a California corporation ("CMS Enhancements") is a
supplier of hard disk drive subsystems for IBM compatible and other leading
personal and business computers, including Apple, Compaq and others. Hard disk
drives allow personal computers, which otherwise often lack sufficient data
storage capacity, to perform many widely used, sophisticated business
applications. CMS Enhancements also offers disk array, magneto optical, CD-ROM,
floppy disk drives and magnetic tape back-up subsystems having a variety of data
storage capacities as well as personal computers, networking, graphics,
communications and connectivity and accessory products.
AmeriQuest currently markets more than 2,000 products to original equipment
manufacturers, value-added resellers and dealers throughout the United States
and in many foreign countries, including national and regional distributors and
large reseller computer chains such as ComputerLand, Intelligent Electronics and
InaCom.
RECENT DEVELOPMENTS
- -------------------
On December 3, 1993, the Board of Directors resolved that AmeriQuest should
renew its efforts to pursue a direction of becoming a major distributor of
computers and related products in the United States. In pursuing this direction,
the Board of Directors realigned the management of AmeriQuest. On February 11,
1994 Mr. Jim Farooquee resigned as a Director and officer of AmeriQuest, and on
February 23, 1994 Mr. James D'Jen resigned as a Director.
-----------------------------
AmeriQuest acquired 51.9% ownership of Kenfil on June 6, 1994 pursuant to
the provisions of an Agreement and Plan of Reorganization dated March 31, 1994.
On September 12, 1994, the shareholders of Kenfil and AmeriQuest approved
the proposed merger of "AmeriQuest/Kenfil Inc.," a wholly-owned subsidiary of
AmeriQuest, with and into Kenfil (the "Merger"). The Merger became effective
shortly thereafter, and AmeriQuest is now the sole shareholder of
AmeriQuest/Kenfil Inc.
2
Kenfil is a distributor of microcomputer software. Its key vendors include
Corel, Broderbund, Symantec, Quarterdeck Office Systems and IBM.
-----------------------------
On June 30, 1994, AmeriQuest effected a placement of 833,333 shares of its
Common Stock and 416,667 Warrants, as "Units", each comprised of two shares of
AmeriQuest Common Stock and one Warrant, to foreign nationals, at $4.80 per Unit
for total net proceeds of $2,000,000. The Warrants are exercisable at any time
and from time-to-time until June 30, 1996 at an exercise price of $5.00 per
share; and can only be exercised by persons who are foreign nationals.
-----------------------------
On August 31, 1994, AmeriQuest effected a placement of 532,000 shares of
its Common Stock to a person who is a foreign national at $2.50 per share for a
total of $1,330,000.
-----------------------------
AmeriQuest acquired 50.1 percent of the issued and outstanding shares of
Robec on September 22, 1994 upon the issuance of 1,402,805 shares of its Common
Stock in exchange for Common Stock held by certain principal shareholders of
Robec in a first-stage exchange pursuant to AmeriQuest's two phase acquisition
of Robec.
Subject to approval by Robec's shareholders, the remaining shares of Robec
Common Stock will be exchanged in a merger transaction (the "Merger") at the
same conversion ratio of 0.63075 shares of AmeriQuest for each share of Robec
Common Stock. The Merger is expected to be completed in December, 1994.
Robec is a national value-added distributor of microcomputer systems,
peripherals and accessories. Its key vendors include Acer, IBM, MultiTech,
Okidata, Unisys and Wyse.
-----------------------------
On September 25, 1994, AmeriQuest entered into a definitive Agreement and
Plan of Reorganization pursuant to which it will acquire 100% of the issued and
outstanding capital stock of Ross White Enterprises, Inc., a Florida corporation
d/b/a "National Computer Distributors" ("NCD"). NCD markets and sells, as a
distributor, hardware products for the personal computer market. AmeriQuest
will issue 1,864,767 shares of its Common Stock and pay approximately $3,473,120
cash in this transaction.
NCD is a national value-added distributor of microcomputer systems,
peripherals and accessories. Its key vendors include AST, CTX, Samsung, Leading
Edge, Western Digital, Panasonic, and Goldstar.
-----------------------------
AmeriQuest has also contracted with Mr. James D'Jen, a former director and
officer of AmeriQuest, to exchange all of the issued and outstanding shares of
CMS Enhancements (S) PTE
3
Ltd., a Singapore corporation wholly-owned by AmeriQuest in exchange for 350,000
shares of AmeriQuest Common Stock. On July 8, 1994 Mr. D'Jen delivered 345,091
shares. Upon the receipt of the balance due, AmeriQuest will be divested of this
Singapore subsidiary. Sales for the Singapore subsidiary approximate $20 million
annually, with an approximate break-even on operations.
CDS DISTRIBUTION
- ----------------
CDS Distribution is a national valued-added wholesale distributor of
microcomputers and related products to value-added resellers ("VARs"), dealers
and computer retailers, representing the aggregation of businesses of acquired
companies, i.e. Vitronix, Inc., Rhino Sales Company and Management Systems Group
("MSG"), all of which were acquired in December, 1993. CDS Distribution
markets, sells and supports a variety of products ranging from individual
components, which are typically sold in volume, to complete systems that have
been fully configured, assembled and tested prior to delivery to its customers.
CDS Distribution's historic strategy has been to emphasize the sale of these
complete systems and to provide a high level of value-added services, including
consultation on component selection and system configuration and provision of
system assembly and testing and technical support services. As a result of
competitive pressures, reduced profit margins and the way in which other,
similar distributors have changed their businesses, CDS Distribution is now
placing more emphasis on telemarketing as its primary sales method. CDS
Distribution also provides a variety of training programs and educational
seminars designed to enhance its customers' technical capabilities.
CDS Distribution's vendors include leading manufacturers such as IBM, AST,
NEC, Apple, Acer, Altos, SunSoft, Telebit, Novell and Multi-tech Systems. CDS
Distribution focuses its marketing efforts on the products of a limited number
of key vendors in order to become one of the leading distributors for each of
its principal vendors. This enables CDS Distribution to develop product-specific
technical expertise that enhances its value-added support services. CDS
Distribution attempts to minimize competition among vendors' products while
maintaining some overlap to provide protection against product shortages or
discontinuations.
Price discounting by its competitors has forced CDS Distribution to reduce
its prices, resulting in deteriorating gross margins for commodity products.
The effects of such price discounting on the Company are reflected in the
periodic net sales and gross margins as reflected elsewhere herein. CDS
Distribution is pursuing a broad restructuring program which includes, among
other items cost reductions, the closing of certain offices and warehouse
locations, downsizing of the employee base, consolidation of inventory and a
change in emphasis among the methods by which sales are obtained.
PRODUCTS
CDS Distribution seeks to maintain products from nationally-recognized
vendors that provide all the components most VARs require to fully configure
their computer systems. All new products are extensively tested prior to
inclusion in CDS Distribution's distribution network.
The following is a description of the major categories of products
currently sold by CDS Distribution and the principal current vendors of those
products.
4
Microcomputers--CDS Distribution distributes desktop and portable personal
computers and multiuser microcomputers manufactured by Acer, Altos, IBM, AST,
Apple, NEC and Leading Edge.
Printers--CDS Distribution distributes a broad line of dot matrix, laser
and ink-jet printers manufactured by Lexmark, Pennant, Canon, NEC and Genicom.
Monitors and Terminals--CDS Distribution distributes monitors and terminals
manufactured by CTX, Goldstar, Relisys and NEC.
Local Area Networks--A local area network ("LAN") permits microcomputers to
communicate with one another and to function on an integrated basis. CDS
Distribution distributes LAN software and specialized hardware products
manufactured by C Net, GVC, Novell and Oilcom.
Accessories and Supplies--CDS Distribution distributes hard and floppy disk
drives, board products, diskettes, stand-by power supplies, modems and other
communications products, accessories and supplies manufactured by numerous
companies including Boca Research, GVC, IBM, Turnhead, CMS and Epson.
Software--CDS Distribution sells a variety of operating system and LAN
software products generally as part of its systems sales. CDS Distribution has
also commenced the sale of certain applications software. Among the
manufacturers of these software products are IBM and SunSoft.
VENDOR RELATIONS
To maintain a strong relationship with its principal vendors, CDS
Distribution focuses on marketing the products of a limited number of key
vendors. CDS Distribution selects its product line to minimize competition among
vendors' products while maintaining some overlap to provide protection against
product shortages or discontinuations. In addition, CDS Distribution enhances
its relationship with its vendors by providing feedback on products, assisting
in new product development, working with vendors to develop marketing programs
and offering vendors the opportunity to provide seminars to CDS Distribution's
customers at CDS Distribution facilities.
CDS Distribution, like most hardware distributors, sells products
throughout the United States for vendors on a non-exclusive basis without
geographic restrictions. CDS Distribution has distribution agreements with most
of its vendors and believes they are in the form customarily used by each vendor
and generally contain provisions which allow termination by either party upon as
little as 30 days' notice. Most of CDS Distribution's major distribution
agreements provide price protection by giving CDS Distribution a credit, subject
to specified limitations, in the amount of any price reductions by the vendor
between the time of the initial sale to CDS Distribution and the subsequent sale
by CDS Distribution to its customer. Most of the major distribution agreements
also give CDS Distribution qualified return privileges on slow-moving inventory.
CDS Distribution's distribution agreements do not restrict CDS Distribution from
selling similar products manufactured by competitors. Any minimum purchase
provisions in CDS Distribution's distribution agreements are at levels that CDS
Distribution believes do not impose significant risk.
From time to time, the demand for certain products sold by CDS Distribution
exceeds the supply available from the vendor. CDS Distribution believes that its
ability to compete has not been adversely affected to a material extent by these
periodic shortages, although sales may be adversely
5
affected for an interim period. In order to limit the impact of such shortages,
CDS Distribution generally attempts to include comparable products from more
than one vendor in its product line and endeavors to provide direction to its
customers in their selection of products.
SALES AND DISTRIBUTION
CDS Distribution has divided its sales operations into three regions.
Within each region, there are several branch offices, each supervised by a
branch manager and having one or more account managers who are teamed with an
inside sales assistant, generally on a one-to-one basis. Compensation of each
account manager and sales assistant is based, in part, on the profits generated
from sales to the account manager's customers. The account manager is a
technically-trained salesperson and is responsible for opening new accounts and
serving all established accounts in the branch manager's customer base. CDS
Distribution also utilizes volume sales specialists at its offices who sell
largely through telemarketing.
In three of CDS Distribution's branch offices, the account manager is
supported by a systems specialist who provides engineering and operating systems
technical support on more sophisticated systems. In addition, the systems
specialists are supported by technology managers located at CDS Distribution's
main offices in Irvine, California.
Customer orders are generally made by a toll-free telephone call to a sales
assistant in CDS Distribution's main offices or a branch office, and the order
is entered onto CDS Distribution's computer system. The sales assistant has
access to available information on inventory and customer credit status and,
upon reviewing this data, can enter the order immediately. Shipment is usually
made the same day, except on orders that require assembly and testing. Customers
also may pick up their orders at the main offices or at the Atlanta branch
office. All orders are handled on a prepayment, COD or credit basis depending on
the customer's creditworthiness and previous payment history. In addition, CDS
Distribution assists some resellers in obtaining equipment financing through
third-party floor planning programs.
CDS Distribution permits the return of products within certain time limits
and under certain conditions subject to a restocking charge, provided that the
products are unused. Products that are defective upon arrival are handled on a
manufacturers' warranty return basis without any restocking charge.
CDS Distribution estimates that a majority of its sales are to VARs and
value-added dealers. No customer has accounted for more than 10% of CDS
Distribution's net sales during 1994, 1993 or 1992. International sales are not
significant to CDS Distribution's operations. Sales by CDS Distribution are not
seasonal to any material extent. Because of CDS Distribution's prompt delivery
times, it maintains no substantial backlog of orders.
KENFIL
- ------
Kenfil's principal executive offices are located at 2722 Michelson Drive,
Irvine, CA 92715 (714) 222-6000. Kenfil was formed as a partnership in 1983 and
was incorporated in California in 1984. In April 1992, Kenfil reincorporated in
the state of Delaware, and completed a 3,100 for 1 common stock split. Kenfil
completed its initial public offering in February, 1993.
6
Kenfil is a distributor that focuses predominantly on microcomputer
software. Kenfil presently carries over 3,500 software titles from over 200
software publishers for sale to approximately 1,100 resellers. Kenfil's vendors
include many of the leading software publishers such as Symantec Corporation,
Quarterdeck Office Systems, Corel Systems Corporation, ChipSoft, Inc.,
Broderbund Software Inc., IBM Software, Maxis Software, The Learning Company
Inc., Walt Disney Computer Software, Inc. and Sierra On-Line, Inc. Kenfil's
reseller customers include superstores, software specialty retailers, mail order
companies, mass merchants and corporate resellers, such as CompUSA, Computer
City (part of Tandy Corp.), Software Etc., Inc., Micro Warehouse, Inc.,
Price/Costco, Inc. and Best Buy.
PRODUCTS
Kenfil presently offers over 3,500 software titles, most of which range in
suggested retail price from approximately $30 to $500. Kenfil primarily carries
products for the three most popular microcomputer operating systems: MS-DOS,
Microsoft Windows and Apple Macintosh. Kenfil focuses on software products in
the high growth categories such as the business application, utilities,
graphics, communications, consumer (education and entertainment) and
productivity segments. Kenfil also carries certain accessories. However, due to
such factors as new product launches and upgrades, the seasonal nature of
certain products and shifts in demand for software products, the list of
Kenfil's best selling products varies from time to time.
PUBLISHERS
Kenfil currently purchases software products from over 200 publishers.
Product purchasing decisions are based on profit potential, sales trends, cost,
availability and return privileges. Kenfil has contractual relationships with
many of its major publishers covering price, payment terms and return
privileges. These contracts are generally non-exclusive, and have terms of
between one and three years, many with automatic renewal provisions. The
agreements generally provide Kenfil with stock balancing and price protection
provisions which reduce in part Kenfil's risk of loss due to slow-moving
inventory or vendor price reductions. Kenfil has, from time to time, experienced
losses resulting from its inability to return obsolete inventory to publishers.
CUSTOMERS
Kenfil generally focuses on selling software to large software resellers.
Kenfil only sells products to resellers that meet Kenfil's financial and other
qualifications. Kenfil's customer base currently consists of approximately 1,100
resellers. For qualified resellers, Kenfil generally ships its products on net
30 day terms. Reseller customers include:
Superstores. These large stores sell hardware and software to both retail
and corporate end-users. Such customers of Kenfil include CompUSA, Computer
City, Fry's Electronics, Best Buy, Elek-Tek, and Micro Electronics Inc.
(MicroCenter).
Software Specialty Retailers. These reseller customers sell through their
own retail outlets to end-users and also may sell directly to corporate
customers. Such reseller customers of Kenfil include the Electronics Boutique,
Inc., Software etc. and Babbage's.
7
Mail Order. These customers sell primarily through catalogs and
telemarketing to corporate accounts and end-users. These customers include Micro
Warehouse, Inc. and Multiple Zones International Inc.
Mass Merchants. These customers generally concentrate on high volume
software products, carry relatively few titles and emphasize entertainment and
educational programs. Kenfil's customers in this category include Price/Costco,
Inc.
Corporate Resellers. These resellers sell software to large corporate
accounts and provide higher levels of service, including software selection,
procurement services and technical support. Such reseller customers of Kenfil
include Corporate Software Inc., 800 Software, SoftMart, Inc. and Software
Spectrum, Inc.
Kenfil's general policy is to accept returns only of defective or
misshipped products or prior versions of products which have been upgraded.
However, as an accommodation to its customers Kenfil accepts returned products
outside of this policy where Kenfil believes it has the commensurate right of
return from the publisher. Kenfil maintains product return reserves which it
believes to be adequate.
SALES AND MARKETING
As of June 30, 1994 Kenfil had 13 salespeople. Kenfil's sales operations
are divided into two regions with each region managed by a regional manager who
reports to the vice president of sales. Kenfil's sales personnel have access to
Kenfil's management information system which provides them with on-line, real
time information regarding inventory levels, pricing, customer purchasing trends
and product sales trends, as well as the customer's available credit. Kenfil
provides customers with direct access to its sales personnel through dedicated
sales telephone and facsimile lines, in order to provide better service and
maximize sales opportunities. Members of Kenfil's sales staff initiate targeted
out-bound sales calls as well as take and enter customer orders and respond to
customer inquiries. Kenfil's sales personnel also negotiate additional marketing
and advertising funds from publishers for the benefit of Kenfil's customers.
Kenfil works on an ongoing basis with its publishers and resellers in
developing specific marketing and promotional programs. Kenfil, through its
marketing department, develops and publishes a broad array of brochures, pocket
guides, catalogs, posters and other marketing material designed to obtain shelf
space for its publishers, and assists publishers in developing complete
marketing strategies tailored to promote individual software products. Kenfil
also consults with and advises publishers on the design of their product
packaging and positioning and on advertising. Kenfil advertises on behalf of its
publishers in major industry publications such as Computer Reseller News and
Computer Retail Week, with advertising campaigns produced entirely by Kenfil's
marketing department. Kenfil also provides many of its reseller customers with
customized marketing materials which the resellers in turn utilize for their own
customers.
INTERNATIONAL OPERATIONS AND SALES
Kenfil currently has two wholly-owned subsidiaries in the Far East. Although
international sales represented approximately 5% or less of net sales in each of
the last three fiscal years, such sales
8
make a significant contribution to pretax income. No assurances can be given
that international sales will continue at this level or make a significant
contribution to pretax income in future periods.
ROBEC
- -----
The predecessor of Robec, Inc. ("Robec") was incorporated in Nevada in 1977.
On August 16, 1989, this predecessor company was merged into a new Pennsylvania
corporation to form Robec. The authorized capital stock of Robec consists of 10
million shares of Common Stock, $.01 par value per share, and 5 million shares
of Preferred Stock, $.01 par value per share. In October 1989, Robec completed
the initial public offering of its Common Stock, receiving net proceeds of
approximately $12.7 million through the sale of 1,350,000 shares of Common
Stock. The net proceeds of the public offering were used to repay bank
borrowings, part of which were incurred to fund a dividend paid to shareholders
of record prior to the offering in connection with the termination of Robec's
status as a corporation subject to taxation under Subchapter S of the Code. In
February 1990, Robec acquired certain assets and assumed certain liabilities of
J. Crew, Inc., doing business as Electronic Marketing Specialists, Inc., which
was engaged in the distribution of microcomputers.
Robec is primarily a national valued-added wholesale distributor of
microcomputers and related products to value-added resellers (''VARs''), dealers
and computer retailers and primarily operates in this one business segment.
Robec markets, sells and supports a variety of products ranging from individual
components, which are typically sold in volume, to complete systems that have
been fully configured, assembled and tested prior to delivery to its customers.
Robec's historic strategy has been to emphasize the sale of these complete
systems and to provide a high level of value-added services, including
consultation on component selection and system configuration and provision of
system assembly and testing and technical support services. As a result of
competitive pressures, reduced profit margins and the way in which other,
similar distributors have changed their businesses, Robec is now placing more
emphasis on telemarketing as its primary sales method. Robec also provides a
variety of training programs and educational seminars designed to enhance its
customers' technical capabilities. In March 1994, Robec began, in respect to new
customers, to discontinue its maintenance services and sales of spare parts and
supplies for microcomputers and related products. Robec believes that the
discontinuation of these services will not have a material effect on its
inventory or results of operations.
Robec's vendors include leading manufacturers such as Acer, Altos, Digi-Board,
Fujitsu, IBM, Okidata, Multi-tech Systems, Samsung, Texas Instruments, Unisys,
Wyse and Zenith. Robec focuses its marketing efforts on the products of a
limited number of key vendors in order to become one of the leading distributors
for each of its principal vendors. This enables Robec to develop product-
specific technical expertise that enhances its value-added support services.
Robec attempts to minimize competition among vendors' products while maintaining
some overlap to provide protection against product shortages or
discontinuations.
PRODUCTS
Robec seeks to maintain products from nationally-recognized vendors that
provide all the components most VARs require to fully configure their computer
systems. All new products are extensively tested prior to inclusion in Robec's
distribution network.
9
The following is a description of the major categories of products currently
sold by Robec and the principal current vendors of those products.
Microcomputers--Robec distributes desktop and portable personal computers and
multiuser microcomputers manufactured by Acer, Altos, IBM, Samsung, Texas
Instruments, Unisys, Wyse and Zenith.
Printers--Robec distributes a broad line of dot matrix, laser and ink-jet
printers manufactured by Citizen, Fujitsu, Okidata and Texas Instruments.
Monitors and Terminals--Robec distributes monitors and terminals manufactured
by CTX, Qume, Relisys, Samsung, Sony, Unisys and Wyse.
Local Area Networks--A LAN permits microcomputers to communicate with one
another and to function on an integrated basis. Robec distributes LAN software
and specialized hardware products manufactured by Digi-Board, D-Link, Proteon,
Samsung, Unisys and Western Digital. Many of these products are offered with
Novell, Moses Computers or EMEX software.
Accessories and Supplies--Robec distributes hard and floppy disk drives, board
products, diskettes, stand-by power supplies, modems and other communications
products, accessories and supplies manufactured by numerous companies including
Boca Research, Colorado Memory Systems, Mountain Computer, Multi-Tech Systems,
Sony, UDS and 3M.
Software--Robec sells a variety of operating system and LAN software products
generally as part of its systems sales. Robec has also commenced the sale of
certain applications software. Among the manufacturers of these software
products are Data Access and Novell.
VENDOR RELATIONS
To maintain a strong relationship with its principal vendors, Robec focuses on
marketing the products of a limited number of key vendors. Robec selects its
product line to minimize competition among vendors' products while maintaining
some overlap to provide protection against product shortages or
discontinuations. In addition, Robec enhances its relationship with its vendors
by providing feedback on products, assisting in new product development, working
with vendors to develop marketing programs and offering vendors the opportunity
to provide seminars to Robec's customers at Robec facilities.
Robec, like most hardware distributors, sells products throughout the United
States for vendors on a non-exclusive basis without geographic restrictions.
Robec has distribution agreements with most of its vendors and believes they are
in the form customarily used by each vendor and generally contain provisions
which allow termination by either party upon as little as 30 days' notice. Most
of Robec's major distribution agreements provide price protection by giving
Robec a credit, subject to specified limitations, in the amount of any price
reductions by the vendor between the time of the initial sale to Robec and the
subsequent sale by Robec to its customer. Most of the major distribution
agreements also give Robec qualified return privileges on slow-moving inventory.
Robec's distribution agreements do not restrict Robec from selling similar
products manufactured
10
by competitors. Any minimum purchase provisions in Robec's distribution
agreements are at levels that Robec believes do not impose significant risk.
From time to time, the demand for certain products sold by Robec exceeds the
supply available from the vendor. Robec believes that its ability to compete has
not been adversely affected to a material extent by these periodic shortages,
although sales may be adversely affected for an interim period. In order to
limit the impact of such shortages, Robec generally attempts to include
comparable products from more than one vendor in its product line and endeavors
to provide direction to its customers in their selection of products.
COMPETITION
- -----------
Competition in the distribution of microcomputer products is intense.
Principal national distributors are Ingram Micro D, Inc., Merisel, Inc. and Tech
Data Corporation. CDS Distribution and Robec also compete with numerous
manufacturers, resellers, retailers and regional distributors. Most of CDS
Distribution's and Robec's major competitors have substantially greater
financial resources than CDS Distribution or Robec, even on a combined basis.
Competition is primarily based upon availability of product, price, speed of
delivery, convenience, technical support and other support services. CDS
Distribution believes that it is generally competitive with respect to each of
these factors and that its principal, competitive advantages are its technical
support and other support services, and speed of delivery.
The software distribution industry is highly competitive. Competition within
the industry is based primarily on price and product availability, and to a
lesser extent on the speed of delivery and the level of marketing and other
services provided. Certain of Kenfil's competitors have substantially greater
financial resources than Kenfil. Kenfil's principal competitors include national
distributors such as Ingram Micro Inc. and Merisel, Inc., both of which
distribute hardware products in addition to software. In addition, Kenfil
competes with regional distributors and certain publishers that sell their
products directly to resellers. Because of the intense competition within the
industry, software distributors, including Kenfil, have low gross and operating
margins. Consequently, Kenfil's profitability is highly dependent upon effective
management and control of costs.
The manner in which microcomputer software products are distributed and sold
is changing, and new methods of distribution may emerge or expand. Software
publishers have sold, and may intensify their efforts to sell, their products
directly to resellers and end-users, including certain major reseller customers
of Kenfil. From time to time certain publishers have instituted programs for the
direct sale of large-order quantities of software to major corporate accounts,
and these types of programs may continue to be used by various publishers. In
addition, certain major publishers have implemented programs for master copy
distribution of software (site licensing). These programs generally grant an
organization the right to make any number of copies of software for distribution
within the organization provided that the organization pays a fee to the
publisher for each copy made. Also, publishers may attempt to increase the
volume of software products distributed electronically to end-user's
microcomputers. If these programs become more common or if other methods of
distribution of software become accepted, Kenfil's business and financial
results could be materially adversely affected. Kenfil believes that the total
range of services it provides to its customers cannot be easily substituted by
publishers, particularly because publishers do not offer the scope of services
or product offerings required by most of Kenfil's reseller customers. However,
there
11
can be no assurance that publishers will not increase their efforts to sell
substantial quantities of software directly to resellers and end-users. Kenfil
believes that inflation has not had a material effect on its operations.
EMPLOYEES
- ---------
As of August 31, 1994, CDS Distribution had 190 full-time employees, including
90 persons employed in sales, sales support and marketing functions. None of CDS
Distribution's employees are covered by a collective bargaining agreement. CDS
Distribution considers its relations with its employees to be good.
As of June 30, 1994, Kenfil had 130 full-time employees. On July 5, 1994, the
operations of Kenfil were consolidated with those of CDS Distribution and the
number of Kenfil's employees was reduced to 38, including 11 temporary
employees, all 38 of whom are sales/marketing personnel or
administration/accounting personnel.
As of June 30, 1994, Robec had 195 full-time employees, including 79 persons
employed in sales, sales support and marketing functions. None of Robec's
employees are covered by a collective bargaining agreement. Robec considers its
relations with its employees to be good.
ITEM 2. PROPERTIES.
----------
AMERIQUEST
AmeriQuest's principal offices are located in leased facilities in Irvine,
California. AmeriQuest, CDS Distribution, Kenfil and CMS Enhancements are all
housed primarily in this facility, which consists of approximately 161,000
square feet of office and warehouse space. This facility will be lost to
AmeriQuest on December 31, 1994, at which time it will move its executive and
accounting offices to new office space. Although AmeriQuest has not yet
committed itself to a given location, in the opinion of management there is
sufficient office space readily available in the Irvine area to accommodate its
needs.
AmeriQuest and Kenfil's distribution facilities were consolidated at its
present location in Wilmington, Ohio. However, with the acquisition of Robec it
is likely that East Coast facilities will be maintained in Robec's facility in
Horsham, Pennsylvania, while only a small returns warehouse will be maintained
in California.
ROBEC
Robec's executive, administrative and main sales offices are located in
Robec's facility in suburban Philadelphia, Pennsylvania. This facility consists
of 36,000 square feet of office space and 69,000 square feet of warehouse space.
The current owner of this facility is a partnership affiliated with the
management of Robec.
Robec's branch offices generally consist of between 900 and 10,200 square feet
of office space, depending on market size. The Atlanta branch contains 19,200
square feet, including both
12
office and warehouse space. Robec's branch offices are equipped with
standardized telephone, security and computer systems which Robec installs and
programs.
Robec leases all of its offices, four of which are leased from partnerships
affiliated with the management of Robec. The leases generally provide for a
base minimum rental per square foot. In addition, Robec is generally responsible
for its pro rata share of maintenance expenses for common areas, real estate
taxes and insurance. Robec is evaluating its current needs for branch offices
and expects to reduce both the number and sizes of its branch offices during
1994. Robec's current leases generally permit the early termination of the lease
upon payment of a penalty equal to the amount of one year's rent. If Robec
should desire to extend any of the current leases, Robec believes that
extensions on satisfactory terms, or alternative locations, generally would be
available, although there can be no assurance that Robec would be able to
negotiate further extensions of any particular lease.
Summary Table
- -------------
The following table sets forth information regarding the regional offices of
AmeriQuest and its subsidiaries.
LOCATION SQUARE FEET LEASE EXPIRATION YEAR OPENED
- --------------------- ----------- ------------------- -----------
AMERIQUEST
Irvine, CA 161,000 12/31/94 1990
Norcross, GA 2,050 mo.-mo. 1994
ROBEC
Asheville, NC(1) 10,200 9/09/94 1985
Atlanta, GA 19,200 1/31/95(2) 1985
Boston, MA 15,100 4/30/94(3) 1984
Chicago, IL 1,775 12/31/98(2) 1988
Denver, CO 2,300 10/31/95 1986
Kansas City, KS 977 9/30/98(2) 1988
Los Angeles, CA 4,169 6/30/98 1990
Orlando, FL 8,100 4/22/95 1990
Horsham, PA(1) 111,000 12/31/96 1978
Phoenix, AZ 27,500 9/30/94 1988
Salt Lake City, UT 2,300 12/31/95 1990
San Francisco, CA 1,680 5/6/98 1990
Seattle, WA 2,100 8/30/94 1990
Washington, DC(1) 7,600 12/31/95 1983
Youngstown, OH(1) 6,700 11/30/96 1983
- --------------
(1) The Robec offices, which include the main offices and warehouse facility in
Horsham, Pennsylvania, are leased from partnerships affiliated with the
management of Robec. The main offices and warehouse facility in Horsham,
Pennsylvania contain 105,000 square feet, and the additional 6,000 square
feet included in the foregoing table reflects space in a
13
warehouse that was closed in the first quarter of 1994 and formerly was
leased from an affiliated partnership. During the first quarter of 1994,
Robec entered into a lease with an affiliated partnership for 6,000 square
feet of retail space located in suburban Philadelphia.
(2) These leases have renewal options to extend the lease term for five years,
with rent based upon the then market rate or a specified formula.
(3) This lease has a renewal option to extend the lease term for two years,
with rent based upon the then market rate.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
AmeriQuest is both a plaintiff and defendant from time-to-time in lawsuits
incidental to its business. The management of AmeriQuest believes that none of
such current proceedings individually or in the aggregate, will have a material
adverse effect on AMERIQUEST. While not expected to be of material effect to
the Company, Kenfil Inc. vs. RLI Insurance Company, Superior Court of the State
-------------------------------------
of California, County of Los Angeles, No. BC 108564 filed July 12, 1994,
involves litigation instituted by Kenfil Inc. to recover additional monies for
the damage it incurred in the Northridge earthquake of January 17, 1994. The
defendant cross-claimed on August 12, 1994 for return of the $840,000 it had
paid on claims submitted by Kenfil Inc., based on affidavits from former Kenfil
employees alleging that they had been instructed following the earthquake to
intentionally destroy additional inventory. The defendant's theory is that it
is not obligated to even cover that portion of the damage cause by the
earthquake because of the possible fraud involved with such actions; while the
management of Kenfil maintains that only that portion of damages actually
incurred by the earthquake were submitted as claimed losses. There exists a
question of fact as to whether the actions of Kenfil's employees were instigated
by upper-level management and a question of law as to whether the lower-level
managers of Kenfil are able to take ultra vires actions which can be attributed
to Kenfil. The testimony to date appears fragmented and uncorroborated, such
that a close examination of the evidence deduced to date reveals no clear
evidence that would allow one to conclude that the defendant was in any way
defrauded. Additionally, it appears that the defendant insurance company failed
to terminate the contract upon discovery of the alleged "fraud," and merely
chose to not renew the contract upon its expiration. Although there are pictures
available to prove the actual damage immediately following the earthquake, no
assurance can be given that the defendant will not ultimately prevail. The
ability of Kenfil Inc. to satisfy any possible future judgement is dependent on
the results of its future operations. However, such a judgement would not
directly impact the other subsidiaries of AmeriQuest nor AmeriQuest itself.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
On September 12, 1994, the shareholders of Kenfil and AmeriQuest approved
the proposed merger of "AmeriQuest/Kenfil Inc.," a wholly-owned subsidiary of
AmeriQuest, with and into Kenfil Inc. (the "Merger"). The Merger has since
become effective, and AmeriQuest is now the sole shareholder of
AmeriQuest/Kenfil Inc. In connection with the Merger, AmeriQuest issued
1,046,252 shares of its Common Stock to the Kenfil minority shareholders,
1,894,360 shares to the holders of Kenfil Inc's subordinated debt and 2,788,353
shares to Kenfil Inc's vendors. The vote on this matter was 6,636,184 shares
FOR, 21,000 shares AGAINST and 2,815 shares ABSTAINED.
In order to accommodate the Merger, the shareholders of AmeriQuest also
approved an amendment to AmeriQuest's Certificate of Incorporation to increase
the number of authorized shares of Common Stock of AmeriQuest from 10,000,000
shares to 30,000,000 shares. The vote on this matter was 6,875,775 shares FOR,
25,129 shares AGAINST and 3,997 shares ABSTAINED. A total of 11,005,625 shares
were outstanding and entitled to vote on the record date.
14
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following table sets forth certain information regarding the current
officers of AmeriQuest.
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------------------------
Harold L. Clark 58 Director, Co-Chairman and Chief Executive Officer
Gregory A. White* 42 Director*, President* and Chief Operating Officer*
Stephen G. Holmes 48 Director, Secretary/Treasurer and Chief Financial Officer
Carol L. Miltner 52 Executive Vice President--Sales & Marketing
Howard B. Crystal 49 Senior Vice President - Marketing and Purchasing
Peter D. Lytle 37 Senior Vice President--Operations
William F. Gibson III 40 Vice President and Comptroller
Peter S. H. Grubstein 39 Senior Vice President
Irwin A. Bransky 43 President and Chief Executive Officer of AmeriQuest/Kenfil Inc.
Robert H. Beckett** 61 Director** and President of Robec, Inc.
- --------------
* Mr. White will be appointed to the Board of Directors and elected President
and Chief Operating Officer upon the acquisition of NCD.
** Mr. Beckett will be appointed to the Board of Directors at its next
meeting.
The officers are elected by the Board of Directors and serve at the
discretion of the Board of Directors, subject, however, to the provisions of
their Employment Agreements, which provide for severance payments in the event
of termination for other than "cause," as defined in each employment agreement.
The severance rights range from one to two years of salary, during which time
they are prohibited from competing with AmeriQuest or its subsidiaries.
Harold L. Clark was named President and Chief Executive Officer of
AmeriQuest on December 3, 1993. He was appointed to serve as a Director on March
4, 1994. Prior to December 1993 he served as President and Chief Executive
Officer of CDS Distribution, Inc., a subsidiary of AmeriQuest, from April 1993
to December 1993. From February 1991 to December 1992, he served as President,
Chief Operating Officer and Director of Everex Systems, Inc. ("Everex"). From
1989 through 1991, he served as a computer industry consultant. From 1984 to
1989, he served as the President of Ingram Micro, Inc. Dr. Clark received a B.S.
Degree from Bryant College, an MBA from Pepperdine University, and has earned a
Doctor of Education Degree from Nova University.
*Gregory A. White will join AmeriQuest upon the acquisition of NCD by
AmeriQuest as a Director and as President and Chief Operating Officer. Mr.
White has served as President and Chief Executive Officer of NCD for more than
the last five years. Mr. White holds a Master of Science degree in Management
Sciences from the University of South Florida.
Stephen G. Holmes joined AmeriQuest as its Chief Financial Officer,
Secretary and Treasurer in January 1992, after serving as a general partner and
a managing partner of Arthur Andersen & Co. from 1978 until 1992. Mr. Holmes was
appointed to serve as a Director on March 4, 1994. Mr. Holmes was educated at
the University of Colorado and the University of Rochester, from which he
received a B.S. degree, and is licensed to practice as a certified public
accountant in the State of California and other states.
15
Carol L. Miltner joined AmeriQuest in December 1993 as Executive Vice
President--Sales & Marketing. From April 1991 to December 1993, she conducted
her own consulting and seminar business on sales techniques in the computer
industry. From April 1989 to April 1991 she served as Senior Vice President of
Sales for Merisel. From 1985 to April 1989 she served as Senior Vice President
of Sales for Micro D, Inc.
Howard B. Crystal joined AmeriQuest in July, 1994 as Senior Vice President
- - Marketing and Purchasing. From October 1992 to July 1994 he served as
President of AmeriWats, Inc., a telecommunications company. From February 1991
to July 1993 he served as Senior Vice President - Sales and Marketing for
Everex, Inc. From May 1989 to February 1991 he served as Senior Vice President
- - Sales and Marketing for TechData. Mr. Crystal holds a Bachelor of Science in
Electrical Engineering from the New Jersey Institute of Technology and an MBA
from Rutgers University.
Peter D. Lytle joined AmeriQuest in December 1993 as Senior Vice President-
- -Operations. From 1983 to September 1993 he was employed by InaCom Corporation
and its predecessors, where his last position was Regional President/General
Manager--California. Mr. Lytle is a Certified Public Accountant and holds a
Bachelor of Arts degree in Business Administration with an emphasis in
accounting from Western Michigan University.
William F. Gibson III joined AmeriQuest in June 1988, and since January,
1994 has been the Vice President and Comptroller of AmeriQuest. He is a
Certified Public Accountant and holds a Bachelor of Science degree from
University of California--Berkeley in Business Administration.
Peter S. H. Grubstein served as Chief Operating Officer of Kenfil Inc. from
January 1994 until its acquisition was completed on September 12, 1994. Prior
to his involvement with Kenfil Inc., he served as President of Grubstein
Holdings Ltd., a private equity investment firm for more than five years. Mr.
Grubstein holds a bachelor's degree from Yale College.
Irwin A. Bransky founded Kenfil Inc. in 1983 and has been President and
Chief Executive Officer of Kenfil Inc. since that time. Mr. Bransky holds a
B.S. degree in Business Administration and a master's diploma in Personnel
Administration from the Graduate School of University of Witwaterstrand, South
Africa.
Robert H. Beckett has served as the President and Chief Executive Officer
of Robec, Inc. for more than the last five years. Mr. Beckett holds a Bachelor
of Science degree in Mechanical Engineering from Worcester Polytechnic
Institute.
16
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The following table sets forth the market prices for the shares of Common
Stock of AmeriQuest. The prices reflect the high and low closing prices quoted
on the New York Stock Exchange for each calendar quarter since December 31,
1991.
AMERIQUEST
----------
1992 High Low
- ---------------------- ------ ------
First Quarter $3 3/4 $2 3/8
Second Quarter 3 1 1/2
Third Quarter 2 1/4 1 1/4
Fourth Quarter 3 5/8 2
1993
- ----------------------
First Quarter 3 3/8 2
Second Quarter 3 5/8 2
Third Quarter 3 1/4 2
Fourth Quarter 5 3/4 2 1/2
1994
- ----------------------
First Quarter 6 4 1/8
Second Quarter 4 1/8 3
Third Quarter 4 1/4 3 1/8
- --------------------------------------------
On September 30, 1994, the stock of AmeriQuest closed at $3.25 per share on the
New York Stock Exchange.
As of August 22, 1994 AmeriQuest had approximately 531 shareholders of record
and Kenfil had approximately 117 shareholders of record.
17
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data has been derived from
and should be read in conjunction with the audited consolidated financial
statements of AmeriQuest, and the notes thereto, and with "Management's
Discussion and Analysis of Results of Operations and Financial Condition",
included elsewhere herein and incorporated herein by this reference (dollars in
thousands, except per share data).
YEAR ENDED JUNE 30,
1994 1993 1992 1991 1990
----------- ---------- ----------- ----------- ----------
Net sales (1) $ 87,593 $ 73,082 $ 115,053 $ 130,062 $ 187,724
Income (loss) before taxes (7,971) 236 (9,623) (12,027) 652
Net income (loss)(2) (7,971) 236 (8,893) (8,501) 405
Earnings (loss) per share (1.33) 0.08 (3.04) (2.89) 0.13
Total assets 65,145 20,274 23,522 40,747 41,084
Long-term obligations 3,442 1,817 274 1,851 1,134
Stockholders' equity 12,875 8,644 7,952 16,806 26,065
Weighted average
shares outstanding 5,973,511 3,060,908 2,921,588 2,941,666 3,155,756
(1) The sales increase in 1994 compared to 1993 was largely due to the
initiation of a broader distribution strategy. Year to year sales declines
from 1991 to 1993 were principally due to an eroding customer base and
reduced emphasis on commodity products.
(2) Losses in 1994, 1992 and 1991 related principally to corporate
restructurings in 1994 and 1992 and erosion of the customer base in 1991 to
1993 not offset by operating cost decreases.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Business Strategy
AmeriQuest is following a business strategy of growth by acquisition,
consistent with the consolidation that is occurring in the maturing personal
computer market place. This strategy creates the following risks involving the
ability to successfully:
- Consolidate the operations of previously unaffiliated businesses, some of
which were unprofitable
- Combine the business cultures of diverse operations
- Obtain adequate capital resources to complete acquisitions and working
capital required for continuing operations
The following reflects the net changes in each specified account as regards the
implementation of the business strategy of the Company:
18
Increase (Decrease) During the Period
------------------------------------------------------
Quarter Ended Year Ended Year Ended
September 30, June 30, 1994, June 30, 1993,
1994, Compared to Compared to Compared to
Quarter Ended Year Ended Year Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------------ --------------- ---------------
(Dollars in Thousands)
Sales
Due to acquisitions $20,817 $14,267 $ 3,102
Continuing operations 4,042 244 (28,637)
Restructuring - - (16,436)
Net change 24,859 14,511 (41,971)
Gross Profit
Due to acquisitions 1,913 771 434
Continuing operations (79) 256 1,855
Restructuring - - (1,792)
Net change 1,834 1,027 497
Operating Expenses
Due to acquisition 1,845 2,598 547
Continuing operations (2,483) 490 (3,009)
Restructuring (700) 5,700 (6,575)
Net change (1,338) 8,788 (9,037)
Other (income) Expense
Due to acquisition 357 544 38
Continuing operations (57) (98) 367
Net change 300 446 (325)
Net Income
Due to acquisition (289) (2,371) (151)
Continuing operations 2,461 (136) 4,497
Restructuring charge 700 (5,700) 4,783
Net change 2,782 (8,207) 9,129
The working capital for these changes has generally been provided by bank credit
line facilities and the issuance of common stock as to acquisitions.
Net Sales
AmeriQuest is in a single line of business, namely the distribution of
personal and other computing hardware and software products. AmeriQuest has
also emphasized value-added assembly of certain products, limited in fiscal year
1994 to mass storage devices. In prior years, operations emphasized the
assembly of personal computers, which efforts have been discontinued with
restructured operations focusing on broader based distribution of the products
of others.
19
During the year ended June 30, 1994, with emphasis upon a broader based
distribution strategy net sales increased 20% as contrasted with the prior year.
For the year ended June 30, 1993, net sales decreased 36% from the prior year
due primarily to erosion of the then customer base of AmeriQuest and reduced
emphasis on commodity products. In fiscal year 1994 the customer erosion
experienced in the prior year was more than offset by the operational activities
of the acquired entities.
Sales returns and allowances are not a significant economic risk to
AmeriQuest, and generally average less than 10% percent of sales. Separately,
an integral aspect of AmeriQuest's business is to exchange products sold to
customers which are either incompatible units or do not work for a variety of
technical and other reasons. If such products are ultimately determined to be
defective, AmeriQuest, under contract terms with its vendors, is able to return
such products to its vendors. Under such exchange arrangements AmeriQuest's
economic risk is nominal and generally limited to the costs of freight and
technical services, both current period charges to expense. Price concessions
to larger customers are generally arranged under pre-determined contractual
provisions and are not significant. An aggregate warranty and returns reserve
of approximately $1 million is reflected in the balance sheet of AmeriQuest at
June 30, 1994.
Inasmuch as the Company began its distribution operations in December 1993,
the effect of market development funds received through June 30, 1994, was not
significant.
The Company manages its inventories by maintaining sufficient quantities to
achieve high order fill rates while at the same time attempting to stock only
those products in high demand with a rapid turnover rate. Inventory balances
will fluctuate as the Company adds new product lines and when appropriate, makes
large purchases and cash purchases from manufacturers when the terms of such
purchases are considered advantageous. The Company's contracts with most of its
vendors provide price protection and stock return privileges to reduce the risk
of loss to the Company due to manufacturer price reductions and slow moving or
obsolete inventory. In the event of a vendor price reduction, the Company
generally receives a credit for products in inventory. In addition, the Company
has the right to return a certain percentage of purchases, subject to certain
limitations. Historically, price protection and stock return privileges as well
as the Company's inventory management procedures have helped to reduce the risk
of loss of carrying inventory.
Cost of Sales and Gross Profit
During the year ended June 30, 1994, cost of sales was 86% of net sales due
principally to intense price competition for AmeriQuest's products, combined
with reserves established to reflect the price erosion on certain products. For
fiscal 1993, cost of sales was approximately 84%, also due principally to
intense price competition for AmeriQuest's products, combined with reserves
established to reflect the price erosion on certain products. Cost of sales for
the year ended June 30, 1992 was approximately 90% reflecting the effect of
reserves to adjust the cost of AmeriQuest's inventories to market price.
AmeriQuest has operated to more than offset the otherwise adverse effects of
declining gross margins in its industry by emphasizing higher value-added
products, however, while margins per se have been maintained and even increased,
such margin pressures served to reduce the breadth of AmeriQuest's commodity
product lines and the net sales level achieved historically.
20
Operating Expenses
For the years ended June 30, 1994, 1993 and 1992, selling, general and
administrative expenses were approximately 16%, 14% and 12% of net sales, as
AmeriQuest beginning in 1992 expanded its employee base and acquired new
facilities to support additional product lines to accommodate revenue growth.
In 1994 and 1992 AmeriQuest restructured its operations and related charges
aggregated $5.7 million and $4.5 million. The components of the restructuring
charges for each period presented follow (dollars in thousands):
Year ended June 30,
----------------------------
1994 1992
------ ------
Employee terminations $ 500 $1,100
Facilities abandonment 300 --
Discontinued product lines 4,900 3,400
------ ------
$5,700 $4,500
====== ======
Inasmuch as these restructurings were initiated in the middle of each respective
fiscal year, the efforts were largely completed by each year end and the related
expenditures were largely incurred at those dates. The discontinued product
lines related to the then direct manufacture of both personal computers and tape
drive storage units utilizing proprietary designs with open architecture to the
myriad of compatible personal computing hardware and software available in the
marketplace. Such discontinuance was part and parcel to the current emphasis on
distribution per se of products generally manufactured and assembled by others.
The quantification of the components of the restructurings follows:
Tape Drive
Personal Computer Storage Unit
Manufacture Manufacture
----------------- -------------
Employee terminations
Number 40 130
Location Irvine, CA Singapore;
Irvine, CA
Facilities abandonment
Square footage 20,000 Sublet
Continuing lease
obligations
Amount per month $10,000 -
Product discontinuance
Capitalized software 1,700 -
Equipment - 200
Loss on inventory
disposition 1,800 3,200
Contractual obligations
Manufacturing 1,100 -
Marketing, other 300 -
21
All related costs were largely incurred prior to each fiscal year end, except
for the following accruals as to the 1994 restructuring:
Date Amount
---- ------
Lease obligations Through 1995 $200
Accruals Through 1994 $200
The benefits that inurred to AmeriQuest apart from the discontinuance of
unprofitable manufacturing per se, were related to refocusing upon distribution
and the core strengths inherent within AmeriQuest. Losses reported by AmeriQuest
in 1992 and 1994, apart from restructuring charges, were largely related to
these former manufacturing operations.
Operating Results
Annual and quarterly operating results for Far Eastern activities of the
Company are relatively consistent from period to period in 1994, 1993 and 1992,
without regard to the discontinuance of the tape drive assembly operation in
Singapore in 1992. The annual and quarterly operating results of the domestic
operations of the Company during the three years ended June 30, 1994, have
varied considerably during the transition over which the former emphasis on
manufacturing was largely phased out for all but mass storage assembly of disk
drives, in favor of an increased emphasis on broad line distribution of the
products of many manufacturers and other suppliers. During this transition
period revenue as well as cost variations are largely a function of manufactured
product line discontinuances offset by revenue increases from acquired
distribution operations.
Research and Development
AmeriQuest significantly curtailed its research and development expenditures
beginning in fiscal year 1993 as AmeriQuest began to emphasize its distribution
capabilities and thus reliance upon the products of others. Such research and
development expenditures aggregated .03% of net sales in fiscal 1994 and in
excess of 1% of net sales in 1993 and 1992 and relate to the assembled storage
products of AmeriQuest. The decreased emphasis on research and development may
ultimately limit any competitive advantages of the Company as regards mass
storage product development.
Interest Expense
Interest expense increased during the fiscal year ended June 30, 1994, to .8%
of net sales, as contrasted to prior year costs, as a result of AmeriQuest's
reliance on its bank line of credit to finance increased accounts receivable and
inventories. During the year ended June 30, 1992, interest expense decreased to
.4% of net sales from .5% for fiscal year 1993.
Income Taxes
In the years ended June 30, 1994 and 1993 no income tax expense resulted due
to losses or the availability of tax operating loss carry forwards. For the
year ended June 30, 1992, AmeriQuest reported a tax benefit of approximately 8%
of pretax losses, resulting from the carryback of AmeriQuest's tax losses to
prior periods.
Inflation
To date, AmeriQuest has not been significantly affected by inflation.
Moreover, technological changes in the electronics industry have generally
resulted in price reductions, despite increases in
22
certain costs which may be affected by inflation. In addition, many electronic
components of comparable quality can currently be purchased outside of the
United States at favorable prices.
Liquidity and Capital Resources
Beginning in 1993 and reaching a much greater activity level in mid 1994 and
continuing thereafter, acquisitions have largely been funded through the direct
issuance of Common Stock of AmeriQuest, coupled with supplemental cash proceeds
from private placement offerings to unrelated parties. This profile is expected
to continue for future acquisitions.
In July 1994, the Company entered into an agreement to sell its Singapore
subsidiary, CMS Enhancements (S) PTE Ltd., ("CMS Singapore") to a former officer
and director of the Company. The Company expects to exchange all of the stock of
CMS Singapore for 350,000 shares of the Company's previously issued common
stock, of which approximately 345,000 shares were received by the Company as of
September 1994. The book value of CMS Singapore is approximately $.7 million and
thus no appreciable gain or loss was expected to result upon completion of the
transaction. CMS Singapore is expected to generate revenues of approximately $20
million with break-even operating results for fiscal 1995. The disposition, if
completed, will not have a material effect on either the Company's Far East
segment or consolidated results of operations. CMS Singapore is a segment of the
Company's continuing line of business and, as a result, any disposition will not
be accounted for as a discontinued operation. This transaction is the subject of
potential litigation, the ultimate resolution of which is not determinable. Such
potential litigation would be between the Company and the purchaser and would
relate to whether full consideration was received for the proposed transaction.
In the opinion of management such litigation would not have a materially adverse
effect on the Company's future results of operations and financial position.
In fiscal years 1994 and 1992 AmeriQuest initiated a restructuring to focus
the scope of its operations on distribution. Such restructuring spanned
organizational aspects of joint venture operations, product and production
alignment, market channel and customer delineation, vendor arrangements and
personnel capabilities. Generally the restructuring involved reducing the
emphasis on assembly operations, other than for storage devices, and focusing on
distribution operations. As previously stated, aggregate charges of this effort
which was substantially completed in each respective period, approximated $4.5
million in fiscal 1992 and $5.7 million in fiscal 1994. The concurrent use of
cash resources for these charges was largely provided by proceeds from the
liquidation of inventories and the issuance of Common Stock.
As AmeriQuest introduced products which carry higher gross margins than do the
commodity products which historically accounted for much of AmeriQuest's
revenues, available working capital was invested in higher levels of inventories
in fiscal year 1994. During the years ended June 30, 1993 and 1992, AmeriQuest
concentrated on reducing levels of inventories. In this regard AmeriQuest
liquidated a significant percentage of its cost reserved inventory in those
years.
Year ended June 30,
(Dollars in thousands)
1994 1993 1992
-------- -------- -------
Inventory at June 30,
net of reserve $24,165 $ 7,000 $ 8,586
======= ======= =======
Beginning balance $ 3,096 $ 7,425 $ 8,657
Charged to expense 1,714 633 3,388
Deductions from
disposition (2,177) (4,962) (4,620)
------- ------- -------
Ending balance $ 2,633 $ 3,096 $ 7,425
======= ======= =======
Thus the inventory reserve decreased significantly during fiscal years 1992 to
1994 due to the liquidation of aged inventory and at the same time inventories
increased appreciably in fiscal 1994
23
related to the inventory stock of acquired businesses, recorded net of any
valuation reserve and thus any former reserves are not reflected per se. As to
--- --
receivables, those accounts of acquired businesses are reflected at the date of
acquisition at amounts expected to be collected, without reserves established as
a separate item and thus during fiscal year 1994 the appreciable increase in
acquired accounts receivable is not matched with a proportionate increase in the
collectibility reserve. Inasmuch as the acquisitions of AmeriQuest have occurred
throughout fiscal year 1994, a determination of inventory turns and days' sales
in receivables at June 30, 1994 is not meaningful based upon aggregate fiscal
year 1994 reported sales by AmeriQuest.
In the distribution segment of its operations, AmeriQuest and its competitors
are subject to continual technological changes and relatively short product
marketing cycles, generally less than a year in duration. As such, AmeriQuest,
in order to be competitive,, must maintain efficient sales and marketing staffs.
AmeriQuest monitors the average daily sales of its current product lines and
provides reserves generally as it experiences price erosion approaching the net
realizable value of each product class and deterioration in its prior sales
volumes of each product cycle.
As to its storage products, AmeriQuest is subject to component availability
and thus the need to stock sufficient raw materials to effect a continuous flow
of finished goods. The liquidation of component parts other than in the
ordinary course of business as finished products, is a speculative arena and
typically the liquidating value of components is at substantial discounts (up to
90% discount by brokerage) and thus the realization of inventory costs is highly
dependent upon continued business operations.
Cash utilized in operations was approximately $8.4 million in 1994. During
1993 cash generated from operations exceeded $1.2 million and the restructuring
in 1992 was offset by operating asset decreases resulting in cash generated from
operations of approximately $2.7 million. In 1994, 1993 and 1992 property
purchases were limited to approximately $1.5 million, $1.3 million and $.3
million, respectively. Bank borrowings increased by approximately $23 million
in 1994 (of which, approximately $19 million was assumed in acquisitions of
businesses), principally utilized to fund acquired assets. Borrowings in 1993
and 1992 were highly variable and did not exceed $3.6 million and $7.6 million,
respectively, during those years. In 1994 stock issuances supplemented borrowed
resources and were largely required to complete the business acquisitions of
AmeriQuest and fund the restructuring. The net effect of these operating,
investing and financing cash flows over the three year period ended June 30,
1994 was a positive cash flow, with net cash generated in 1994 and 1993 of $2.2
million and approximately $.3 million, respectively, and with a net cash use of
$.9 million in 1992.
The management of the Company expects to implement a cost reduction and
efficiency program for its core distribution operations during fiscal year 1995
in an effort to eliminate the continuing impact of those attributes which
created the cash loss from operations of $8.4 million realized in 1994. This
program will focus on centralized administrative operations, product procurement
efficiencies and a continuing cost/benefit analysis of resource allocation.
At September 1994, AmeriQuest has working capital lines of credit of over $50
million, including a $20 million facility extended to Robec, Inc. Borrowings
under these accounts bear interest at from 1 to 3 percent over the prime rate
and are limited to specified percentages of AmeriQuest's eligible accounts
receivable (a borrowing base in excess of $20 million) and inventories (a
borrowing base of over $20 million).
24
AmeriQuest has leased facilities for its U.S. operations with aggregate
monthly rental expense of approximately $100,000 at June 30, 1994. Other lease
obligations of AmeriQuest aggregate approximately $30,000 per month at June 30,
1994. No material commitments are in place as to required capital expenditures
at June 30, 1994.
In November 1994 the Company entered into an agreement to sell a controlling
interest, 51%, of it's common stock to Computer 2000 A.G., a publicly held
German company in the same line of business. The aggregate proceeds of $50
million are scheduled for injection to the Company in late 1994 as to $18
million and in September 1995 as to the remaining $32 million. Such proceeds,
when coupled with the existing cash and credit resources of the Company, should
allow for reasonable continued expansion of the operations of the Company.
Management believes that its existing product lines will enable AmeriQuest to
generate sufficient cash through operations, supplemented by the periodic use of
its lines of credit, to finance a continuation of AmeriQuest's existing business
over the next twelve months. However, as AmeriQuest continues planned
acquisitions, significant cash resources will be required to effect this effort.
There is no assurance that required funds for planned acquisitions will be
available, or that sufficient funds can either be obtained or if available, that
such funds can be secured at commercially acceptable rates or costs.
Proposed Accounting Standards
The Financial Accounting Standards Board has proposed certain accounting
standards which may impact the financial reporting of AmeriQuest in future
periods. If adopted, and principally related to post retirement and employment
benefits, such proposed standards would not have a material impact on the
financial statements of AmeriQuest.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, notes thereto, and the report of independent public
accountants thereon are included herein. Supplementary data, including
quarterly financial information, is included following the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The following table sets forth certain information regarding the current
directors and officers of AmeriQuest.
NAME AGE POSITION
- ------------------------- --- ---------------------------------------------------------------
Marc L. Werner* 37 Chairman of the Board of Directors
Eric J. Werner* 32 Director
Terren S. Peizer 35 Director
William N. Silvis 67 Director
William T. Walker, Jr. 63 Director
Robert H. Beckett** 61 Director**, President of Robec, Inc.
Harold L. Clark 58 Director, Co-Chairman and Chief Executive Officer
Gregory A. White*** 42 Director***, President*** and Chief Operating Officer***
Stephen G. Holmes 48 Director, Secretary/Treasurer and Chief Financial Officer
Carol L. Miltner 52 Executive Vice President--Sales & Marketing
Howard B. Crystal 49 Senior Vice President - Marketing and Purchasing
Peter D. Lytle 37 Senior Vice President--Operations
William F. Gibson III 40 Vice President and Comptroller
Peter S. H. Grubstein 39 Senior Vice President
Irwin A. Bransky 43 President and Chief Executive Officer of AmeriQuest/Kenfil Inc.
- --------------
* Messrs. Marc L. Werner and Eric J. Werner are first cousins.
** Mr. Robert H. Beckett will be appointed to the Board at its next meeting
pursuant to the Amended and Restated Agreement and Plan of Reorganization
dated as of August 11, 1994 (the "Robec Acquisition Agreement") pursuant to
which AmeriQuest will acquire Robec, Inc. AmeriQuest is also obligated
under the Robec Acquisition Agreement to nominate Mr. Beckett for
reelection to the Board of Directors each of the next two years.
*** Mr. White will be appointed to the Board of Directors and elected President
and Chief Operating Officer pursuant to the Agreement and Plan of
Reorganization dated September 26, 1994 (the "NCD Acquisition Agreement")
pursuant to which AmeriQuest will acquire NCD. AmeriQuest is also
obligated under the NCD Acquisition Agreement to nominate Mr. White for
reelection to the Board of Directors so long as Mr. White is employed by
AmeriQuest.
Marc L. Werner has been employed by Werner Co. since 1986, and currently
serves as Treasurer, Chief Financial Officer and Director for Werner Co. and
various companies affiliated with Werner Co. Mr. Werner is a Certified Public
Accountant, and holds a Bachelor of Science degree in Accounting from Northern
Illinois University.
Eric J. Werner has been employed by Werner Co. since 1988, and currently
serves as Secretary, General Counsel and Director for Werner Co. and various
companies affiliated with Werner Co. Mr. Werner holds a Bachelor of Science
degree in Industrial Engineering from Pennsylvania State University and a
Jurisprudence Doctorate degree from Boston University--School of Law.
26
Terren S. Peizer is an independent, full-time investor. For the last five
years he has been engaged in his investment activities first as President of
Financial Group Holdings, Inc. and subsequently as President of Beachwood
Financial Company, Inc. Mr. Peizer also serves as a Director of Urethane
Technologies, Inc.
William N. Silvas joined AmeriQuest's Board of Directors in December 1988. He
has served as General Manager, Commercial Products Division, of Research and
Development Laboratory, Inc. from 1987 to the present. From 1986 to 1987, Mr.
Silvis was self-employed as a management consultant for various companies,
including AmeriQuest. From 1984 to 1986, Mr. Silvas was Senior Vice President
of Sales and Marketing for Gateway Computer, a retail computer products chain.
Previously, he had been employed by IBM for 31 years in various sales and
management positions.
William T. Walker, Jr. has been the principal of Walker Associates, a
corporate financial consultant for investment banking, since 1985. From 1969
through 1985, he was employed by Bateman Eichler, Hill Richards, a Los Angeles
based investment banker, in various capacities, including serving on its Board
of Directors and Executive Committee, and as Executive Vice President, Manager
of Investment Banking and Chairman of the Underwriting Committee. Mr. Walker has
been a Member of the Board of Directors of the Securities Industry Association,
a Governor of the Pacific Coast Stock Exchange and has served on the American
Stock Exchange Advisory Committee. Mr. Walker also serves as a Director of Go-
Video, Inc. and Fortune Petroleum.
Robert H. Beckett has served as the President and Chief Executive Officer of
Robec, Inc. for more than the last five years. Mr. Beckett holds a Bachelor of
Science degree in Mechanical Engineering from Worcester Polytechnic Institute.
Harold L. Clark was named President and Chief Executive Officer of AmeriQuest
on December 3, 1993. He was appointed to serve as a Director on March 4, 1994.
Prior to December 1993 he served as President and Chief Executive Officer of CDS
Distribution, Inc., a subsidiary of AmeriQuest, from April 1993 to December
1993. From February 1991 to December 1992, he served as President, Chief
Operating Officer and Director of Everex Systems, Inc. ("Everex"). From 1989
through 1991, he served as a computer industry consultant. From 1984 to 1989, he
served as the President of Ingram Micro, Inc. Dr. Clark received a B.S. Degree
from Bryant College, an MBA from Pepperdine University, and has earned a Doctor
of Education Degree from Nova University.
*Gregory A. White will join AmeriQuest upon the acquisition of NCD by
AmeriQuest as a Director and as President and Chief Operating Officer. Mr.
White has served as President and Chief Executive Officer of NCD for more than
the last five years. Mr. White holds a Master of Science degree in Management
Sciences from the University of South Florida.
Stephen G. Holmes joined AmeriQuest as its Chief Financial Officer, Secretary
and Treasurer in January 1992, after serving as a general partner and a managing
partner of Arthur Andersen & Co. from 1978 until 1992. Mr. Holmes was appointed
to serve as a Director on March 4, 1994. Mr. Holmes was educated at the
University of Colorado and the University of Rochester, from which he received a
B.S. degree, and is licensed to practice as a CPA in the State of California and
other states.
27
Carol L. Miltner joined AmeriQuest in December 1993 as Executive Vice
President--Sales & Marketing. From April 1991 to December 1993, she conducted
her own consulting and seminar business on sales techniques in the computer
industry. From April 1989 to April 1991 she served as Senior Vice President of
Sales for Merisel. From 1985 to April 1989 she served as Senior Vice President
of Sales for Micro D, Inc.
Howard B. Crystal joined AmeriQuest in July, 1994 as Senior Vice President -
Marketing and Purchasing. From October 1992 to July 1994 he served as President
of AmeriWats, Inc., a telecommunications company. From February 1991 to July
1993 he served as Senior Vice President - Sales and Marketing for Everex, Inc.
From May 1989 to February 1991 he served as Senior Vice President - Sales and
Marketing for TechData. Mr. Crystal holds a Bachelor of Science in Electrical
Engineering from the New Jersey Institute of Technology and an MBA from Rutgers
University.
Peter D. Lytle joined AmeriQuest in December 1993 as Senior Vice President--
Operations. From 1983 to September 1993 he was employed by InaCom Corporation
and its predecessors, where his last position was Regional President/General
Manager--California. Mr. Lytle is a Certified Public Accountant and holds a
Bachelor of Arts degree in Business Administration with an emphasis in
accounting from Western Michigan University.
William F. Gibson III joined AmeriQuest in June 1988, and since January, 1994
has been the Vice President and Comptroller of AmeriQuest. He is a Certified
Public Accountant and holds a Bachelor of Science degree from University of
California--Berkeley in Business Administration.
Irwin A. Bransky founded Kenfil Inc. in 1983 and has been President and Chief
Executive Officer of Kenfil Inc. since that time. Mr. Bransky holds a B.S.
degree in Business Administration and a master's diploma in Personnel
Administration from the Graduate School of University of Witwaterstrand, South
Africa.
Peter S. H. Grubstein served as Chief Operating Officer of Kenfil Inc. from
January 1994 until its acquisition was completed on September 12, 1994. Prior
to his involvement with Kenfil Inc., he served as President of Grubstein
Holdings Ltd., a private equity investment firm. Mr. Grubstein holds a
bachelor's degree from Yale College.
28
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The following table provides information concerning the annual and long-term
compensation of the Chief Executive Officer of AmeriQuest and each of the four
other highest paid executive officers who served as such at the end of fiscal
year 1994 for services rendered to AmeriQuest and its subsidiaries in all
capacities during the fiscal years 1994, 1993 and 1992.
Long-Term All Other
Annual Compensation/(1)/ Compensation Compensation
------------------------- -------------------- ------------
Name and Stock Option
Principal Position Year Salary Bonus Awards (shares)/(2)/
- -------------------------- --------- -------------- -------- --------------------
Harold L. Clark, 1994 $134,861/(3)/ -0- 250,000 shs. -0-
President and 1993 $ 18,000/(3)/ -0- -0- -0-
Chief Executive 1992 -0- -0- -0- -0-
Officer
Carol L. Miltner, 1994 $ 75,000 $28,125 100,000 shs. -0-
Executive Vice 1993 -0- -0- -0- -0-
President - 1992 -0- -0- -0- -0-
Sales and Marketing
Stephen G. Holmes, 1994 $130,819 -0- 100,000 shs. -0-
Secretary/Treasurer 1993 $100,000 -0- -0- -0-
Chief Financial 1992 $ 43,590 -0- -0-
Officer
Michael J. Rusert/(4)/, 1994 $130,050 -0- 100,000 shs.(4) 136,762(4)
Executive Vice 1993 $104,200 $15,000 -0- -0-
President and 1992 $ 63,859 -0- -0- -0-
Chief Operating Officer
Peter D. Lytle, 1994 $ 56,139 -0- 40,000 shs. -0-
Senior Vice 1993 -0- -0- -0- -0-
President - 1992 -0- -0- -0- -0-
Operations
Jim Farooquee/ (5)/ 1994 $ 36,717 -0- -0- $611,602
Former President 1993 $160,000 -0- -0- -0-
and Chief 1992 $160,700 -0- -0- -0-
Executive
Officer
_________________________________
(1) In fiscal years 1994 and 1993, no executive officer received perquisites or
other personal benefits, securities or property which exceeded the lesser of
$50,000 or 10% of such executive officer's salary and bonus. Information
with respect to such types of compensation for years prior to fiscal year
1993 is not required to be provided.
(2) Stock options awarded in fiscal 1994 were non-qualified stock options
exercisable at $2.00 per share and are subject to the approval of
shareholders.
(3) Includes compensation received as a consultant in the applicable period in
the amounts of $59,861 and $18,000, respectively.
29
(4) Michael J. Rusert left AmeriQuest on October 4, 1994. Upon his departure he
received a severance payment equal to nine months of salary ($112,500),
accrued but unpaid vacation pay ($12,262), the forgiveness of indebtedness
($12,000) and vested, non-qualified stock options exercisable at $2.00 per
shares (50,000 options). He was entitled to receive salary for two-years,
but elected to forego that right for the severance compensation described
above. He will be replaced by Mr. Gregory A. White, currently the President
of NCD. See "Item 4A. Executive Officers of the Registrant."
(5) On February 11, 1994, Mr. James Farooquee resigned his position as President
and Chief Executive Officer of AmeriQuest in lieu of $750,000 of severance
pay, Mr. Farooquee received $200,000 cash and forgiveness of his
indebtedness to AmeriQuest in the amount of $411,602. Mr Farooquee also
cancelled his claims for continuation of stock options earlier granted and
payment of accrued but unpaid vacation time. The parties also executed a
Mutual Release of All Claims.
OPTION GRANTS
The following table provides, as to the Chief Executive Officer and each of
the four other highest paid executive officers who served as such at the end of
fiscal year 1994, information concerning individual grants of stock options made
during fiscal year 1994.
% of Total
No. of Options Potential Realizable Value
Securities Granted to at Assumed Annual Rates
Underlying Employees Exercise of Stock Price Appreciation
Options in Fiscal Price Expiration for Option Term(1)(2)(3)
-----------------------------
Name Granted Year 1994 (per share) Date 0% 5% 10%
- ----------------------------- ---------- --------------- ------------- ------------ ------ ------ ------
Harold L. Clark 250,000 100% $2.00 12/3/99 $0 $170,000 $385,000
Carol L. Miltner 100,000 100% $2.00 12/3/99 $0 $ 68,000 $154,000
Stephen G. Holmes 100,000 100% $2.00 12/3/99 $0 $ 68,000 $154,000
Michael J. Rusert(4) 100,000 100% $2.00 12/3/99 $0 $ 68,000 $154,000
Peter D. Lytle 40,000 100% $2.00 12/3/99 $0 $ 27,000 $ 62,000
- -----------------------------
(1) The options granted are non-qualified stock options which vest in 25%
increments every 14 months, with the first 25% to vest on February 3, 1995,
and every 14 months thereafter.
(2) The potential realizable values shown in these columns illustrate the
results of hypothetical annual rates of appreciation compounded annually
from the date of grant until the end of the option term, assuming an
initial investment equal to the aggregate exercise price shown for the
option grant. These amounts are reported net of the option exercise price
(which may be paid by delivery of already-owned shares of Common Stock),
but before any taxes associated with the exercise or subsequent sale of the
underlying shares.
(3) The dollar amounts in these columns are based on the hypothetical annual
rates of appreciation noted and are therefore not intended to forecast
possible future appreciation, if any, of the price of AmeriQuest's Common
Stock. Alternative formulas for determining potential realizable value
have not been utilized because AmeriQuest is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown or volatile factors. There can be no assurance that the dollar
amounts reflected in these columns will be achieved. Actual gains, if any,
on stock option exercises are dependent on the future performance of the
Common Stock and overall market conditions, as well as the executive
officer's continued employment through the vesting period.
(4) Michael J. Rusert left AmeriQuest on October 4, 1994. He will be replaced
by Mr. Gregory A. White, currently the President of NCD. See "Item 4A.
Executive Officers of the Registrant."
30
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides, as to the Chief Executive Officer of
AmeriQuest and each of the four other highest paid executive officers who served
as such at the end of fiscal year 1994, information concerning unexercised stock
options at June 30, 1994. None of the executive officers exercised any stock
options during fiscal year 1994.
Number of Value of Unexercised
Unexercised Options In-the-Money Options at
at June 30, 1994 June 30, 1994/(1)/
------------------------------------------ -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ------------------- -------------------- ------------------- -------------------
Harold L. Clark, -0- 250,000 shs. -0- $343,750
Carol L. Miltner -0- 100,000 shs. -0- $137,500
Stephen G. Holmes 6,667 100,000 shs. $13,334 $137,500
Michael J. Rusert/(2)/ -0- 100,000 shs. -0- $137,500
Peter D. Lytle -0- 40,000 shs. -0- $ 55,000
- -----------------------------
(1) Based on the closing price of AmeriQuest's Common Stock on the New York
Stock Exchange on June 30, 1994.
(2) Michael J. Rusert left AmeriQuest on October 4, 1994. He will be replaced
by Mr. Gregory A. White, currently the President of NCD. See "Item 4A.
Executive Officers of the Registrant."
COMPENSATION OF OUTSIDE DIRECTORS
AmeriQuest pays non-employee Directors $500 per quarter. In addition, non-
employee Directors receive $1,000 per year for each committee of which they are
a member. AmeriQuest has and will continue to pay the expenses of its non-
employee Directors in attending Board meetings. All directors are also eligible
to receive stock options as a form of compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended June 30, 1993, AmeriQuest granted options to each of
Messrs. Walker and Silvis to purchase 5,000 shares of AmeriQuest's Common Stock
at $1.50 per share. Such options were originally due to vest over a three-year
period; however, on December 3, 1993 the Board resolved that such options should
immediately vest, and be increased to 20,000 shares each exercisable at $1.875
per share. Mr. Silvas has exercised his option in full, but Mr. Walker still
holds his option. The proposal to adjust the stock options arrangements in favor
of Messrs. Walker and Silvis was proposed by the new directors without regard to
any compensation that might be paid to others pursuant to recommendation of the
Compensation Committee.
On March 4, 1994, the independent members of the Board of Directors
authorized AmeriQuest to grant five-year, non-qualified stock options to Mr.
Terren S. Peizer and Manufacturers Indemnity and Insurance Company of America in
the amounts of 400,000 shares and 150,000 shares, respectively, as additional
incentive for Messrs. Terren S. Peizer and Marc L. Werner to assist AmeriQuest
with its avowed policy of growth by acquisition. The options do not vest until
such time as AmeriQuest's operations attain a sales "run rate" of $300 Million
per year. The exercise price is $4.50 per share.
31
Messrs. Marc L. Werner, Terren S. Peizer and William N. Silvis serve on the
Compensation Committee. While there are no "interlocks" between such
individuals and other companies with which they are affiliated or associated,
AmeriQuest granted options during fiscal 1994 to Mr. Terren S. Peizer and
Manufacturers Indemnity and Insurance Company of America, a company affiliated
with Mr. Werner, to secure the services of Messrs. Peizer and Werner in
connection with the projected efforts they were to expend in assisting
AmeriQuest in its acquisition of other companies. For additional information
see "Item 13. Certain Relationships and Related Transactions." below, which is
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The following table sets forth, as of September 22, 1994, information
relating to the beneficial ownership of AmeriQuest's Common Stock by (i) each
person known to AmeriQuest to be the beneficial owner of more than five percent
of the outstanding shares of Common Stock of AmeriQuest, (ii) each director,
(iii) each of the executive officers for which executive compensation
information is provided, and (iv) all directors and executive officers as a
group. AmeriQuest knows of no agreements among its shareholders which relate to
voting or investment power over its Common Stock.
Beneficial Ownership as of September 22, 1994
---------------------------------------------
Number of Shares Percent of Class(8)
---------------- -------------------
Name and Address of Beneficial Owner
- ------------------------------------
Chrysler Capital Corporation 1,452,919 8.45%
225 High Ridge Road
Stamford, Connecticut 06905
Robert H. Beckett 900,656 5.24%
425 Privet Road
Horsham, PA 19044
DIRECTORS AND OFFICERS(6)(7)
- --------------------------------
Marc L. Werner 615,273(1)* 3.58%
Eric J. Werner 541,273(1)* 3.15%
Terren S. Peizer 496,000(2) 2.89%
William N. Silvis --0-- *
William T. Walker, Jr. 20,000(3)* *
Harold L. Clark --0-- *
Stephen G. Holmes 6,667(4)* *
Carol L. Miltner --0-- *
Howard B. Crystal --0-- *
Peter D. Lytle --0-- *
William F. Gibson, III 5,100(4) *
Irwin A. Bransky 471,579 2.74%
Peter S.H. Grubstein 559,595(5) 3.23%
All officers and directors as
a group (13 persons)(9) 2,180,214(1) 12.69%
- --------------------------------
* Denotes less than 1%
32
(1) The Board of Directors of Manufacturers Indemnity and Insurance Company of
America is vested with the voting and investment powers relating to the shares
of AmeriQuest's Common Stock held by Manufacturers Indemnity and Insurance
Company of America. Messrs. Marc L. Werner and Eric J. Werner are also directors
of Manufacturers Indemnity and Insurance Company of America, and may accordingly
be deemed to have shared voting and investment powers over the 535,273 shares of
AmeriQuest Common Stock held by Manufacturers Indemnity and Insurance Company of
America. Such shares are reflected in both of their names individually, but are
not duplicated in the caption relating to "All Officers and Directors as a
Group."
(2) Mr. Terren S. Peizer is the sole shareholder of the corporate general
partner of Wendover Financial Company L.P., and may be deemed to have sole
voting and investment powers over the 496,000 shares of AmeriQuest Common Stock
held by Wendover Financial Company L.P. All such shares are included in the
foregoing table.
(3) All of the shares reflected in the name of Mr. Walker are issuable upon
exercise of currently exercisable options to purchase Common Stock at $1.50 per
share granted to Walker Associates, of which Mr. Walker is the President and
Chairman. The shares subject of the option were increased on December 3, 1993
from 10,000 shares to 20,000 shares, and afforded immediate vesting.
(4) Represents stock options currently vested and issuable upon exercise of
such options.
(5) The number of shares listed for Mr. Grubstein includes 107,000 shares of
AmeriQuest Common Stock issuable in consequence of the assumption by AmeriQuest
of Kenfil's obligation under a Warrant issued to Corporate Efficiency
Consulting, L.P., a New Jersey limited partnership ("CEC") for 315,000 shares of
Kenfil Common Stock.
(6) The address for the executive officers and directors and proposed directors
is: 2722 Michelson Drive, Irvine, California 92715.
(7) Each executive officer and director has sole voting and investment power
with respect to the shares listed, unless otherwise indicated.
(8) For purposes of determining the percentage of outstanding Common Stock held
by each person or group set forth in the table, the number of shares is divided
by the sum of the number of shares of AmeriQuest's Common Stock outstanding on
September 22, 1994 (17,181,453 shares) plus the number of shares of Common Stock
subject to outstanding stock options and warrants exercisable currently or
within 60 days of September 22, 1994 by such person or group, in accordance with
Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
Percentages of less than 1% are represented by an asterisk.
(9) Includes 138,667 shares currently vested and issuable upon exercise of
outstanding options and warrants.
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
On March 4, 1994, the independent members of the Board of Directors
authorized AmeriQuest to grant five-year, non-qualified stock options to Mr.
Terren S. Peizer and Manufacturers Indemnity and Insurance Company of America in
the amounts of 400,000 shares and 150,000 shares, respectively, as additional
incentive for Messrs. Terren S. Peizer and Marc L. Werner to assist AmeriQuest
with its avowed policy of growth by acquisition. The options do not vest until
such time as AmeriQuest's operations attain a sales "run rate" of $300 Million
per year. The Stock Option Agreements do not define "run rate," but management
believes that AmeriQuest has already achieved a level of sales which would
satisfy such a test. The exercise price is $4.50 per share.
SEVERANCE ARRANGEMENTS WITH PRECEDING MANAGEMENT
On February 11, 1994, Mr. James Farooquee resigned his position as President
and Chief Executive Officer of AmeriQuest. In lieu of $750,000 of severance pay,
Mr. Farooquee received $200,000 cash and forgiveness of his indebtedness to
AmeriQuest in the amount of $411,602. Mr. Farooquee also cancelled his claims
for continuation of stock options earlier granted and payment of accrued but
unpaid vacation time. The parties also executed a Mutual Release of All Claims.
_________________________________
On February 23, 1994, Mr. James D'Jen entered into an Amendment to Employment
Agreement which amended his earlier Employment Agreement with AmeriQuest. The
Amendment provided for the payment of $150,000 per year through June 30, 1994,
only, the immediate vesting of all options earlier granted to Mr. D'Jen (but
with a proviso that all such options must be exercised on or before December 31,
1994), and payment of eight weeks of accrued and unpaid vacation time. Such
arrangements were in lieu of $495,000 in severance pay.
AmeriQuest also contracted with Mr. D'Jen to exchange all of the issued and
outstanding shares of CMS Enhancements (S) PTE Ltd., a Singapore corporation
wholly-owned by AmeriQuest in exchange for 350,000 shares of AmeriQuest Common
Stock. On July 8, 1994 Mr. D'Jen delivered 345,091 shares. Upon the receipt of
the balance due, AmeriQuest will be divested of this Singapore subsidiary. Sales
for the Singapore subsidiary approximate $20 million annually, but do not
effectively contribute to AmeriQuest's current strategy where the Singaporean
subsidiary had gross margins which averaged only 3% of sales with an approximate
break-even on operations.
34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) Financial Statements and Schedules
(1) Financial Statements included in Part II of this Report:
Page Reference
--------------
Report of Independent Public Accountants......... 40
Balance Sheets at June 30, 1994 and 1993......... 41
Statements of Operations for each of the
three years ended June 30, 1994................ 42
Statements of Stockholders' Equity for
each of the three years ended June 30, 1994... 43
Statements of Cash Flows for each of
the three years ended June 30, 1994........... 39
Notes to Financial Statements.................... 46
(2) Financial Statement Schedules
Schedule VIII - Valuation and Qualifying
Accounts and Reserves......................... 52
Schedule IX - Short-term Borrowings.............. 52
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 18, 1994
reporting the pending disposition of the
Registrant's Singapore subsidiary.
Current Report on Form 8-K dated September 12, 1994
reporting the acquisition of Kenfil and 50.1% of Robec.
35
(c) Exhibits
EXHIBIT INDEX
-------------
Location of
Exhibit No. Title of Document Page No. Filing
- ----------- ------------------------------------------------------- ------------------ ------------------------
2.01* Amended and Restated Agreement and Plan of 7 SEC File 0-18115
Reorganization dated as of August 11, 1994 by, Current Report on Form
between and among AmeriQuest, Robec and 8-K dated Sept. 22, 1994
certain principal shareholders of Robec
2.02* Agreement and Plan of Reorganization dated September 50 Original Form
26, 1994 by, between and among AmeriQuest, Ross White 10-K for June 30, 1994
Enterprises, Inc. d/b/a "National Computer Distributors
("NCD") and the shareholders of NCD
3.01* Certificate of Incorporation of AmeriQuest 85 SEC File 1-10397
as amended Original Form
10-K for June 30, 1994
3.02* By-laws of AmeriQuest 189 SEC File 33-81726
4.01* Reference is made to Exhibits 3.01 and 3.02,
the Certificate of Incorporation and Bylaws,
which define the rights of security holders
4.02* Specimen Stock Certificate 274 SEC File 33-81726
10.01* Loan and Security Agreement dated, 283 SEC File 33-81726
August 19, 1993, as amended, between
AmeriQuest and certain of its subsidiaries
and Silicon Valley Bank
10.02* Addendum to Agreement for Wholesale 365 SEC File 33-81726
Financing - Flexible Payment
Plan dated September 30, 1993 between
CDS Distribution Inc. and IBM Credit
Corporation
10.03* Standard Industrial Lease - Net dated 402 SEC File 33-81726
July 26, 1990, as amended, between AmeriQuest
and Varian Associates (successor-in-interest
to Koll Center Irvine East)
10.04* Amended and Restated Loan and Security Agreement 118 Original Form
dated as of July 1, 1992 by and between AmeriQuest/ 10-K for June 30, 1994
Kenfil Inc. and American National Bank and Trust
Company of Chicago
10.05* Incentive Stock Option Plan SEC File 2-96539
10.06* Employee Stock Bonus Plan SEC File 33-23809
10.07 Form of Employment Agreement for Messrs. Harold L. 332 Original Form
Clark, Stephen G. Holmes, Peter Lytle, William 10-K for June 30, 1994
F. Gibson, Howard B. Crystal and Ms. Carol L.
Miltner
10.08 Stock Option Agreement dated March 4, 1994 53 Amendment No. 4 to
between AmeriQuest and Terren S. Peizer 10-K/A for June 30, 1994
10.09 Stock Option Agreement dated March 4, 1994 58 Amendment No. 4 to
between AmeriQuest and Manufacturers Indemnity 10-K/A for June 30, 1994
and Insurance Company of America
10.10 Exchange Agreement between AmeriQuest and Mr. 62 Amendment No. 4 to
James D'Jen for the disposition of CMS Enhancements 10-K/A for June 30, 1994
21.01 Subsidiaries of AmeriQuest 351 Original Form
10-K for June 30, 1994
27.01 Financial Data Schedule 66
36
24.01 Powers of Attorney for Messrs. 50 First Form 10-K/A filed
Marc L. Werner, Eric J. Werner October 26, 1994
Terren S. Peizer, William
T. Walker, Jr. and William N. Silvis
_________________________________
* Incorporated herein by reference to the indicated filing pursuant to Rule
12b-32 under the Securities Exchange Act of 1934, as amended, and Rule 24 of the
Commission's Rules of Practice.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1933, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Santa
Ana, State of California, on the 8th day of May, 1995.
AMERIQUEST TECHNOLOGIES, INC.
By:/s/ Harold L. Clark
-------------------------------------
Harold L. Clark, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ Harold L. Clark Co-Chairman of the Board, Chief May 8, 1995
- ------------------------------------------- Executive Officer and Director
Harold L. Clark (Principal Executive Officer)
/s/ Gregory A. White President, Chief Operating May 8, 1995
- ---------------------------------------- Officer and Director
Gregory A. White
/s/ Stephen G. Holmes Secretary, Treasurer, Chief May 8, 1995
- ---------------------------------------- Financial Officer and Director
Stephen G. Holmes (Principal Financial and
Accounting Officer)
/s/ Marc L. Werner Chairman of the Board May 8, 1995
- -----------------------------------------
Marc L. Werner**
/s/ Eric J. Werner Director May 8, 1995
- -------------------------------------------
Eric J. Werner**
/s/ Terren S. Peizer Director May 8, 1995
- -------------------------------------------
Terren S. Peizer**
/s/ William T. Walker, Jr. Director May 8, 1995
- -----------------------------------------
William T. Walker, Jr.**
/s/ William N. Silvis Director May 8, 1995
- -------------------------------------------
William N. Silvis**
38
/s/ Robert H. Beckett Director May 8, 1995
- ----------------------------------------
Robert H. Beckett
/s/ Harold L. Clark /s/ Stephen G. Holmes
- ------------------------------------------- ------------------------------------------
Harold L. Clark,* Stephen G. Holmes,**
Attorney-in-Fact Attorney-in-Fact
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AmeriQuest Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of AmeriQuest
Technologies, Inc. (a Delaware corporation, formerly CMS Enhancements, Inc.) and
subsidiaries (AmeriQuest) as of June 30, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1994. These financial
statements and the schedules referred to below are the responsibility of
AmeriQuest's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriQuest Technologies, Inc.
and subsidiaries as of June 30, 1994 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1994 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on page
35 are presented for purposes of complying with the Securities and Exchange
Commissions rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
September 30, 1994
40
AmeriQuest Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
(Dollars in thousands) 1994 1993
- ---------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 3,200 $ 1,020
Accounts receivable, less allowances
for doubtful accounts of $477 and
$253 as of June 30, 1994 and 1993,
respectively 24,708 7,247
Inventories 24,165 7,000
Other current assets 1,627 450
-------- --------
Total current assets 53,700 15,717
-------- --------
PROPERTY AND EQUIPMENT, NET 4,078 2,285
INTANGIBLE ASSETS, NET 6,490 --
OTHER ASSETS 877 2,272
-------- --------
$ 65,145 $ 20,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 23,408 $ 9,138
Notes payable 23,059 --
Other current liabilities 2,361 675
-------- --------
Total current liabilities 48,828 9,813
-------- --------
SUBORDINATED NOTES PAYABLE TO
SHAREHOLDERS 3,175 1,550
-------- --------
DEFERRED INCOME TAXES 267 267
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 10,000,000 shares;
no shares issued and outstanding -- --
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding, 9,857,779 and
3,180,710, shares, as of June 30, 1994
and 1993, respectively 99 32
Additional paid-in capital 27,345 15,210
-------- --------
Accumulated deficit (14,569) (6,598)
-------- --------
Total stockholders' equity 12,875 8,644
$ 65,145 $ 20,274
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
41
AmeriQuest Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data) Year Ended June 30,
- --------------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
NET SALES $ 87,593 $ 73,082 $ 115,053
COST OF SALES 75,023 61,539 104,007
--------- --------- ---------
Gross profit 12,570 11,543 11,046
--------- --------- ---------
OPERATING EXPENSES
Selling, general and administrative 14,119 10,274 14,085
Restructuring charge 5,700 -- 4,500
Research and development 25 782 1,508
--------- --------- ---------
19,844 11,056 20,093
--------- --------- ---------
Income (loss) from operations (7,274) 487 (9,047)
--------- --------- ---------
OTHER (INCOME) EXPENSE
Other income (31) (26) (6)
Interest expense 728 277 582
--------- --------- ---------
697 251 576
--------- --------- ---------
Income (loss) before taxes (7,971) 236 (9,623)
BENEFIT FOR INCOME TAXES -- -- (730)
--------- --------- ---------
Net income(loss) $ (7,971) $ 236 $ (8,893)
========= ========= =========
Net income (loss) per common share
and common share equivalent $ (1.33) $ 0.08 $ (3.04)
========= ========= =========
Weighted average shares outstanding 5,973,511 3,060,908 2,921,588
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
42
AmeriQuest Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Retained
Common Stock Paid-In (Deficit)
-------------------
(Dollars in thousands) Shares Amount Capital Earnings
- ------------------------------------------------------------------------------------------------------
Balances at June 30, 1991 2,910,149 $ 29 $ 14,718 $ 2,059
Exercise of employee stock options (Note 9) 11,374 -- 33 --
Common stock issued to employees 4,000 -- 6 --
Net loss for the year ended
June 30, 1992 -- -- -- (8,893)
- -------------------------------------------------------------------------------------------------------
Balances at June 30, 1992 2,925,523 29 14,757 (6,834)
Common stock issued to
unrelated parties (Note 9) 143,000 2 286 --
Common stock issued for
assets (Note 2) 100,000 1 149 --
Exercise of employee stock options (Note 9) 12,187 -- 18 --
Net income for the year ended
June 30, 1993 -- -- -- 236
- -------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 3,180,710 32 15,210 (6,598)
Common stock issued to
unrelated parties (Note 9) 4,905,072 49 9,054 --
Common stock issued for
businesses acquired (Note 2) 1,730,330 17 3,011 --
Exercise of employee stock options (Note 9) 41,667 1 70 --
Net loss for the year ended
June 30, 1994 -- -- -- (7,971)
- -------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 9,857,779 $ 99 $ 27,345 $ (14,569)
=======================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
43
AmeriQuest Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
(Dollars in thousands) 1994 1993
- ---------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 3,200 $ 1,020
Accounts receivable, less allowances
for doubtful accounts of $477 and
$253 as of June 30, 1994 and 1993,
respectively 24,708 7,247
Inventories 24,165 7,000
Other current assets 1,627 450
-------- --------
Total current assets 53,700 15,717
-------- --------
PROPERTY AND EQUIPMENT, NET 4,078 2,285
INTANGIBLE ASSETS, NET 6,490 --
OTHER ASSETS 877 2,272
-------- --------
$ 65,145 $ 20,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 23,408 $ 9,138
Notes payable 23,059 --
Other current liabilities 2,361 675
-------- --------
Total current liabilities 48,828 9,813
-------- --------
SUBORDINATED NOTES PAYABLE TO
SHAREHOLDERS 3,175 1,550
-------- --------
DEFERRED INCOME TAXES 267 267
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 10,000,000 shares;
no shares issued and outstanding -- --
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding, 9,857,779 and
3,180,710, shares, as of June 30, 1994
and 1993, respectively 99 32
Additional paid-in capital 27,345 15,210
-------- --------
Accumulated deficit (14,569) (6,598)
-------- --------
Total stockholders' equity 12,875 8,644
$ 65,145 $ 20,274
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
44
AmeriQuest Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
----------------------------------
(Dollars in thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income (loss) $ (7,971) $ 236 $ (8,893)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,107 1,013 1,428
Minority interest - - (798)
Provision for losses on accounts receivable 577 328 591
Provision for losses on inventories 1,714 633 3,388
Benefit for income taxes - - (731)
(Gain) loss on sale of equipment - 33 (3)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,698) 3,302 (584)
(Increase) decrease in inventories and other (1,447) 953 8,219
(Increase) decrease in other assets 1,500 (1,449) 3,544
Decrease in accounts payable and other (2,190) (3,776) (3,443)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (8,408) 1,273 2,718
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment (1,546) (1,260) (318)
Net cash received from acquisition of businesses 769 - -
Proceeds from sale of equipment - 17 21
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (777) (1,243) (297)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of common stock for assets - 150 -
Proceeds from subordinated note payable - 1,505 -
Proceeds from notes payable borrowings 59,381 55,403 104,523
Principal payments on notes payable and capital leases (55,640) (57,072) (107,923)
Proceeds from sale of common stock 7,624 306 33
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11,365 292 (3,367)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 2,180 322 (946)
Cash-beginning of the year 1,020 698 1,644
- ----------------------------------------------------------------------------------------------------------------------------------
Cash-end of the year $ 3,200 $ 1,020 $ 698
==================================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest on lines of credit: During 1994, 1993 and 1992 the Company paid
interest costs of approximately $728, $277 and
$582, respectively.
Income taxes: During 1994, 1993 and 1992 the Company made no tax
payments.
Noncash investing and financing activities:
Capital leases: During 1994, the Company entered into capital
leases for computer equipment totaling
approximately $180.
Subordinated note
payable conversion: During 1994, the Company issued approximately
522,000 shares of common stock upon the conversion
of a $1,550 subordinated note payable.
Businesses acquired: During 1994, the Company acquired three businesses
summarized as follows:
Fair value of assets acquired $ 43,537
Liabilities assumed (40,459)
Common stock issued (3,028)
-------
Cash paid 50
Less cash acquired (819)
-------
Net cash received from acquisitions $ (769)
=======
The accompany notes are an integral part of these consolidated financial
statements.
AmeriQuest Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of AmeriQuest
Technologies, Inc., a Delaware corporation, (formerly CMS Enhancements, Inc.)
and its majority and wholly-owned subsidiaries, collectively referred to as the
Company. All significant intercompany accounts and transactions have been
eliminated.
Inventories
Inventories consist principally of computer hardware and software held for
resale and are stated at the lower of first-in, first-out cost or market.
Reserves for inventory obsolescence and slow moving product are provided based
upon specified criteria, such as recent sales activity and date of purchase.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight line method over estimated useful lives as follows:
Equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements Lease term
Vehicles 3 to 5 years
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts and any resulting gain or loss is included
in operations.
Intangible assets
The excess of the cost to acquire businesses over the fair value of the net
assets acquired and other acquired intangibles are amortized using the straight-
line method over ten years from the date of acquisition. The amortization of
intangible assets generally relates to the expectation that the underlying value
will benefit the Company over a period of years. On a quarterly basis, the
Company assesses the recoverabiliy of intangible assets based upon consideration
of past performance and future expectations as to undiscounted cash flow on an
acquisition by acquisition basis to the extent seperately identifiable. To the
extent separate assessment of such acquired intangibles is no longer feasible
(i.e. as a result of integrating multiple acquisitions into a single business
unit) such assessment will be performed on a combined basis as appropriate.
Market development funds
In general, vendors provide various incentive programs to the Company. The funds
received under these programs are determined based on purchases and/or sales of
the vendors' product and the performance of certain training, advertising and
other market development activities. Revenue associated with these funds is
recorded when earned either as a reduction of selling, general and
administrative expenses or product cost, according to the specific nature of the
program.
Restructuring charge
The costs of transitioning the operations of the Company and thereby
substantially altering the ongoing business of the Company are accrued at the
time the related decision is made and implementation begun.
Accounting period
In 1994, the Company adopted a policy whereby the Company's fiscal year ends on
the Friday closest to June 30. The year ending dates for the past three fiscal
years were July 1, 1994, June 30, 1993 and June 30, 1992, respectively. For
presentation purposes, all of the aforementioned fiscal year ends are referred
to as June 30. The adoption of this new accounting period had no material effect
on the accompanying consolidated financial statements.
Sales recognition
Sales are recorded as of the date shipments are made to customers. Sales returns
and allowances are reflected as a reduction in sales and reflected in inventory
at expected net realizable value. The Company permits the return of products
within certain time limits and will exchange returned products. Products that
are defective upon arrival are handled on a warranty return basis with the
Company's vendors. The Company provides for product warranty and return
obligations at the point of sale based on estimated and expected future costs
for which a reserve of approximately $1 million was in place at June 30, 1994.
Income taxes
Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." As
permitted under these rules, prior year financial statements have not been
restated. The change to the liability method of accounting for income taxes had
no material effect on the accompanying consolidated financial statements.
Net income (loss) per common share and common share equivalent
Net income (loss) per common share and common share equivalent is computed by
dividing net income (loss) by the weighted average number of shares of common
stock and common stock equivalents outstanding. Common stock equivalents that
increase earnings per share or decrease loss per share were excluded from the
computation.
Minority interest
Effective June 6, 1994, the Company acquired 51 percent of the outstanding
common stock of Kenfil, Inc. Kenfil, Inc. had a equity deficit at the date of
acquisition and therefore no amounts have been reflected as minority interest in
the accompanying consolidated financial statements.
46
- --------------------------------------------------------------------------------
In process at June 30, 1994 (completed by September 1994)
Proposed Accounting Standard
The Financial Accounting Standards Board has proposed certain accounting
standards which may impact the financial reporting of AmeriQuest in future
periods. If adopted, and as principally related to post retirement and
employment benefits, such proposed standards would not have a material impact on
the financial statements of AmeriQuest.
Reclassifications
Certain amounts in the prior periods have been reclassified to conform to the
current year's presentation.
2. Acquisitions
The Company is pursuing a growth through acquisition strategy of acquiring
regional distributors with the ultimate goal of creating a national distributor
of value added computers, subsystems and peripherals.
The success of this strategy is dependent upon the ability of the Company to
effectively consolidate and integrate the operations of the acquired
businesses, combine different cultures and obtain adequate financing to
complete acquisitions and fund working capital requirements.
Since 1993, the acquisitions of the Company have included:
Completed by June 30, 1993
Vitronix, Inc. ("Vitronix")
As of March 1993, the Company acquired certain assets of Vitronix for common
stock of the Company. Vitronix is a distributor computer products and
services, specializing in UNIX applications, and is based in Boston,
Massachusetts.
Completed by June 30, 1994
Management Systems Group("MSG")
As of December 1993, the Company acquired certain assets and assumed certain
liabilities of MSG for common stock of the Company and certain contingent
consideration. MSG is a distributor of computer products and services,
specializing in systems and networking applications, and is based in Long
Island, New York.
Rhino Sales Company ("Rhino")
As of December 1993, the Company acquired the outstanding common stock of Rhino
for a combination of cash and common stock of the Company. Rhino is a
distributor of computer products and services, specializing in UNIX
applications, and is based in Fenton, Michigan.
Kenfil Inc. ("Kenfil")
As of June 1994, the Company acquired 51% of the outstanding common stock of
Kenfil for common stock of the Company. Kenfil distributes microcomputer
software and is based in Southern California.
Kenfil Inc. ("Kenfil")
As of September 1994, the Company acquired the remaining outstanding 49% of the
common stock of Kenfil and converted certain trade and subordinated debt of
Kenfil for common and convertible preferred stock of the Company.
Robec, Inc. ("Robec")
As of September 1994, the Company acquired 51% of the outstanding common stock
of Robec for common stock of the Company. Robec is a distributor of computer
products and services, specializing in systems and UNIX applications, and is
based in Horsham, Pennsylvania.
In process at September 1994
Robec, Inc. ("Robec")
The Company proposes to acquire the remaining 49% of outstanding common stock of
Robec during 1995.
National Computer Distributors ("NCD")
As of September 1994, the Company entered into an agreement to acquire the
outstanding common stock of NCD for cash and common stock of the Company. NCD
is a distributor of computer products and services, specializing in systems and
connectivity applications, and is based in Fort Lauderdale, Florida. This
proposed transaction is expected to be completed in November 1994.
The following summarizes the cost of the Company's acquisitions (dollars in
thousands):
Common Common Stock Cash
Company Shares Issued Consideration Consideration
------- ------------- ------------- -------------
Completed by June 30, 1993
Vitronix 100,000 $ 150
--------- -----
Completed by June 30, 1994
MSG 400,000 700
Rhino 200,000 350 $ 50
Kenfil,51% 1,130,330 1,978
--------- -----
1,730,330 3,028
--------- -----
Completed by September 1994 (Unaudited)
Kenfil, 49% 1,046,254 2,511
Robec, 51% 1,402,800 2,749
In process at September 1994 (Unaudited)
Robec, 49% 1,397,195
NCD 1,864,767
The accompanying consolidated financial statements do not include the effects of
those transactions not completed by June 30, 1994.
The acquisitions were accounted for using the purchase method and, accordingly,
the financial statements include the results of their operations from the
effective acquisition dates. As to
47
- --------------------------------------------------------------------------------
common stock consideration, all such acquisitions are reflected utilizing a per
share valuation representing a discounted quoted market price, based upon
weighted average discounts received on recently completed private equity cash
transactions. This valuation represents a significant discount from quoted
market prices due to the thin public trading volume and small public float of
AmeriQuest common stock.
The contingent consideration granted to certain of the former owners of the
acquired businesses is dependent upon the attainment of certain defined profit
objectives of the acquired companies and consists of the right to acquire common
stock of the Company at previously agreed upon prices, additional cash
consideration or the issuance of additional common stock. Additional contingent
consideration earned in connection with the attainment of the profit objectives,
if any, will be reflected as an increase in the excess of cost over the fair
value of net assets acquired. As to the specific acquisitions of the Company,
such potential contingent common stock and cash consideration is less than
$400,000 in the aggregate and is limited to the MSG and Rhino acquisitions.
Management believes that the most significant intangible acquired is that of the
distribution channels. Management has assigned a 10 year economic life to this
intangible asset as that is the period of time that management expects to derive
benefit from the existing vendor relationships and market position. Management
determined that 10 years is an appropriate economic life based upon the
historical length of the acquiree's vendor relationships and the overall size
and quality of the acquiree's vendors and their product offerings.
The purchase price allocation associated with the Kenfil acquisition is based
upon the Company's preliminary estimates of the fair value of net assets
acquired. The Company is currently in the process of completing its detailed
analysis of the fair value of Kenfil net assets acquired and therefore the
related intangible assets included in the accompanying financial statements may
change as a result of the completed analysis.
The following unaudited pro forma combined information shows the results of the
Company's operations for the fiscal years ended June 30, 1994 and 1993 as
though the MSG, Rhino and Kenfil acquisitions had occurred as of the beginning
of those periods (in thousands except per share data):
Year Ended June 30, 1994 1993
Revenues $ 241,350 $ 289,863
Net income (loss) (28,541) 1,920
Net income (loss) per share (2.44) .24
Weighted average shares 11,702,467 8,031,710
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the indicated period or the results
that may occur in the future. Furthermore, the pro forma results do not give
effect to cost savings which may occur as a result of the consolidation of the
acquired companies.
3. Inventories
Inventories consist of the following (in thousands):
June 30, 1994 1993
- --------------------------------------------------------------------------------
Finished goods $ 19,977 $ 2,747
Raw materials and subassemblies 4,188 4,253
- --------------------------------------------------------------------------------
$ 24,165 $ 7,000
================================================================================
Inventories are reflected net of reserves of approximately $2.6 million and $3.1
million at June 30, 1994 and 1993, respectively. Inventories do not contain any
labor or overhead.
The Company manages its inventories by maintaining sufficient quantities to
achieve high order fill rates while at the same time attempting to stock only
those products in high demand with a rapid turnover rate. Inventory balances
will fluctuate as the Company adds new product lines and when appropriate, makes
large purchases and cash purchases from manufacturers when the terms of such
purchases are considered advantageous. The Company's contracts with most of its
vendors provide price protection and stock return privileges to reduce the risk
of loss to the Company due to manufacturer price reductions and slow moving or
obsolete inventory. In the event of a vendor price reduction, the Company
generally receives a credit for products in inventory. In addition, the Company
has the right to return a certain percentage of purchases, subject to certain
limitations. Historically, price protection and stock return privileges as well
as the Company's inventory management procedures have helped to reduce the risk
of loss of carrying inventory.
4. Property and Equipment
Property and equipment consist of the following (in thousands):
June 30, 1994 1993
- --------------------------------------------------------------------------------
Equipment $ 5,106 $ 4,908
Furniture and fixtures 5,563 2,597
Leasehold improvements 433 724
11,102 8,229
Less accumulated depreciation and
amortization 7,024 5,944
- --------------------------------------------------------------------------------
$ 4,078 $ 2,285
================================================================================
5. Intangible Assets
Intangible assets consists of the following (in thousands):
================================================================================
June 30, 1994
Excess of cost of businesses
over fair value of net assets
acquired $ 4,091
Distribution rights 2,400
Other 210
Accumulated amortization 211
- --------------------------------------------------------------------------------
$ 6,490
================================================================================
Represented as to acquiree by (in thousands):
June 30, 1994
- --------------------------------------------------------------------------------
Kenfil $ 4,308
MSG 2,205
Rhino 188
- --------------------------------------------------------------------------------
$ 6,701
================================================================================
The life of each intangible asset category is presumed to be 10 years.
6. Notes Payable
The Company maintains lines of credit with financial institutions which in the
aggregate provide for revolving credit of over $30 million at June 30, 1994.
Under these facilities approximately $23 million was drawn at June 30, 1994 with
then available but undrawn funds of approximately $7 million. Interest on these
credit facilities is based on the published prime rate plus a specified
percentage ranging from 1% to 3% (at June 30, 1994 the prime rate was 7.25%).
Borrowings under these facilities are
48
- --------------------------------------------------------------------------------
limited to a contractual percentage of eligible inventories and receivables. At
June 30, 1994, all inventories and accounts receivable were pledged as
collateral under these facilities and the lenders hold liens on substantially
all of the other assets owned by the Company. The terms of the lending
agreements include certain restrictive covenants which require the maintenance
of specified financial covenants generally related to tangible net worth,
working capital attributes and total debt to tangible net worth. As of June 30,
1994, the Company was in compliance with these covenants.
As part of the acquisition of Kenfil, the Company assumed certain subordinated
note payable obligations of Kenfil totaling $3,175,000 as of June 30, 1994. This
amount includes a note payable to a financial institution and notes payable to
two stockholders of the Company. Such notes bear interest ranging from 9.5% to
13.91% and were originally payable at various dates through September 22, 1997.
These obligations were settled subsequent to June 30, 1994 through the issuance
of the Company's common stock in conjunction with the purchase of the remaining
49% of Kenfil in September 1994.
7. Income Taxes
The benefit for income taxes consists of the following (in thousands):
Year Ended June 30, 1994 1993 1992
- --------------------------------------------------------------------------------
Currently payable-
Federal $ -- $ -- $ (129)
State -- -- (2)
- --------------------------------------------------------------------------------
-- -- (131)
- --------------------------------------------------------------------------------
Deferred taxes-
Current -- 7 (124)
Long-term -- (7) (475)
- --------------------------------------------------------------------------------
-- -- (599)
- --------------------------------------------------------------------------------
$ -- $ -- $ (730)
================================================================================
The deferred tax asset (liability) of the Company consists of the following (in
thousands):
June 30, 1994 1993
- --------------------------------------------------------------------------------
Inventory reserves $ 481 $ 150
Depreciation 331 300
Allowance for doubtful accounts 153 100
Other (487) (267)
Net operating loss carryforwards 4,800 1,800
Valuation allowance (5,545) (2,350)
- --------------------------------------------------------------------------------
$ (267) $ (267)
================================================================================
The principal elements accounting for the difference between income taxes
computed at the statutory rate and the effective rate are as follows (in
thousands):
Year Ended June 30, 1994 1993 1992
- --------------------------------------------------------------------------------
Federal tax expense
(credit) computed at
statutory rate $ (3,200) $ 80 $ (3,272)
State taxes, net of
federal benefit -- 15 2
Tax (benefit from) earnings of
foreign operations -- (24) --
Effect of U.S. and foreign
net operating losses 3,200 (71) 2,540
- --------------------------------------------------------------------------------
$ -- $ -- $ (730)
- --------------------------------------------------------------------------------
At June 30, 1994, the Company had an income tax operating loss carryforward of
in excess of $12 million, which is available to offset earnings in future
periods through 2008. The Company acquired approximately $10 million of net
operating losses upon completing the acquisition of Kenfil in September 1994, as
well as Kenfil's deferred tax assets and liabilities. The benefit of Kenfil's
tax attributes are not available until June 1995. The Company and Kenfil
experienced "ownership changes" in 1994 for income tax purposes, which changes
will result in future annual limitations on the utilization of net operating
loss carryforwards.
8. Commitments and Contingencies
The Company leases its corporate office, warehouse space and certain equipment
under operating leases. Future minimum rental commitments for all
non-cancellable operating leases at June 30, 1994 are as follows (in thousands):
Year Ended June 30,
- --------------------------------------------------------------------------------
1995 $ 1,049
1996 365
1997 70
1998 18
1999 & thereafter 21
- --------------------------------------------------------------------------------
$ 1,523
================================================================================
Total rental expense under non-cancellable agreements for the years ended June
30, 1994, 1993 and 1992 was approximately $1,083,000, $694,000 and $925,000,
respectively.
The Company is from time to time involved in various lawsuits generally
incidental to its business operations, primarily collection actions and vendor
disputes. In the opinion of management, the outcome of these matters will not
have a material adverse effect on the financial statements.
The Company is contingently liable at June 30, 1994 under the terms of
repurchase agreements with financial institutions providing inventory financing
for dealers of the Company's products. The contingent liability under those
agreements approximates the amount financed, reduced by the resale value of any
products which may be repurchased, and the risk of loss is spread over numerous
dealers and financial institutions. Losses under these agreements have been
immaterial in the past. Sales under these agreements during the years ended
June 30, 1994, 1993 and 1992 were approximately $7 million, $6 million, and $12
million, respectively.
9. Common Stock
Common stock issued to unrelated parties in fiscal 1993 and 1994 follows:
Net
Date Description Shares Proceeds
- ---- ----------- ------ --------
February, 1993 Regulation S 143,000 $ 288
August, 1993 Regulation S 150,000 348
December, 1993 Change of control 3,400,000 5,305
December, 1993 Debt conversion 521,739 1,500
June, 1994 Regulation S 833,333 1,950
--------- ------
4,905,072 $9,103
========= ======
In fiscal 1994, warrants to acquire common stock of the Company were issued to
unrelated parties aggregating 416,667 shares, are exercisable at $5 per share
(the then quoted market price) and expire in June 1996. Additionally, in fiscal
year 1994, the Company issued to a financial institution, warrants to acquire
60,000 shares of common stock of the Company at $2.75 per
49
- --------------------------------------------------------------------------------
share (the then quoted market price), expiring in August 1998. The Company has
instituted various stock option plans which authorize the granting of options to
key employees, directors, officers, vendors and customers to purchase shares of
the Company's common stock. All grants of options during the years presented
have been to employees or directors and were granted at the then quoted market
price. A summary of shares available for grant and the options outstanding under
the plans are as follows:
Shares Available Options Price
for Grant Outstanding Range
- --------------------------------------------------------------------------------
Balances, June 30, 1991 193,115 91,544 $ 3.00
Options granted (100,000) 100,000 1.50
Options exercised -- (11,374) 3.00
Cancelled 41,385 (41,385) --
- --------------------------------------------------------------------------------
Balances, June 30, 1992 134,500 138,782 1.50-3.00
1993 stock option plan 140,000 -- --
Options granted (73,000) 73,000 2.00-2.50
Options exercised -- (12,187) 1.50
Cancelled 6,750 (6,750) 2.50
- --------------------------------------------------------------------------------
Balances, June 30, 1993 208,250 192,845 1.50-2.50
1994 stock option plan 250,000 -- --
Options granted (20,000) 20,000 2.38-4.50
Options exercised -- (41,667) 1.50-2.00
Cancelled 78,818 (78,818) --
- --------------------------------------------------------------------------------
Balances June 30, 1994 517,068 92,360 $ 1.50-4.50
================================================================================
The 92,360 options outstanding are exercisable at varying periods, 72,360
currently and 20,000 through 1996.
Also, during fiscal year 1994 and subject to shareholder approval, the Company
granted new management and certain directors options to acquire an aggregate of
650,000 and 550,000 shares of common stock of the Company at exercise prices of
$2 and $4.50 (the then quoted market price), respectively. Management options
are exercisable at the rate of 25% each 14 months and director options are
exercisable upon achievement of a sales run rate of $300 million.
In September 1994, the shareholders approved an increase in the authorized
common stock of the Company from 10 to 30 million shares, the effect of which is
reflected herein.
10. Settlement with Former Officer
During 1994, in conjunction with the resignation of the Company's president, the
Company paid the former president $125,000 in settlement of severance, unpaid
vacation pay and other benefits. In addition, the Company also forgave
approximately $360,000 in amounts receivable from such officer which represented
prior advances and accrued interest.
11. Investments
During 1994, the Company acquired 40% of the common stock of a California based
computer distributor in exchange for certain development rights to one of the
Company's former product lines. As part of this acquisition the Company is
required to make capital contributions up to $200,000 of which $25,000 has been
made as of June 30, 1994. The operating activities of such company have not been
significant and the Company's investment is recorded under the cost method
inasmuch as the Company does not exercise significant influence over the
investee company. Specifically, the Company has no seat on the Board of
Directors and there is no officer or employee of the Company who serves the
investee company in any capacity.
12. Operations
During fiscal years 1992 and 1994, the Company restructured certain of its
activities in order to emphasize and streamline its operations, consistent with
its core capabilities in value-added distribution. Such restructuring spanned
organizational aspects of product and production alignment, market channel and
customer delineation, vendor arrangements and personnel capabilities. In 1994
and 1992 AmeriQuest restructured its operations and related charges aggregated
$5.7 million and $4.5 million. The components of the restructuring charges for
each period presented follow (dollars in thousands):
Year ended June 30,
-----------------------
1994 1992
---- ----
Employee terminations $ 500 $1,100
Facilities abandonment 300 --
Discontinued product lines 4,900 3,400
----- -----
$5,700 $4,500
===== =====
Inasmuch as these restructurings were initiated in the middle of each respective
fiscal year, the efforts were largely completed by each year end and the related
expenditures were largely incurred at those dates. The discontinued product
lines related to the then direct manufacture of both personal computers and tape
drive storage units utilizing proprietary designs with open architecture to the
myriad of compatible personal computing hardware and software available in the
marketplace. The restructuring charges consisted of incremental direct costs and
such costs were largely incurred and paid in each respective fiscal year, other
than for approximately $400,000 which extended through 1995 for the fiscal year
1994 charge.
The quantification of the components of the restructurings follows:
Tape Drive
Personal Computer Storage Unit
Manufacture Manufacture
----------------- -------------
Employee terminations
Number 40 130
Location Irvine, CA Singapore;
Irvine, CA
Facilities abandonment
Square footage 20,000 Sublet
Continuing lease
obligations
Amount per month $10,000 -
Product discontinuance
Capitalized software 1,700 -
Equipment - 200
Loss on inventory
disposition 1,800 3,200
Contractual obligations
Manufacturing 1,100 -
Marketing, other 300 -
All related costs were largely incurred prior to each fiscal year end, except
for the following accruals as to the 1994 restructuring:
Date Amount
---- ------
Lease obligations Through 1995 $200
Accruals Through 1994 $200
The benefits that accrue to AmeriQuest apart from the discontinuance of
unprofitable manufacturing per se, were related to refocusing upon the
distribution portion of the business. Losses reported by AmeriQuest
in 1992 and 1994, apart from restructuring charges, were largely related to
these former manufacturing operations. These restructuring activities in 1994
and 1992 impacted the Company's results of operations as follows:
Quarter Ended Year Ended
September 30, 1994 June 30, 1993
------------------ -------------
(Dollars in thousands)
Sales reduction as contrasted
to prior year $ - $16,436
Gross profit reduction as
contrasted to prior year - 1,792
Operating expense reduction
as contrasted to prior year 700 6,575
The benefits from the 1992 restructuring improved profits in 1993 by
appoximately $4.8 million. As to the 1994 restructuring charge, 1995 operations
are impacted by expense reductions only since sales of the proprietary personal
computer developed in 1993 and 1994 never reached material levels. Consolidated
expenses were reduced by approximately $700,000 during the quarter ended
September 30, 1994 as a result of the discontinuance of the personal computer
operations. Management expects a similar level of quarterly expense savings to
benefit the Company through the remainder of fiscal 1995.
13. Foreign Sales Information
A summary of the Company's operations by geographic area for the last three
years is as follows (in thousands):
Year Ended
June 30, 1994 U.S. Far East Elimination Consolidated
- -------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 62,089 $ 25,504 $ -- $ 87,593
Transfers between geographic areas 4,107 298 (4,405) --
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 66,196 $ 25,802 $ (4,405) $ 87,593
- -------------------------------------------------------------------------------------------------------------------
Loss from operations $ (7,182) $ (92) $ -- $ (7,274)
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 62,584 $ 2,561 $ -- $ 65,145
- -------------------------------------------------------------------------------------------------------------------
Year Ended
June 30, 1993 U.S. Far East Elimination Consolidated
- -------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 50,342 $ 22,740 $ -- $ 73,082
Transfers between geographic areas -- 3,086 (3,086) --
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 50,342 $ 25,826 $ (3,086) $ 73,082
- -------------------------------------------------------------------------------------------------------------------
(Loss) income from operations $ 647 $ (160) $ -- $ 487
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 17,170 $ 3,104 $ -- $ 20,274
- -------------------------------------------------------------------------------------------------------------------
Year Ended
June 30, 1992 U.S. Far East Elimination Consolidated
- -------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 106,710 $ 8,343 $ -- $ 115,053
Transfers between geographic areas -- 10,022 (10,022) --
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 106,710 $ 18,365 $ (10,022) $ 115,053
- -------------------------------------------------------------------------------------------------------------------
Loss from operations $ (4,792) $ (4,418) $ 163 $ (9,047)
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 29,848 $ 5,850 $ (12,176) $ 23,522
- -------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
United States sales include export sales of approximately $2.3 million, $2
million and $14.4 million made principally to Europe, Latin America, the Far
East and Canada in fiscal years 1994, 1993 and 1992, respectively.
50
14. Vendor Transactions
The Company's largest inventory vendor accounted for approximately 20% of the
Company's inventory purchases during the year ended June 30, 1994. At June 30,
1994, the Company owed that vendor approximately $4 million. Another vendor
accounted for approximately 25% and 22% of purchases for fiscal years 1993 and
1992, respectively. A third vendor accounted for approximately 14% of inventory
purchases in fiscal year 1993.
15. Disposition
In July 1994, the Company entered into an agreement to sell its Singapore
subsidiary, CMS Enhancements (S) PTE Ltd., ("CMS Singapore") to a former officer
and director of the Company. The Company expects to exchange all of the stock of
CMS Singapore for 350,000 shares of the Company's previously issued common
stock, of which approximately 345,000 shares were received by the Company as of
September 1994. The book value of CMS Singapore is approximately $1.5 million
and thus no appreciable gain or loss was expected to result upon completion of
the transaction. CMS Singapore is a segment of the Company's continuing
line of business and, as a result, any disposition will not be accounted for as
a discontinued operation. This transaction is the subject of potential
litigation, the ultimate resolution of which is not determinable. Such potential
litigation would be between the Company and the purchaser and would relate to
whether full consideration was received for the proposed transaction. In the
opinion of management such litigation would not have a materially adverse effect
on the Company's future results of operations and financial position.
CMS Singapore is a distributor of commodity disk drives. Sales of this Asian
subsidiary approximated $20 million for the year ended June 30, 1994. In the
opinion of management, the terms of the transaction were negotiated at
"arm's-length" at a point in time that the former officer and director was
estranged from the Company.
Results by Quarter (Unaudited)
(In thousands, except per share data)
Fiscal year ended June 30, 1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenues $ 19,560 $ 20,286 $ 23,130 $ 24,617
Operating income (loss) $ 138 $ (4,878) $ 392 $ (2,926)
Net income (loss) 62 (4,950) 203 (3,286)
Net income (loss) per common share $ 0.02 $ (0.63) $ 0.03 (0.33)
Common shares outstanding 3,330,710 7,862,516 7,865,916 9,857,779
(In thousands, except per share data)
Fiscal year ended June 30, 1993
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenues $ 20,570 $ 18,890 $ 15,701 $ 17,921
Operating Income $ 129 $ 125 $ 121 $ 112
Net income $ 51 $ 61 $ 83 $ 41
Net income per common share $ 0.02 $ 0.02 $ 0.03 $ 0.01
Common shares outstanding 2,925,523 2,989,593 2,997,754 3,180,710
Shareholder Information
A copy of the Company's Annual Report on Form 10-K, filed each year with the
Securities and Exchange Commission, may be obtained by shareholders without
charge. Such request or any additional request for financial information should
be addressed to Investor Relations Department, AmeriQuest Technologies, Inc.,
2722 Michelson Drive, Irvine, CA 92715, 714/222-6000.
Market Information
The Company's common stock is traded on the New York Stock Exchange under the
symbol AQS. The range of high and low transaction prices for the common stock as
reported by the New York Stock Exchange for fiscal 1994 and 1993, are as
follows:
Fiscal 1994
Quarter
Ended High Low
Sep. 30, 1993 3 1/4 2
Dec. 31, 1993 5 3/4 2 1/2
Mar. 31, 1994 6 4 1/8
Jun. 30, 1994 4 1/8 3
Fiscal 1993
Quarter
Ended High Low
Sep. 30, 1992 2 1/4 1 1/4
Dec. 31, 1992 3 3/4 1 1/2
Mar. 31, 1993 3 3/8 2
Jun. 30, 1993 3 5/8 2
There were 849 shareholders of record as of June 30, 1994. The Company has not
paid cash dividends and does not expect to declare or pay cash dividends in the
foreseeable future.
Annual Meeting of Shareholders
Monday, December 12, 1994, 2:00 p.m.
AmeriQuest Technologies, Inc.
2722 Michelson Drive, Irvine, CA 92715, 714/222-6000
51
SCHEDULE VIII
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Dollars in Thousands)
Additions
Balance at Charged to Deductions- Balance
Beginning Cost and Accounts at End
Descriptions of Period Expenses Written Off of Period
------------ ---------- ---------- ----------- ---------
Allowance for Doubtful Accounts:
July 1, 1991 to June 30, 1992 $ 441 $ 591 $ 629 $ 403
========== ========== =========== =========
July 1, 1992 to June 30, 1993 $ 403 $ 328 $ 478 $ 253
========== ========== =========== =========
July 1, 1993 to June 30, 1994 $ 253 $ 577 $ 353 $ 477
========== ========== =========== =========
Inventory Reserve:
July 1, 1991 to June 30, 1992 $ 8,657 $ 3,388 $ 4,620 $ 7,425
========== ========== =========== =========
July 1, 1992 to June 30, 1993 $ 7,425 $ 633 $ 4,962 $ 3,096
========== ========== =========== =========
July 1, 1993 to June 30, 1994 $ 3,096 $ 1,714 $ 2,177 $ 2,633
========== ========== =========== =========
SCHEDULE IX
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Weighted
Maximum Average Average
Category of Weighted Amount Amount Interest
Aggregate Balance Average Outstanding Outstanding Rate
Short-term at End of Interest During the During the During the
Borrowings Period Rate Period Period Period
----------- --------- -------- ----------- ----------- ----------
Bank Notes Payable:
July 1, 1991 to June 30, 1992 $ 1,714 10.99% $ 7,570 $ 3,494 14.38%
========= ====== =========== =========== ======
July 1, 1992 to June 30, 1993 $ 0 10.04% $ 3,610 $ 714 34.08%
========= ====== =========== =========== ======
July 1, 1993 to June 30, 1994 $ 23,059 8.05% $ 24,652 $ 12,144 6.79%
========= ====== =========== =========== ======
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: July 18, 1994
AMERIQUEST TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
- -------------------------------------------------------------------------------
(State of other jurisdiction of incorporation)
1-10397 33-0244136
- -------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
2722 Michelson Drive, Irvine, CA 92715
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 222-6000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
CMS ENHANCEMENTS, INC.
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Registrant earlier reported that on July 8, 1994 the Registrant
reacquired 345,091 shares of its Common Stock from Mr. James D'Jen, a former
officer and director of AQS, as down payment on an obligation of Mr. D'Jen to
exchange 350,000 shares of AQS Common Stock in exchange for all (100%) of the
common stock of AQS's Singapore subsidiary, CMS Enhancements (S) PTE Ltd. The
balance of the 4,909 shares of AQS Common Stock were never delivered to the
Registrant. Accordingly, after numerous demands of Mr. D'Jen to deliver the
balance of the shares due, the Board of Directors resolved on March 17, 1995 to
return the shares to Mr. D'Jen evidencing the down payment shares and to abandon
the proposed sale.
The Singapore company is a distributor of commodity disk drives. Sales
for this Singaporean subsidiary approximate $20 million annually, but
historically have not effectively contributed to the domestic operations.
In the opinion of management the terms of the transaction were
negotiated at "arm's-length" at a point in time that Mr. D'Jen was estranged
from the Company, and it appears that this estranged relationship has resulted
in Mr. D'Jen being unwilling to pay the full bargained-for consideration.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
/s/ Stephen G. Holmes
----------------------------------
Stephen G. Holmes
Secretary, Treasurer and
Chief Financial Officer
Dated: April 4, 1995
3
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
FORM 8-K/A
(Amendment No. 4)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 12, 1994
AMERIQUEST TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware
- -------------------------------------------------------------------------------
(State of other jurisdiction of incorporation)
1-10397 33-0244136
- -------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
2722 Michelson Drive, Irvine, CA 92715
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 222-6000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
Item 2. Acquisition or Disposition of Assets
-------------------------------------
Effective June 6, 1994, AmeriQuest Technologies, Inc. ("AQS") issued
1,130,330 shares of its Common Stock in exchange for 3.3 million shares (51
percent) of Kenfil Inc. ("Kenfil") Common Stock held by certain principal
shareholders of Kenfil in a first-stage exchange pursuant to AmeriQuest's two
phase acquisition of Van Nuys, California-based Kenfil.
On September 12, 1994, the shareholders of Kenfil and AQS approved the
proposed merger of "AmeriQuest/Kenfil Inc.," a wholly-owned subsidiary of AQS,
with and into Kenfil (the "Merger"). The Merger has since become effective, and
AQS is now the sole shareholder of AmeriQuest/Kenfil Inc. In connection with
the Merger, AQS issued 1,046,254 shares of its Common Stock to the Kenfil
minority shareholders, 1,894,360 shares to the holders of Kenfil's subordinated
debt and 2,788,353 shares (of which 388,316 were issued prior to June 30, 1994)
to Kenfil's vendors.
Kenfil is a distributor of microcomputer software. Its key vendors include
Corel, Broderbund, Symantec, Quarterdeck Office Systems and IBM.
---------------------------
Effective September 22, 1994, ("AQS") issued 1,402,805 shares of its Common
Stock in exchange for 50.1 percent of the issued and outstanding shares of
Robec, Inc. ("Robec") Common Stock held by certain principal shareholders of
Robec in a first-stage exchange pursuant to AmeriQuest's two phase acquisition
of Robec.
Subject to AmeriQuest and Robec stockholders' approvals, the remaining
shares of Robec Common Stock will be exchanged in a merger transaction (the
"Merger") at the same conversion ratio of 0.63075 shares of AmeriQuest for each
share of Robec common stock. The Merger is expected to be completed in early
1995.
Robec is a national value-added distributor of microcomputer systems,
peripherals and accessories. Its key vendors include Acer, IBM, MultiTech,
Okidata, Unisys and Wyse.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) The financial statements of Robec required to be filed pursuant to Item
7(a) of Form 8-K are incorporated herein by reference to AQS's Registration
Statement on Form S-4, SEC File No. 33-81726, declared effective on August 11,
1994 on pages F-42 through F-53 of the Prospectus/Joint Proxy Statement included
therein, copies of which were attached to the original Form 8-K as Exhibit 3 and
incorporated herein by this reference. Further, the financial statements of
Robec at June 30, 1994 are incorporated herein by reference to Robec's Quarterly
Report on Form 10-Q for the six months ended June 30, 1994, SEC File No. 0-
18115, a copy of which is attached hereto as Exhibit 5.
(b) The pro forma financial information for Kenfil and Robec required to be
filed pursuant to Item 7(b) of Form 8-K and Rule 601 of Regulation S-K are
attached hereto and incorporated herein by this reference, including:
Pro Forma Condensed Balance Sheet at
June 30, 1994
Pro Forma Condensed Statements of Operations
for the fiscal year ended June 30, 1994.
2
Exhibit No. Description of Exhibit
- ----------- ----------------------
2* Amended and Restated Agreement and Plan of Reorganization dated
as of August 11, 1994 by and between AmeriQuest, Robec and
certain principal shareholders of Robec.
3* Financial Statements of Robec as included in AQS's Registration
Statement on Form S-4, SEC File No. 33-81726 at pages F-42
through F-53 of the Prospectus/Joint Proxy Statement included
therein.
5* Robec's Quarterly Report on Form 10-Q for the six months ended
June 30, 1994.
- ---------------
* Filed with the original filing.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
/s/ Stephen G. Holmes
------------------------------------
Stephen G. Holmes
Secretary, Treasurer and
Chief Financial Officer
Dated: May 8, 1995
4
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of AQS for the
fiscal year ended June 30, 1994, gives effect to the acquisition of 100 percent
of Kenfil's common stock and 50.1 percent of Robec's common stock. For the
purpose of the unaudited pro forma statement of operations, it is assumed that
these acquisitions were completed on July 1, 1993, and for the purpose of the
unaudited pro forma balance sheet, it is assumed that these acquisitions were
completed on June 30, 1994.
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED BALANCE SHEET
June 30, 1994 (Unaudited)
(Dollars in thousands except share and per share data)
ASSETS
AmeriQuest Proforma Proforma Proforma Proforma
Technologies, Inc.(2) Adjustments(1) Combined Robec, Inc. Adjustments Combined
------------------ -------------- --------- -------------- ------------- ---------
CURRENT ASSETS
Cash $ 3,200 $ 3,200 $ 363 $ 3,563
Accounts receivable, net 24,708 24,708 16,188 (817)(D) 40,079
Inventories 24,165 24,165 20,371 (2,084)(D) 42,452
Income taxes receivable - - - -
Prepaid expenses and other 1,627 1,627 523 2,150
----------- --------- ------- -------- --------- --------
Total current assets 53,700 0 53,700 37,445 (2,901) 88,244
PROPERTY AND EQUIPMENT, NET 4,078 4,078 1,962 (1,962)(I) 4,078
INTANGIBLE ASSETS, NET 6,490 5,443 (B) 11,933 - - 11,933
OTHER ASSETS 877 877 604 (604)(I) 877
----------- --------- ------- -------- --------- --------
$ 65,145 $ 5,443 $70,588 $ 40,011 $ (5,467) $105,132
=========== ========= ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
AmeriQuest Proforma Proforma Proforma Proforma
Technologies, Inc. Adjustments(1) Combined Robec, Inc. Adjustments Combined
------------------ ------------- --------- -------------- ------------- ---------
CURRENT LIABILITIES
Accounts payable $ 23,408 $(4,200)(C) $ 19,208 $13,923 - $ 33,131
Notes payable 23,059 23,059 12,046 - 35,105
Other 2,361 2,361 1,678 - 4,039
----------- --------- ------- -------- --------- --------
Total current liabilities 48,828 (4,200) 44,628 27,647 0 72,275
----------- --------- ------- -------- --------- --------
LONG-TERM DEBT 3,175 (3,175)(A) - - - -
OTHER NONCURRENT LIABILITIES
DEFERRED INCOME TAXES 267 267 155 - 422
NEGATIVE GOODWILL - - - - 1,193(I) 1,193
MINORITY INTEREST - - - - 2,800(H) 2,800
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 10,000,000 shares;
no shares issued and outstanding - - - - - -
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding 9,857,779
shares 99 53(A,B,C) 152 - 14 (D) 166
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,599,180
shares - - - 46 (46)(J) -
2,735 (D)
Additional paid-in capital 27,345 12,765(A,B,C) 40,110 16,695 (16,695)(J) 42,845
Retained deficit (14,569) (14,569) (4,532) 4,532 (J) (14,569)
----------- --------- ------- -------- --------- --------
Total stockholders' equity 12,875 12,818 25,693 12,209 (9,460) 28,442(3)
----------- --------- ------- -------- --------- --------
$65,145 $5,443 $70,588 $40,011 $(5,467) $105,132
=========== ========= ======= ======== ========= ========
OUTSTANDING COMMON SHARES 9,857,779 15,198,430 16,601,235
=========== ========== ==========
(1) Includes the acquisition of the remaining 49% of Kenfil and the conversion
to Preferred and Common Stock of certain indebtedness.
(2) The AQS historical balance sheet at June 30, 1994, includes the historical
balance sheets of Kenfil, Inc. Effective June 6, 1994, AQS acquired 51
percent of the outstanding common stock of Kenfil. The remaining 49 percent
of the outstanding Kenfil common stock was acquired on September 12,
1994. Kenfil had an equity deficit at the date of acquisition, and
therefore no amount representing minority interest is reflected in the
historical AQS balance sheet.
(3) The Company valued its common stock issued in connection with its Kenfil
and Robec acquisitions at a discounted quoted market price, based upon the
weighted average discounts received in recently completed private placement
equity cash transactions. This valuation represents management's best
estimate of the fair value of the Company's common stock. This valuation
represents a significant discount from quoted market prices due to the thin
public trading volume and small public float of AmeriQuest common
stock.
5
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For year ended June 30, 1994
(Unaudited)
(Dollars in thousands, except per share data)
AmeriQuest Pro Forma Pro Forma Pro Forma Pro Forma
Technologies, Inc.(2)(L)(K)Kenfil Inc. Adjustments Combined Robec Inc. Adjustments Combined
------------------ ----------- ----------- ---------- ---------- ----------- --------
NET SALES $ 87,593 $ 138,759 $ 226,352 $ 168,446 $ 394,798
COST OF SALES 75,023 128,843 203,866 155,836 359,702
------------- ----------- --------- --------- ---------- ----------- ---------
Gross profit 12,570 9,916 0 22,486 12,610 0 35,096
OPERATING EXPENSES
Selling, general and
administrative 14,144 24,653 $ 1,193 (E) 39,990 22,985 (376)(N) 62,599
Restructuring charge and
earthquake loss (G) 5,700 3,430 9,130 0 9,130
------------- ----------- --------- --------- ---------- ----------- ---------
Loss from operations (7,274) (18,167) (1,193) (26,634) (10,375) 376 (36,633)
OTHER INCOME
(EXPENSE)
Other income 31 40 71 71
Interest expense (728) (2,626) 380 (F) (2,974) (1,613) (4,587)
------------- ----------- --------- --------- ---------- ----------- ---------
(697) (2,586) 380 (2,903) (1,613) 0 (4,516)
------------- ----------- --------- --------- ---------- ----------- ---------
Minority interest 0 0 0 0 0 2,800(M) 2,800
------------- ----------- --------- --------- ---------- ----------- ---------
Loss before taxes (7,971) (20,753) (813) (29,537) (11,988) 3,176 (38,349)
PROVISION FOR INCOME
TAXES 0 17 17 (814) (797)
------------- ----------- --------- --------- ---------- ----------- ---------
Net loss (G) $ (7,971) $ (20,770) $ (813) $ (29,554) $ (11,174) $ 3,176 $(37,552)(G)
============= =========== ========= ========= ========== =========== =========
Net loss per
common share and
common share equivalent $ (1.33) $ (2.30) $ (2.64)
============= ========= ========
Common and common
equivalent shares 5,973,511 12,832,808 14,235,613
============= ========== ==========
6
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF AMERIQUEST TECHNOLOGIES, INC., KENFIL INC. AND ROBEC INC.
The following footnotes reflect the assumptions made in the preparation of the
Pro Forma Condensed Consolidated Financial Statements.
(A) In conjunction with the purchase of Kenfil, AmeriQuest will issue
1,894,360 additional shares of AmeriQuest Common Stock in satisfaction of
certain Kenfil subordinated debt with a face amount of $8,203,729 but
which had been valued at $3,175,000 for purposes of the June 30, 1994
financial statements, plus accrued interest to the date of issuance.
The AmeriQuest common stock is assumed to have a market value of $2.40 per
share, representing a discounted quoted market price based upon the method
discussed in (B).
(B) In September 1994, AQS issued 1,046,254 shares of its Common Stock to
acquire the remaining 49% of Kenfil Inc. The additional shares were valued
at $2.40 per share and resulted in additional goodwill in the amount of
$5,443,000. The per share valuation represents a discounted quoted market
price, based upon the weighted average discounts received on recently
completed private equity cash transactions. The Kenfil goodwill amount
results from management's preliminary estimate of the fair value of Kenfil
net assets acquired. Management is currently in the process of completing
its detailed analysis of the fair value of Kenfil net assets acquired and
therefore the related goodwill amount presented herein may materially
change as a result of the completed analysis. For each $1 million of
goodwill recorded due to future purchase price allocation adjustments,
the pro forma loss for the year ended June 30, 1994 would increase by
$100,000.
(C) In conjunction with the purchase of Kenfil, the Company issued 2,400,037
additional shares (388,316 shares had been previously issued to vendors
prior to June 30, 1994) of AmeriQuest Common Stock in satisfaction of
certain Kenfil trade accounts payable, i.e. to Kenfil's vendors. Initially
certain such shares were issued in part as AmeriQuest Common Stock and in
principal part as Series C Convertible Preferred Stock pending an increase
in the number of shares of Common Stock that AmeriQuest is authorized to
issue. However, inasmuch as the Series C Convertible Preferred Stock
served only as a temporary capital alternative, it is reflected in the
accompanying pro forma financial statements as Common Stock. AmeriQuest
anticipates that up to an additional one million shares of AmeriQuest
Common Stock may be issued to other Kenfil vendors, however, no certainty
as to such possible issuance exists. The AmeriQuest common stock is
assumed to have a market value of $2.40 per share representing a
discounted qouted market price based upon the method discussed in
(B).
(D) To effect the purchase of Robec, AmeriQuest will issue 1,402,805 shares of
AmeriQuest Common Stock in exchange for 50.1% of the issued and
outstanding shares of Robec common stock. The AmeriQuest Common Stock is
assumed to have a market value of $1.96 per share at the time of the
transaction for a total purchase price of $2,750,000. The per share
valuation represents a discounted quoted market price based upon the
method discussed in (B).
The reserves recorded against Robec accounts receivable and inventories
are to state these amounts at their net realizable value, based upon
management's preliminary estimate of the fair value of Robec net assets
acquired. Management is currently in the process of completing its
detailed analysis of the fair value of Robec net assets acquired and
therefore the related purchase price allocation presented herein may
change as a result of the completed analysis. Management, however, does
not expect future purchase price allocation adjustments to have a
material effect on the Company's future results of operations or financial
position.
(E) To record goodwill amortization over the estimated economic life of 10
years.
Management believes that the most significant intangible acquired is that
of the distribution channels. Management has assigned a 10 year economic
life to this intangible asset as that is the period of time that
management expects to derive benefit from the existing vendor
relationships and market position. Management determined that 10 years is
an appropriate economic life based upon the historical length of the
acquiree's vendor relationships and the overall size and quality of the
vendors and their product offerings.
(F) Savings of interest expense on the Kenfil subordinated debt retired
through the issuance of Ameriquest Common Stock in (A) above, interest
ranging from 9.5% to 13.91%.
(G) The restructuring charge of $5,700,000 included in AmeriQuest's historical
statement of operations relates principally to the write-off of certain
former personal computer joint venture operations. The restructuring
charge and earthquake loss of $3,430,000 included in Kenfil's historical
financials included charges of $2,821,000 for losses sustained in the
Southern California earthquake and restructuring charges of $609,000
relating to severance costs and lease termination costs.
Such restructuring charges, although non-recurring in nature, have been
included in the proforma condensed combined statement of operations in
conformity with Article 11 of Regulations S-X of the Securities and
Exchange Commission.
(H) To record minority interest associated with the 49.9 percent of Robec
common stock shares not owned by AmeriQuest.
(I) The fair value of Robec net assets acquired exceeds its purchase price by
$3,759,000. Robec long lived assets of $2,566,000 are written down to
zero, with the remaining $1,193,000 recorded as negative goodwill.
(J) To eliminate the historical equity of Robec.
7
(K) On July 8, 1994, AmeriQuest reacquired 345,091 shares of its Common Stock
from Mr. James D'Jen, a former officer and director of AmeriQuest, as down
payment on an obligation of Mr. D'Jen to exchange 350,000 shares of
AmeriQuest Common Stock, in exchange for all (100%) of the common stock of
AmeriQuest's Singapore subsidiary, CMS Enhancements (S) PTE Ltd. The
Singapore subsidiary is a distributor of commodity disk drives. Sales for
this Singapore subsidiary approximate $20 million annually, with an
approximate breakeven in operating results. The balance of the 4,909
shares of AQS Common Stock were never delivered to the Registrant.
Accordingly, after numerous demands of Mr. D'Jen to deliver the balance of
the shares due, the Board of Directors resolved on March 17, 1995 to
return the shares to Mr. D'Jen evidencing the down payment shares and to
abandon the proposed sale.
(L) Effective December, 1993, AQS acquired certain assets and assumed certain
liabilities of Management Systems Group and acquired the outstanding
common stock of Rhino Sales Company. Assuming these acquisitions were
reflected in the accompanying pro forma statement of operations as being
effective July 1, 1993, the impact would be to increase revenues
approximately $20 million, with no effect on net income.
(M) To give effect to Robec's minority interest share of its loss, up to the
amount of recorded minority interest reflected in the Company's June 30,
1994 pro forma balance sheet.
(N) To reduce depreciation expense associated with Robec's long lived assets
written to zero and to give effect to the amortization of negative
goodwill.
8
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 3)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1994
Commission File Number 1-10397
AmeriQuest Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0244136
- -------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2722 Michelson Drive, Irvine, CA 92715
- --------------------------------------- --------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (714) 222-6000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At September 30, 1994 there were 17,136,935 shares of the Registrant's
Common Stock outstanding.
1
AmeriQuest Technologies, Inc.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information ........................... 3
Consolidated Condensed Balance Sheets
September 30, 1994 and June 30, 1994 ............................. 4
Consolidated Condensed Statements of Income
Three Months Ended September 30, 1994 and 1993 ................... 5
Consolidated Condensed Statements of
Cash Flows - Three Months Ended
September 30, 1994 and 1993 ...................................... 6-7
Consolidated Statements of Shareholders' Equity
September 30, 1994 ............................................... 8
Notes to Consolidated Condensed Financial
Statements - September 30, 1994 .................................. 9-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................12-13
PART II. OTHER INFORMATION ................................................ 14
SIGNATURES ................................................................ 15
2
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
PART I. STATEMENT REGARDING FINANCIAL INFORMATION
The financial statements included herein have been prepared by
AMERIQUEST TECHNOLOGIES, INC. (The "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been omitted pursuant to such
rules and regulations. However, the Company believes that the financial
statements, including the disclosures herein, are adequate to make the
information presented not misleading. It is suggested that the financial
statements be read in conjunction with the Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 as filed with the Securities and Exchange
Commission.
3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands) September 30, June 30,
1994 1994
- ------------------------------------------------------------------------------
ASSETS
RESTATED
(SEE NOTE 5)
CURRENT ASSETS
Cash $ 1,378 $ 3,200
Accounts receivable, less
allowances for doubtful
accounts of $452 and $477 42,687 24,708
as of September 30, 1994 and June 30,
1994, respectively
Inventories 47,291 24,165
Other current assets 1,668 1,627
-------- --------
93,024 53,700
PROPERTY AND EQUIPMENT, NET 4,043 4,078
INTANGIBLE ASSETS, NET 11,813 6,490
OTHER ASSETS 1,142 877
-------- --------
$110,022 $ 65,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,722 $ 23,408
Notes payable 43,211 23,059
Other current liabilities 5,358 2,361
-------- --------
Total current liabilities 78,291 48,828
SUBORDINATED NOTES PAYABLE - 3,175
-------- --------
DEFERRED INCOME TAXES 267 267
-------- --------
MINORITY INTEREST 2,800 -
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding, 17,136,935 and
9,857,779 shares, respectively 171 99
Additional paid-in capital 44,175 27,345
Retained deficit (15,682) (14,569)
-------- --------
Total stockholders' equity 28,664 12,875
-------- --------
$110,022 $ 65,145
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands)
Three Months Ended September 30,
--------------------------------
1994 1993
--------------------------------
RESTATED
(SEE NOTE 5)
NET SALES $ 49,476 $ 19,560
COST OF SALES 44,704 16,394
----------- ----------
Gross profit 4,772 3,166
----------- ----------
OPERATING EXPENSES
Selling, general and administrative 5,222 2,978
Research and development 3 50
----------- ----------
5,225 3,028
----------- ----------
Income (loss) from operations (453) 138
----------- ----------
OTHER (INCOME) EXPENSE
Other (income) expense (67) 2
Interest expense 727 74
----------- ----------
660 76
----------- ----------
Net income(loss) $ ( 1,113) $ 62
=========== ==========
Net income(loss) per common share and
common stock equivalent $ (0.10) $ 0.02
=========== ==========
Weighted average shares 11,622,873 3,341,373
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended September 30,
---------------------------------
(Dollars in thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
RESTATED
(SEE NOTE 5)
Cash Flow from Operating Activities
Net income (loss) $ (1,113) $ 62
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 589 246
Provision for losses on accounts receivable 127 (67)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,269) (1,380)
(Increase) decrease in inventories and other (7,138) (781)
(Increase) decrease in other assets (40) (333)
Increase (decrease) in accounts payable and other 841 885
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (9,003) (1,368)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flow from Investing Activities
Purchases of property and equipment (383) (124)
Net cash received from acquisition of business 302 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (81) (124)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from line of credit borrowings 37,685 16,607
Principal payments on line of credit and capital leases (31,758) (15,387)
Proceeds from sale of common stock 1,335 200
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,262 1,420
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,822) (72)
Cash-beginning of the year 3,200 1,020
- ---------------------------------------------------------------------------------------------------------------------------------
Cash-end of the year $ 1,378 $ 948
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest on line of credit: During the periods ending September 30, 1994 and
1993, the Company paid interest costs of $727,000
and $74,000, respectively.
Income Taxes: During the periods ending September 30, 1994 and
1993, the Company made no tax payments.
The accompanying notes are an integral part of these consolidated financial
statements.
6
Noncash investing and financing activities (continued)
Business acquired: During the first quarter of 1995, the Company acquired
businesses summarized as follows:
Fair value of assets acquired 34,595
Liabilities assumed (19,520)
Common stock issued (15,075)
---------
Cash paid 0
Less cash acquired 302
---------
Net cash received from acquisition 302
=========
7
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
September 30, 1994
(UNAUDITED)
Additional Retained
Common Stock Paid-in (Deficit)
(Dollars in thousands) Shares Amount Capital Earnings
- ------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1992 2,925,523 $ 29 14,757 $ (6,834)
Common stock issued to unrelated parties 143,000 2 286 -
Common stock issued for acquisitions 100,000 1 149 -
Exercise of employee stock options 12,187 - 18 -
Net income for the year ended June 30, 1993 - - - 236
- ------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 3,180,710 $ 32 15,210 $ (6,598)
Common stock issued to unrelated parties 4,905,072 49 9,054 -
Exercise of employee stock options 41,667 1 70 -
Common stock issued for acquisitions 1,730,330 17 3,011 -
Net (loss) for the year ended June 30, 1994 - - - (7,971)
- ------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 9,857,779 $ 99 $27,345 $(14,569)
Common stock issued to unrelated parties (Note 4) 532,000 5 1,325 -
Exercise of employee stock options 3,700 - 5 -
Common stock issued for acquisitions (Note 3) 6,743,456 67 15,500 -
Net (loss) for the three months ended - - - (1,113)
September 30, 1994
- ------------------------------------------------------------------------------------------------------------------
Balances at September 30, 1994 17,136,935 $171 $44,175 $(15,682)
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
8
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
1) MANAGEMENT OPINION
In the opinion of management, the consolidated condensed financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods presented.
2) EARNING PER SHARE
Primary earnings per common share and common share equivalent were computed
by dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the quarter. Common
stock equivalents include the number of common shares issuable on exercise
of the outstanding warrants and stock options less the number of shares
that could have been purchased with the proceeds from the exercise of such
warrants or options based on the average price of the Company's common
stock during the quarter. Fully diluted earnings per common share was
immaterial. Common stock equivalents that increase earnings per share or
decrease loss per share were excluded from the computation.
3) ACQUISITIONS
The Company is pursuing a growth through acquisition strategy of acquiring
regional distributors with the ultimate goal of creating a national
distributor of value added computers, subsystems and peripherals.
The success of this strategy is dependent upon the ability of the Company
to effectively consolidate and integrate the operations of the acquired
businesses, combine different business cultures and obtain adequate
financing to complete acquisitions and fund working capital requirements.
Since 1993, the acquisitions of the Company have included:
COMPLETED BY JUNE 30, 1993
Vitronix, Inc. ("Vitronix")
As of March 1993, the Company acquired certain assets of Vitronix for
common stock of the Company. Vitronix is a distributor of computer
products and services, specializing in UNIX applications, and is based in
Boston, Massachusetts.
9
COMPLETED BY JUNE 30, 1994
Management Systems Group ("MSG")
As of December 1993, the Company acquired certain assets and assumed
certain liabilities of MSG for common stock of the Company and certain
contingent consideration. MSG is a distributor of computer products and
services, specializing in systems and networking applications, and is based
in Long Island, New York.
Rhino Sales Company ("Rhino")
As of December 1993, the Company acquired the outstanding common stock of
Rhino for a combination of cash and common stock of the Company. Rhino is
a distributor of computer products and services, specializing in UNIX
applications, and is based in Fenton, Michigan.
Kenfil Inc. ("Kenfil")
As of June 1994, the Company acquired 51% of the outstanding common stock
of Kenfil for common stock of the Company. Kenfil distributes
microcomputer software and is based in Southern California.
IN PROCESS AT JUNE 30, 1994 (COMPLETED BY SEPTEMBER 30, 1994)
Kenfil Inc. ("Kenfil")
As of September 1994, the Company acquired the remaining outstanding 49% of
the common stock of Kenfil and converted certain trade and subordinated
debt of Kenfil for common and convertible preferred stock of the Company.
Robec, Inc. ("Robec")
As of September 1994, the Company acquired 51% of the outstanding common
stock of Robec for common stock of the Company. Robec is a distributor of
computer products and services, specializing in systems and UNIX
applications, and is based in Horsham, Pennsylvania.
IN PROCESS AT SEPTEMBER 1994
Robec, Inc. ("Robec")
The Company proposes to acquire the remaining 49% of the outstanding common
stock of Robec during 1995.
National Computer Distributors ("NCD")
As of September 1994, the Company entered into an agreement to acquire the
outstanding common stock of NCD for cash and common stock of the Company.
NCD is a distributor of computer products and services, specializing in
systems and connectivity applications, and is based in Fort Lauderdale,
Florida. This proposed transaction is expected to be completed in November
1994.
10
The following summarizes the cost of the Company's acquisitions (dollars in
thousands):
Common Shares Common Stock
Company Issued Consideration Cash Consideration
- ------- ------------- ------------- ------------------
Completed by June 30, 1994
MSG 400,000 $ 700
Rhino 200,000 350 $50
Kenfil, 51% 1,130,330 1,978
--------- ----------
1,730,330 $ 3,028
--------- ----------
Completed by September 30, 1994
Kenfil, 49% 1,046,254 $ 2,511
Robec, 51% 1,402,805 2,749
Kenfil, vendors 2,400,037 5,761
Kenfil, debt conversion 1,894,360 4,546
--------- ----------
6,743,456 $ 15,567
--------- ----------
In process at September 30, 1994
Robec, 49% 1,397,195
NCD 1,864,767
The acquisitions were accounted for using the purchase method and,
accordingly, the financial statements include the results of their operations
from the effective acquisition dates. As to common stock consideration, all
such acquisitions are reflected utilizing a per share valuation representing
a discounted quoted market price, based upon weighted average discounts
received on recently completed private equity cash transactions. This
valuation represents management's best estimate of the fair value of the
Company's common stock. This valuation represents a significant discount from
quoted market prices due to the thin public trading volume and small public
float of AmeriQuest common stock.
The contingent consideration granted to certain of the former owners of the
acquired businesses is dependent upon the attainment of certain defined
profit objectives of the acquired companies and consists of the right to
acquire common stock of the Company at previously agreed upon prices,
additional cash consideration or the issuance of additional common stock.
Additional contingent consideration earned in connection with the attainment
of the profit objectives, if any, will be reflected as an increase in the
excess of cost over the fair value of net assets acquired. As to the
specific acquisitions of the Company, such potential contingent common stock
and cash consideration is less than $400,000 in the aggregate and is limited
to the MSG and Rhino acquisitions.
Management believes that the most significant intangible acquired is that of
the distribution channels. Management has assigned a 10 year economic life to
this intangible asset as that is the period of time that management expects
to derive benefit form the existing vendor relationships and market position.
Management determined that 10 years is an appropriate economic life based
upon the historical length of the acquiree's vendor relationships and the
overall size and quality of the acquiree's vendors and their product
offerings.
The purchase price allocations associated with the Kenfil and Robec
acquisitions are based upon the Company's preliminary estimates of the fair
value of net assets acquired. The Company is currently in the process of
completing its detailed analysis of the fair value of Kenfil and Robec net
assets acquired and therefore the related intangible assets included in the
accompanying financial statements may change as a result of the completed
analysis.
The pro forma effects of the Kenfil, Robec and NCD acquisitions as if they
occurred at the beginning of each period follow (dollars in thousands
except per share data):
Three Months Ended
September 30,
1994 1993
----------- -----------
Net sales $ 133,191 $ 158,316
Gross profit 9,409 17,301
Net (loss) (4,352) (26)
Net (loss) per common
share and common stock
equivalent $ (0.21) $ _
=========== ===========
Weighted average shares 20,647,186 10,291,528
=========== ===========
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the indicated period or the
results that may occur in the future. Furthermore, the pro forma results do
not give effect to cost savings which may occur as a result of the
consolidation of the acquired companies.
During the three month period ended September 30, 1994, intangibles increased
approximately $5.3 million. This increase primarily relates to the Company's
acquisition of the remaining 49 percent of Kenfil.
4) COMMON STOCK
Common stock issued to unrelated parties during the quarter ended September
30, 1994 consisted of 532,000 common shares issued to Computer 2000 AG, a
publicly traded German company, for cash proceeds of $1,330,000.
11
In November 1994 the Company entered into an agreement to sell a controlling
interest, 51%, of it's common stock to Computer 2000. The aggregate proceeds
of $50 million are scheduled for receipt by the Company in late 1994 as to
$18 million and in September 1995 as to the remaining $32 million. Such
proceeds, when coupled with the existing cash and credit resources of the
Company, should allow for reasonable continued expansion of the operations of
the Company.
5) RESTATEMENT
The accompanying unaudited condensed consolidated financial statements for
the first quarter ended September 30, 1994, have been restated to reflect
certain duplicate operating costs associated with the recent KENFIL
acquisition as operating expenses of the Company, rather than purchase
accounting adjustments. The effect of the restatement is to increase selling,
general and administrative expenses by $700,000 and increase the loss from
operations and the net loss by this same amount. The net loss per share
increased from ($0.04) to ($0.10) as a result of this restatement.
The restatement resulted from management's continued review of its purchase
accounting policies regarding the KENFIL acquisition and the determination
that certain costs required to integrate the KENFIL business did not meet the
APB number 16 criteria for purchase accounting.
The Company modified its method to determine the fair value of its common
stock issued in connection with recent acquisitions and related transactions.
The Company's valuations are based on a discounted quoted market price based
upon a weighted average of discounts received in recently completed private
equity cash transactions. The Company's condensed consolidated financial
statements included herein have been restated for this change. The effect of
this restatement is to increase total assets by $2,114,000 and stockholders'
equity by $492,000 at September 30, 1994.
ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
SUMMARY
The following table sets forth certain items in the Consolidated Condensed
Statements of Income as a percent of net sales.
Percent of Net Sales
----------------------
Three Months Ended
September 30,
1994 1993
--------- ----------
Net sales 100.0% 100.0%
Cost of sales 90.4% 83.8%
Gross profit 9.6% 16.2%
Selling, general and
administrative 10.6% 15.5%
Interest and other expense, net 1.3% 0.4%
Net income (loss) -2.2% 0.3%
12
AmeriQuest is following a business strategy of growth by acquisition, consistent
with the consolidation that is occurring in the maturing personal computer
marketplace. This strategy creates the following risks involving the ability to
successfully:
. Consolidate the operations of previously unaffiliated businesses, some of
which were unprofitable
. Combine the business cultures of diverse operations
. Obtain adequate capital resources to complete acquisitions and working capital
required for continuing operations
The following reflects the net changes in each specified account as regards the
implementation of the business strategy of the Company.
Increase (Decrease) During
Quarter Ended September 30,
Compared to June 30, 1994
----------------------------
Sales
Due to acquisitions 20,817
Continuing operations 4,042
Restructuring -
Net change 24,859
Gross Profit
Due to acquisitions 1,913
Continuing operations (79)
Restructuring -
Net change 1,834
Operating Expenses
Due to acquisitions 1,845
Continuing operations (2,483)
Net change (638)
Other (Income) Expense
Due to acquisitions (357)
Continuing operations (57)
Restructuring -
Net change (414)
Net Income
Due to acquisitions (289)
Continuing operations 2,461
Net change 2,172
The working capital for these changes has generally been provided by bank credit
line facilities and the issuance of common stock as to acquisitions.
13
RESULTS OF OPERATIONS
For the three months ended September 30, 1994, net sales increased appreciably
as contrasted to the same period in the prior year due to the operational
activities resulting from the acquisition of MSG, Rhino, Kenfil and Robec, which
were not owned and thus not included in the operations of the Company at
September 30, 1993.
An aggregate warranty and returns reserve of approximately $1 million is
reflected in the balance sheet of AmeriQuest at September 30, 1994. Inasmuch as
the Company began its distribution operations in December 1993, the effect of
market development funds received through September 30, 1994 was not
significant.
Costs of sales as a percentage of net sales increased significantly for the
three months ended September 30, 1994, when compared to the same period one year
ago principally since the operations of the acquired businesses are distribution
oriented with lower margins than those achieved by the value added storage
operations in which the Company was engaged in 1993 and which operations
continue but represents a much lower portion of consolidated operations.
Selling, general and administrative costs as a percentage of net sales decreased
for the three months ended September 30, 1994 when compared to the same period
one year ago, principally because the acquired operations of the Company require
less selling and administrative support than the operations in place a year ago.
Interest expense increased substantially for the three months ended September
30, 1994, when compared to the same period one year earlier, reflecting the
increased financing associated with the acquired operations.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has generated cash to meet its needs from operations, sales
of common stock and bank borrowings. At September 30, 1994, the Company had
$1.4 million in cash, and had borrowed approximately $43.2 million against its
existing lines of credit. The Company's continued product distribution emphasis
and proposed expansion will require substantial additional capital resources.
At September 30, 1994, AmeriQuest has working capital lines of credit of over
$50 million, including a $20 million facility extended to Robec, Inc.
Borrowings under these facilities bear interest at from 1 to 3 percent over the
prime rate and are limited to specified percentages of AmeriQuest's eligible
accounts receivable (a borrowing base in excess of $20 million) and inventories
(a borrowing base of over $20 million).
The management of the Company expects to implement a cost reduction and
efficiency program for its core distribution operations during fiscal year 1995
in an effort to eliminate the continuing impact of those attributes which
created the cash loss from operations of $8.4 million realized in 1994. This
program will focus on centralized administrative operations, product procurement
efficiencies and a continuing cost/benefit analysis of resource allocation. No
material commitments are in place as to required capital expenditures at
September 30, 1994.
14
As AmeriQuest introduced products which carry higher gross margins than do the
commodity products which historically accounted for much of AmeriQuest's
revenues, available working capital was invested in higher levels of inventories
in fiscal year 1994 and 1995.
Inventory and receivables increased during the period due to the Robec and NCD
acquisitions. Acquired inventory and receivables were recorded at their
estimated fair market value. Inventory reserves decreased during the period due
to the liquidation of aged inventory. Inventory reserves are summarized
below:
Quarter ended September 30,
(Dollars in thousands)
1994 1993
------- ------
Inventory at September 30,
net of reserve $47,291 $8,695
------- ------
Beginning balance 2,633 7,600
Charged to expense 868 150
Deductions from disposition - (500)
------- ------
Ending balance $ 3,501 $7,250
------- ------
In November 1994 the Company entered into an agreement to sell a controlling
interest, 51%, of it's common stock to Computer 2000 AG, a publicly held German
company in the same line of business. The aggregate proceeds of $50 million are
scheduled for receipt by the Company in late 1994 as to $18 million and in
September 1995 as to the remaining $32 million. The $32 million investment is
contingent upon a number of conditions, including AmeriQuest's meeting certain
monthly and cumulative after-tax operating profitability conditions during the
first half of calendar 1995. If AmeriQuest does not meet these profitability
conditions, Computer 2000 will have the option to make the $32 million
investment. Such proceeds, when coupled with the existing cash and credit
resources of the Company, should allow for reasonable continued expansion of the
operations of the Company.
Management believes that its existing product lines will enable AmeriQuest to
generate sufficient cash through operations, supplemented by the periodic use of
its lines of credit, to finance a continuation of AmeriQuest's existing business
over the next twelve months. However, as AmeriQuest continues planned
acquisitions, significant cash resources will be required to effect this effort.
There is no assurance that required funds for planned acquisitions will be
available, or that sufficient funds can either be obtained or if available, that
such funds can be secured at commercially acceptable rates of costs.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
AmeriQuest is both a plaintiff and defendant from time-to-time in
lawsuits incidental to its business. The management of AmeriQuest
believes that none of such current proceedings individually or in the
aggregate, will have a material adverse effect on AMERIQUEST. While
not expected to be of material effect to the Company, Kenfil Inc. vs.
---------------
RLI Insurance Company, Superior Court of the State of California,
----------------------
County of Los Angeles, No. BC 108564 filed July 12, 1994, involves
litigation instituted by Kenfil Inc. to recover additional monies for
the damage it incurred in the Northridge earthquake of January 17,
1994. The defendant cross-claimed on August 12, 1994 for return of
the $840,000 it had paid on claims submitted by Kenfil Inc., based
on affidavits from former Kenfil employees alleging that they had
been instructed following the earthquake to intentionally destroy
additional inventory. The defendant's theory is that it is not
obligated to even cover that portion of the damage cause by the
earthquake because of the possible fraud involved with such actions;
while the management of Kenfil maintains that only that portion of
damages actually incurred by the earthquake were submitted as claimed
losses. There exists a question of fact as to whether the actions of
Kenfil's employees were instigated by upper-level management and a
question of law as to whether the lower-level managers of Kenfil are
able to take ultra vires actions which can be attributed to Kenfil.
The testimony to date appears fragmented and uncorroborated, such that
a close examination of the evidence deduced to date reveals no clear
evidence that would allow one to conclude that the defendant was in
any way defrauded. Additionally, it appears that the defendant
insurance company failed to terminate the contract upon discovery of
the alleged "fraud," and merely chose to not renew the contract upon
its expiration. Although there are pictures available to prove the
actual damage immediately following the earthquake, no assurance can
be given that the defendant will not ultimately prevail. The ability
of Kenfil Inc. to satisfy any possible future judgement is dependent
on the results of its future operations. However, such a judgement
would not directly impact the other subsidiaries of AmeriQuest nor
AmeriQuest itself.
Item 2. Changes in Securities.
----------------------
None.
Item 3. Defaults upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K
None
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
-----------------------------
(Registrant)
Date: May 8, 1995 By: /s/ HAROLD L. CLARK
----------------- -----------------------------------
Harold L. Clark
Chief Executive Officer
Date: May 8, 1995 By: /s/ STEPHEN G. HOLMES
----------------- -----------------------------------
Stephen G. Holmes
Chief Financial Officer
17
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
on
FORM 8-K/A
(Amendment No. 5)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: November 14, 1994
AMERIQUEST TECHNOLOGIES, INC.
_____________________________________________________________________________
(Exact name of registrant as specified in charter)
Delaware
_____________________________________________________________________________
(State of other jurisdiction of incorporation)
1-10397 33-0244136
_____________________________________________________________________________
(Commission File Number) (IRS Employer Identification No.)
2722 Michelson Drive, Irvine, CA 92715
_____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(714) 222-6000
_____________________________________________________________________________
(Registrant's telephone number, including area code)
______________________________________________________________________________
(Former name or former address, if changed since last report)
1
Item 2. Acquisition or Disposition of Assets
------------------------------------
Effective November 14, 1994, AmeriQuest Technologies, Inc. ("AQS") issued
1,864,767 shares of its Common Stock and $3,473,312, excluding transaction
costs, in exchange for 100% percent of the issued and outstanding equity
securities of Ross White Enterprises, Inc. d/b/a "National Computer
Distributors" ("NCD").
NCD is a national value-added distributor of microcomputer systems,
peripherals and accessesories. Its key vendors include Acer, AST, Leading Edge
and Canon.
_____________________________
Item 5. Other Events
------------
AQS and Computer 2000 AG ("Computer 2000"), a company duly organized under
the laws of the Federal Republic of Germany, entered into an agreement dated
November 14, 1994 (the "Investment Agreement") pursuant to which Computer 2000
agreed to invest approximately $50 million in AQS in exchange for an
approximately 51 percent ownership interest in AQS, including shares already
owned by Computer 2000. The transaction has been approved by the boards of both
companies, and is subject to approval by the stockholders of AQS and to certain
regulatory approvals.
Under the terms of the Investment Agreement and the related Loan Agreement,
Computer 2000 will initially extend to AmeriQuest 2000, Inc., a Delaware
corporation and a wholly-owned subsidiary of AQS ("Sub"), a loan of $13 million
with an additional $5 million to follow within 45 days if Computer 2000 is
satisfied with a due diligence review of AQS's inventories and accounts
receivable (the "Loan"). Sub's repayment obligations under the Loan will be
satisfied by AQS's issuance to Computer 2000 of up to 8,108,108 shares of its
Common Stock at a conversion rate of $2.22 per share, subject however to
approval thereof by AQS's stockholders. The Investment Agreement further
provides that, subject to certain conditions, on or before September 1, 1995,
Computer 2000 will invest an additional $32 million in AQS in exchange for 14.1
million additional newly issued shares of its Common Stock, bringing Computer
2000's total ownership interest to approximately 22.9 million shares or 51% of
the total outstanding shares of AQS. The $32 million investment is contingent
upon a number of conditions, including but not limited to AQS's meeting certain
monthly and cumulative after-tax operating profitability conditions during the
first half of calendar 1995. AQS will also issue to Computer 2000 an option to
purchase additional shares of AQS in an amount equal to the number of AQS's
shares issuable upon exercise of currently outstanding options and warrants and
conversion of any other convertible securities. All newly issued shares of AQS
will be subject to resale restrictions under Rule 144 of the Securities Act of
1933, but will carry registration rights.
The preceding summary of certain of the material terms of the Investment
Agreement and Loan Agreement, which are attached hereto as Exhibits 2.03 and
2.04, respectively, is not intended to be complete and is qualified by reference
to the Investment Agreement and Loan Agreement.
2
Item 7. Financial Statements and Exhibits
---------------------------------
(a) The financial statements of NCD required to be filed pursuant to Item
7(a) of Form 8-K are attached hereto and incorporated herein by this
reference.
(b) The pro forma financial information for NCD required to be filed
pursuant to Item 7(b) of Form 8-K and Rule 601 of Regulation S-K are
attached hereto and incorporated herein by this reference, including:
Pro Forma Condensed Balance Sheet at September 30, 1994
Pro Forma Condensed Statements of Operations for the fiscal year
ended June 30, 1994.
Pro Forma Condensed Statements of Operations for the fiscal
quarter ended September 30, 1994.
(c) Exhibit No. Description of Exhibit
----------- ----------------------
2.02* Agreement and Plan of Reorganization dated September
26, 1994 by, between and among AQS, Ross White
Enterprises, Inc. d/b/a "National Computer
Distributors" ("NCD") and the shareholders of NCD.
(Filed as Exhibit 2.02 to the Annual Report on
Form 10-K/A of AQS for the year ended June 30, 1994)
2.03* Investment Agreement dated as of November 14, 1994 by
and between AQS and Computer 2000 AG. (Filed with the
original Current Report on Form 8-K of AQS for November
14, 1994.)
2.04* Loan Agreement dated as of November 14, 1994 by and
between Computer 2000 AG and AmeriQuest 2000,Inc.
(Filed with the original Current Report on Form 8-K of
AQS for November 14, 1994.)
_______________________________
* Incorporated herein by this reference pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended, and Rule 24 of the
Commission's Rules of Practice.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
/s/ Stephen G. Holmes
---------------------------------------------
Stephen G. Holmes
Secretary, Treasurer and
Chief Financial Officer
Dated: May 8, 1995
4
KPMG PEAT MARWICK LLP
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ross White Enterprises, Inc.:
We have audited the accompanying balance sheets of Ross White Enterprises, Inc.
(d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the years in the two-year period ended March 31, 1994. In connection
with our audits of the financial statements, we also have audited the financial
statement schedule. These financial statements and financial statement schedule
are the responsibility of the Company' s management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ross White Enterprises, Inc.
(d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the years in the two-
year period ended March 31, 1994 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
July 21, 1994, except as to notes 7,
8, 11(b) and 1l(c) which are as of
September 27, 1994
F-1
COOPERS COOPERS & LYBRAND L.L.P.
&LYBRAND
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ross White Enterprises, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of Ross White Enterprises, Inc. (d/b/a National
Computer Distributors) for the year ended December 31, 1991. In connection with
our audit of the financial statements, we have also audited financial statement
schedules. These financial statements and the financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedules
based on our audit.
We conduced our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of Ross
White Enterprise, Inc. (d/b/a National Computer Distributors) for the year ended
December 31, 1991 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects,the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 5, 1992
F-2
[LETTERHEAD OF HANSEN, BARNETT & MAXWELL]
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ross White Enterprises, Inc.
We have audited the accompanying statements of operations, stockholders' equity
(deficit), and cash flows of Ross White Enterprises, Inc. (d/b/a National
Computer Distributors) for the three months ended March 31, 1992. In connection
with our audit of the financial statements, we have also audited the financial
statement schedule for the three months ended March 31, 1992. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the operations and the cash flows of Ross
White Enterprises, Inc. (d/b/a National Computer Distributors) for the three
months ended March 31, 1992 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
/s/ HANSEN, BARNETT & MAXWELL
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
February 10, 1995
F-3
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
BALANCE SHEETS
March 31, 1994 and 1993
Assets 1994 1993
------ ----------- ----------
(Restated)
Current assets:
Cash and cash equivalents $ 112,040 $ 26,051
Trade accounts receivable, net of
allowance for doubtful accounts of
$525,000 and $362,374 as of March 31,
1994 and 1993, respectively 20,095,152 9,004,041
Inventory, net 27,845,858 15,774,300
Notes receivable from stockholders,
current portion 66,630 43,750
Prepaid expenses 323,976 650,274
Income tax receivable 108,000 82,818
Other receivables 1,551,806 862,876
Deferred income taxes 115,000 115,000
----------- -----------
Total current assets 50,218,462 26,559,110
Property and equipment, net 707,526 467,186
Notes receivable from stockholders,
excluding current portion 430,858 507,208
Other assets 262,973 391,520
Costs in excess of net assets acquired,
net of accumulated amortization of
$18,280 and $16,406 as of March 31,
1994 and 1993, respectively 56,720 58,594
----------- -----------
$51,676,539 $27,983,618
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Accounts payable $21,569,708 $12,959,557
Bank overdrafts 7,294,232 971,711
Revolving credit agreement--current - 11,481,323
Accrued expenses 1,302,121 510,632
Obligations under capital leases,
current portion - 15,703
----------- -----------
Total current liabilities 30,166,061 25,938,926
Revolving credit agreement 18,762,663 -
Subordinated notes payable 2,687,366 2,591,187
Deferred rent 49,256 48,872
Obligations under capital leases - 23,555
----------- -----------
Total liabilities 51,665,346 28,602,540
Commitments and contingencies
Stockholders' equity (deficit):
Class A common stock, $.01 par value.
Authorized 10,000 shares; issued
and outstanding 183.67 shares 2 2
Class B common stock, $.05 par value.
Authorized 10,000 shares; no shares
issued and outstanding - -
Additional paid-in capital 1,841,700 1,841,700
Accumulated deficit (1,830,509) (2,460,624)
----------- -----------
Total stockholders' equity (deficit) 11,193 (618,922)
----------- -----------
$51,676,539 $27,983,618
=========== ===========
See accompanying notes to financial statements.
F-4
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF OPERATIONS
For the years ended March 31, 1994 and 1993, the three months ended
March 31, 1992 and the year ended December 31, 1991
Year Year Three months Year
ended ended ended ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
------------ ----------- ------------ ------------
(Restated)
Net sales $196,512,724 113,306,494 15,256,245 40,504,518
Cost of goods sold 181,870,822 107,449,045 14,055,803 36,176,457
------------ ----------- ---------- ----------
Gross profit 14,641,902 5,857,449 1,200,442 4,328,061
Selling, general and administrative expenses 11.297,683 6,700,869 1,081,704 3,595,856
Provision for doubtful accounts 911,545 637,275 - 115,264
------------ ----------- ------------ -----------
Operating profit (loss) 2,432,674 (1,480,695) 118,738 616,941
Other income (expense):
Interest expense (1,805,714) (1,255,652) (67,933) (307,530)
Interest income 3,155 - - -
------------ ----------- ------------ -----------
Income (loss) before income taxes 630,115 (2,736,347) 50,805 309,411
Income tax benefit - 275,723 - -
------------ ----------- ------------ -----------
Net income (loss) $ 630,115 (2,460,624) 50,805 309,411
============ =========== ============ ===========
Net income (loss) per common and common
equivalent share:
Primary $ 3,430 (13,395) 423 3,094
============ =========== ============ ===========
Fully diluted $ 2,859 (13,395) 423 3,094
============ =========== ============ ===========
Weighted average number of common and common
equivalent shares outstanding:
Primary 183.7 183.7 120.2 100
============ =========== ============ ===========
Fully diluted 220.4 220.2 120.2 100
============ =========== ============ ===========
See accompanying notes to financial statements.
F-5
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended March 31, 1994 and 1993,
the three months ended March 31, 1992
and the year ended December 31, 1991
Class A Class B Retained Total
Common stock Common stock Common stock Additional earnings Treasury stockholders'
------------- ------------- ------------ paid-in (Accumulated stock equity
Shares Amount Shares Amount Shares Amount capital deficit) (at cost) (deficit)
------ ------ ------ ------ ------ ------ ---------- ------------ --------- -----------
Balance at
December 31, 1990 100 $ 100 - $ - - $ - 9,900 539,853 (50,000) 499,853
Distributions to
shareholders - - - - - - - (111,907) - (111,907)
Net income - - - - - - - 309,411 - 309,411
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at
December 31, 1991 100 100 - - - - 9,900 737,357 (50,000) 697,357
Retirement of common
stock (100) (100) - - - (49,900) - 50,000 -
Issuance of common
stock A - - 183.67 2 - - 878,708 - - 878,710
Termination of S
corporation status - - - - - - 743,162 (743,162) - -
Distributions to
shareholders - - - - - - - (45,000) - (45,000)
Net income - - - - - - - 50,805 - 50,805
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1992 - - 183.67 2 - - 1,581,870 - - 1,581,872
Net loss - - - - - - - (2,460,624) - (2,460,624)
Issuance of stock
purchase warrants, net - - - - - - 259,830 - - 259,830
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1993 - - 183.67 2 - - 1,841,700 (2,460,624) - (618,922)
Net income - - - - - - - 630,115 - 630,115
--- --- ------ -- --- --- --------- --------- ------ ---------
Balance at March 31, 1994 - $ - 183.67 $ 2 - $ - 1,841,700 (1,830,509) - 11,193
=== === ====== == === === ========= ========= ====== =========
See accompanying notes to financial statements.
F-6
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF CASH FLOWS
For the years ended March 31, 1994 and 1993, the three months ended
March 31, 1992 and the year ended December 31, 1991
Three months
Year ended Year ended ended Year ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
------------ ---------- ------------ ------------
(Restated)
Cash flows from operating activities:
Net income (loss) $ 630,115 (2,460,624) 50,805 309,411
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 492,317 221,256 30,469 131,734
Provision for bad debts 911,545 637,275 - 115,264
Provision for inventory obsolescence 500,000 30,000 - -
Deferred tax asset (115,000) (115,000) - -
Gain on disposal of property and equipment (4,784) - - -
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable (12,002,656) (7,902,648) 270,830 (510,141)
(Increase) decrease in inventory (12,571,558) (10,604,025) 435,610 (1,735,511)
(Increase) decrease in prepaid expenses 147,488 (324,064) (11,251) 22,263
(Increase) decrease in income tax receivable 89,818 (82,818) - -
(Increase) decrease in other receivables (688,930) 765,860 (301,070) -
(Increase) decrease in other assets 128,547 (284,471) (5,221) 74,774
Increase in accounts payable 8,610,151 6,795,423 232,661 2,999,293
Increase (decrease) in accrued expenses 825,203 (1,755,285) 1,950,384 20,304
Increase (decrease) in customer deposits - - (109,000) 26,316
Increase (decrease) in deferred rent 384 (30,994) (7,748) 34,537
------------ ----------- ----------- ----------
Net cash (used in) provided by operating
activities (13,047,360) (15,110,115) 2,536,469 1,488,244
------------ ----------- ----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (458,194) (301,976) (4,391) (144,891)
Proceeds from disposal of property and equipment 4,500 - - 6,066
Issuance of notes receivable from stockholders - - (93,508) (27,829)
Proceeds from notes receivable from stockholders 22,440 6,250 - -
------------ ----------- ----------- ----------
Net cash used in investing activities (431,254) (295,726) (97,899) (166,654)
------------ ----------- ----------- ----------
Cash flows from financing activities:
Payments on obligations under capital leases (39,258) (34,329) (7,849) (28,256)
Net borrowing under revolving credit agreement 7,281,340 11,460,713 - -
Principal payments on note payable - - (11,227) (10,740)
Increase in bank overdrafts 6,322,521 971,711 - -
Issuance of Class A common stock (net of costs) - - 878,710 -
Issuance of subordinated notes, net - 2,509,806 - -
Issuance of stock warrants - 259,830 - -
Payments under floor plan credit arrangement - - (3,600,000) (830,285)
Distribution to shareholders - - (45,000) (111,907)
------------ ----------- ----------- ----------
Net cash (used in) provided by financing
activities 13,564,603 15,167,731 (2,785,366) (981,188)
------------ ----------- ----------- ----------
(Continued)
F-7
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
STATEMENTS OF CASH FLOWS, CONTINUED
Three months
Year ended Year ended ended Year ended
March 31, March 31, March 31, December 31,
1994 1993 1992 1991
---------- --------- ------------ ------------
(restated)
Net increase (decrease) in cash 85,989 (238,110) (346,796) 340,402
Cash and cash equivalents at beginning of year 26,051 264,161 610,957 270,555
---------- -------- -------- -------
Cash and cash equivalents at end of year $ 112,040 26,051 264,161 610,957
========== ======== ======== =======
Supplemental disclosure:
Interest paid $1,647,465 997,564 64,713 287,805
========== ======== ======== =======
Income taxes paid $ 133,000 125,400 - -
========== ======= ======== =======
Supplemental disclosure of noncash investing activity: During fiscal 1993, the
Company recorded the notes receivable from stockholders at their present value,
resulting in a discount in the amount of $178,304. Amortization expense related
to the discount for the year ended March 31, 1994 and 1993, amounted to $2,684
and $-0-, respectively. In addition, $33,714 in management incentive bonuses,
included in accrued expenses, were applied against the notes receivable from
stockholders for the year ended March 31, 1994.
See accompanying notes to financial statements.
F-8
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
March 31, 1994 and 1993
(1) ORGANIZATION
Ross White Enterprises, Inc. (d/b/a National Computer Distributors) (the
"Company") is a retailer, wholesaler and distributor of computers,
peripherals and related accessories. The Company conducts its retail
operation under the name of Computer Image. All other operations are
conducted using the name National Computer Distributors.
(2) RESTATEMENT
The accompanying financial statements as of, and for the year ended March
31, 1993, have been restated. During fiscal 1994, the Company discovered it
had not recorded liabilities associated with the purchase of inventories
received prior to March 31, 1993; had not reversed certain vendor
receivable accounts after settlement; and had not recorded various
transactions with vendors in which purchases were netted against amounts
due to the Company. The result of the Company' s analysis, as verified by
the Company's independent accountants, was to record in fiscal 1993 an
adjustment to cost of goods sold and accounts payable in the amount of
$2,747,803. In addition, an adjustment was recorded in the accompanying
balance sheet as of March 31, 1993 to record inventory in transit and the
related accounts payable in the amount of $2,955,240.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. Cash equivalents totaled $30,000 and $-0- at March 31,
1994 and 1993, respectively, and are recorded at cost which
approximates market value.
(b) CASH MANAGEMENT SYSTEM
Under the Company's cash management system, disbursements cleared by
the bank are reimbursed on a daily basis from the revolving credit
agreement. As a result, checks issued but not yet presented to the
bank are not considered reductions of cash or accounts payable.
Included in bank overdrafts is $7,186,558 and $964,301 at March 31,
1994 and 1993, respectively, for which checks are outstanding. Cash
receipts deposited into an agency account as part of the bank's
revolving credit agreement are used to reduce the outstanding
borrowings under the revolving credit agreement. As a result, cash
received but unapplied against the outstanding borrowings are not
considered to be cash deposits. Deducted from the outstanding
borrowings under the revolving credit agreement is $2,373,006 and
$325,053 at March 31, 1994 and 1993, respectively, for unapplied cash
receipts.
(c) TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade receivables consist primarily of amounts due from customers for
credit purchases. The Company provides a reserve for uncollectible
trade receivables. Other receivables consist of cooperative
advertising and other amounts earned based on annual promotional and
market development fund agreements with vendors. In general,
F-9
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
vendors provide the Company with various incentive programs. The funds
received under these programs are determined based upon the Company's
purchases or sales of the vendors' products and/or the inclusion of
the vendors' products in the Company's advertising and promotional
programs. Once earned, the funds are applied against product cost or
recorded as a reduction of advertising expense.
(d) INVENTORY
Inventory, which consists primarily of computer equipment and related
products, is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method, and is recorded net of
volume and purchase discounts and rebates. Market is based on net
realizable value. Appropriate consideration is given to deteriora-
tion, obsolescence and other factors in evaluating net realizable
value.
Effective April 1, 1993, the Company changed its accounting policy to
include in inventory certain indirect costs associated with
purchasing, handling and storage of inventories. The Company believes
this method better matches sales with these related costs. Previously,
the Company had expensed these costs as incurred. For the year ended
March 31, 1994, allocated purchasing, handling and storage costs
amounts to $742,457, with $101,177 of this amount capitalized in
inventory at March 31, 1994.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the
assets, using a standard life of five years. Leasehold improvements
are amortized on the straight-line method over the shorter of the
estimated useful lives of the improvements or the term of the related
leases. Gains or losses on disposition of property and equipment are
credited or charged to income.
(f) COSTS IN EXCESS OF NET ASSETS ACQUIRED
The costs of acquisitions in excess of the fair market value of net
assets acquired is being amortized over a 40-year period using the
straight-line method. Amortization expense amounted to $1,875, $1,875,
$469 and $1,875 for the years ended March 31, 1994 and 1993, the three
months ended March 31, 1992 and the year ended December 31, 1991,
respectively.
(g) INCOME TAXES
Effective March 31, 1992, the Company was required to change its tax
status from an S corporation to a C corporation. Accordingly,
undistributed earnings on the date the sub-chapter S election was
terminated were reclassified to additional paid-in capital.
Effective April 1, 1992, the Company adopted the provisions of
Financial Accounting Standards Board's SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax basis.
F-10
ROSS WH1TE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS No. 109 by the
Company had a cumulative effect of $13,700 on income (loss) from
operations for the year ended March 31, 1993.
(h) EMPLOYEE BENEFIT PLANS
Effective July 1989, as amended, the Company established a 401(k)
Profit Sharing Plan (the "Plan"). All employees who have completed at
least 12 months of service and attained the age of 21 are eligible.
The Plan allows vesting at 20 percent per year for five years,
beginning after the employees' second year of service. The Plan allows
employees to contribute between 2 percent and 15 percent of their
gross annual taxable salary. In fiscal year 1993, the Company made
matching contributions of 50 percent of that portion of the employee's
amount which did not exceed 10 percent of the employee's gross income.
Effective October 1, 1993, the Company can make a discretionary
matching and profit sharing contribution to the Plan subject to the
approval of the board of directors. The Plan is subject to restriction
on matching contributions for highly compensated employees. Total
employer contributions to the Plan were approximately $61,000,
$64,000, $7,000 and $19,000 during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended
December 31, 1991, respectively.
(i) BUSINESS AND CREDIT CONCENTRATIONS
The Company sells its products primarily to value-added resellers,
dealers and computer retailers throughout the United States and
international markets. No single customer accounted for a significant
amount of the Company's sales, and there were no significant trade
accounts receivable from a single customer. The Company performs
ongoing credit evaluations of its customers and generally does not
require collateral. However, if deemed necessary, the Company may
require certain customers to pay on a cash-on-delivery basis. The
Company maintains reserves for potential credit losses.
Approximately $89.3 million or 45 percent, $73.8 million or 65
percent, $11.2 million or 73 percent and $28 million or 75 percent of
the Company's net sales during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended
December 31, 1991, respectively, were derived from products supplied
by three to four vendors, each supplying 10 percent or greater of net
sales.
(j) INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Primary income (loss) per common and common equivalent share is
computed by dividing net income (loss) by the weighted average number
of common shares outstanding and common stock equivalents. Fully
diluted income (loss) per share has been computed based on the
assumption that the warrants, as discussed in note 8, will be
converted to common stock.
(k) REVENUE RECOGNITION, RETURNS AND SALES INCENTIVES
Revenue is comprised of product sales and is recognized upon product
shipment. The Company, subject to certain limitations, permits its
customers to exchange products or receive credits against future
purchases. The Company offers its customers several sales incentive
programs which, among others, include funds available for cooperative
promotion of product sales. Customers earn credit under such programs
based upon volumes of purchases. The cost of these programs is
partially subsidized by marketing allowances provided by the Company's
manufacturers. The allowance for sales returns and costs of customer
incentive programs described above is accrued concurrently with the
recognition of revenue.
F-11
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(l) RECLASSIFICATION
Certain amounts included in the financial statements have been
reclassified in order to provide consistent financial presentation.
(4) NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders consist of the following:
March 31,
------------------
1994 1993
---- ----
Unsecured notes from two stockholders/officers $ 497,488 550,958
Less current portion (66,630) (43,750)
------- -------
Long-term receivable, excluding current portion $ 430,858 507,208
======= =======
The notes receivable from two stockholders/officers are noninterest
bearing. The notes have been recorded at their present value utilizing an
imputed interest rate of 6.34 percent, resulting in an original discount of
$178,304 which will be recognized as interest income over the remaining
terms of the notes. During the years ended March 31, 1994 and 1993, $2,782
and $-0-, respectively, was recognized as interest income, with the
remaining unaccreted balance of $175,523 and $178,304 (included in other
receivables) at March 31, 1994 and 1993, respectively. The notes are
payable in the following quarterly installments, including principal and
interest: (i) $18,750 per quarter commencing June 30, 1994; (ii) $25,000
per quarter commencing June 30, 1995, (iii) and a lump sum payment of
$123,012 due on March 31, 2000. Principal payments are due as follows:
Year ending
March 31, Amount
--------- ------
1995 $ 66,63O
1996 83,39O
1997 78,280
1998 73,484
1999 68,980
Thereafter 126,724
-------
Total $ 497,488
=======
F-12
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(5) OTHER RECEIVABLES
Other receivables are primarily comprised of receivables due from vendors
consisting of the following:
March 31,
---------------------
1994 1993
---- ----
Due from vendors:
Co-op $ 1,224,210 540,684
Returned merchandise 826,694 762,229
Volume rebates and price protection 2,558,142 307,725
--------- ---------
Subtotal 4,609,046 1,610,638
Other 327,596 322,192
Less amounts offset against accounts payable (3,384,836) (1,069,954)
--------- ---------
Other receivables $ 1,551,806 862,876
========= =========
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
March 31,
---------------------
1994 1993
---- ----
Machinery and equipment $ 615,575 574,681
Furniture and fixtures 269,895 -
Leasehold improvements 446,786 401,564
Transportation vehicles 61,667 61,667
--------- ---------
1,393,923 1,037,912
Less accumulated depreciation and
amortization (686,397) (570,726)
--------- ---------
Property and equipment, net $ 707,526 467,186
========= =========
Depreciation and amortization expense amounted to approximately $218,000,
$138,000, $30,000 and $130,000 during the years ended March 31, 1994 and
1993, the three months ended March 31, 1992 and the year ended December 31,
1991, respectively.
(7) REVOLVING CREDIT AGREEMENT
On April 27, 1992, as amended, the Company entered into a revolving line of
credit agreement ("revolver") with a bank that originally provided for
borrowings up to a maximum of $22.5 million through April 30, 1994, limited
to specified percentages of eligible accounts receivable and inventory,
with interest at prime plus 1.5 percent, payable on a monthly basis.
Borrowings under the revolving credit agreement are collateralized by the
Company's trade account receivable, inventories, property and equipment,
and general intangibles.
F-13
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
The revolver contains various affirmative and negative covenants, including
requiring the Company to maintain certain specified financial ratios,
including (a) ratio of earnings before taxes to interest; (b) total
liabilities less subordinated debt to total capitalization; (c) total bank
debt to total capitalization, and (d) maintain a minimum level of
capitalization. There are also restrictive covenants including those
covering the amount of dividends and lease obligations, the occurrence of
additional debt, and the amount of capital expenditures and acquisitions.
At March 31, 1994 and 1993, respectively, the Company had an outstanding
balance under the revolver of $18,762,663 and $11,481,323, with an
available balance of $1,364,331 and $2,018,677. The revolver provides for
an early termination fee of 2 percent of the reduction or termination of
the maximum commitment and an annual fee of 3/8 percent of the difference
between the maximum loan commitment and the average daily balance.
Interest expense under the foregoing financing arrangement was $1,346,642
and $805,000 during the fiscal years ended March 31, 1994 and 1993,
respectively.
At March 31, 1994, the Company was not in compliance with the following
covenant requirements arising under the revolving credit agreement and
entered into negotiations with its bank to amend and reinstate the credit
agreement: (i) ratio of total liabilities less subordinated debt to total
capital funds, as defined; (ii) ratio of bank debt to total capital funds;
(iii) ratio of earnings before interest and taxes to interest expense, as
defined; (iv) accounts payable average turnover; (v) expenditures related
to lease payments and capital expenditures; (vi) providing audited
financial statements within 90 days of year-end; (vii) maintaining adequate
books and records; (viii) incurrence of trade debt not more than 60 days
past due, and (ix) maintaining minimum total capital funds. On September 8,
1994, the Company received waivers from its bank which cured all violations
of debt covenants through August 11, 1994.
On August 11, 1994 and September 8, 1994, amendments to the revolving
credit agreement were executed. The amendments modified the financial
covenants relating to the (i) ratio of earnings before interest and taxes
to interest expense, as defined, to be not less than 1.75 to 1 as of the
last day of each quarter, and not less than 1 to 1 as of the last day of
each month other than the last day of each quarter; (ii) increased the
dollar limit on capital expenditures to $500,000 annually; (iii) limited
the aggregate lease payments for real or personal property to $1.75 million
per year; and (iv) required the Company to maintain total capital funds,
which is defined as total assets (excluding certain intangible assets and
shareholder loans) less total liabilities (excluding subordinated notes),
of not less than the amounts set forth below for the periods specified
plus, on a cumulative basis, an additional $250,000 for each quarter ending
after October 31, 1994:
Period Amount
------ ------
June 30, 1994 - September 29, 1994 $ 2,700,000
September 30, 1994 - October 30, 1994 2,950,000
October 31, 1994 and thereafter 5,000,000
F-14
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
In connection with the total capital funds covenant, the Company received a
representation from the majority stockholder to invest up to $1.5 million
in the Company by October 31, 1994 [see note 11(b) and 1l(c)].
In addition, the amended revolving credit agreement modified (i) the
interest rate to prime plus an applicable margin of either 1.5 percent or 3
percent, which is based on the Company' s ratio of total liabilities less
subordinated notes to total capital funds as determined the last day of
each month beginning August 31, 1994, and (ii) increased the early
termination fee to 3 percent of the maximum commitment. The maturity date
of the revolving credit agreement was extended through December 31, 1995.
(8) SUBORDINATED NOTES
On April 3, 1992, the Company issued 12 percent subordinated notes with
detachable stock purchase warrants with an aggregate principal amount of $3
million. Principal is to be paid in seven quarterly installments of
$250,000 commencing on June 30, 1995 with a final installment of $1.25
million due on March 31, 1997, with interest quarterly commencing on June
30, 1992. Interest expense on the subordinated notes was $360,000 and
$357,000 during the fiscal years ended March 31, 1994 and 1993,
respectively.
The detachable subordinated notes contain various affirmative and negative
covenants, including those covering the use of proceeds, the incurrence of
additional debt, the payment of dividends, the amount of capital
expenditures, and those requiring the Company to maintain certain specified
financial ratios. The Company failed to meet the following covenant
requirements which placed the Company in technical default at March 31,
1994: (i) providing the holders with monthly financial statements along
with the chief financial officer's certificate; (ii) providing the holders
with audited financial statements within 90 days of year-end along with
chief financial officer's certificate; (iii) maintaining adequate books and
records; (iv) maintaining total capital funds, as defined; (v) maintaining
a ratio of total revolving credit agreement debt to total capital funds;
(vi) maintaining a ratio of total liabilities, excluding the subordinated
notes, to total capital funds; (vii) maintaining a ratio of net earnings
before interest and taxes to total interest expense; (viii) capital
expenditure restrictions; (ix)complying with its obligations under the
revolving credit agreement; (x) accounts payable turnover, and (xi)
computation of financial covenants in accordance with GAAP. On August 10,
1994 and September 8, 1994, the Company obtained waivers to its
subordinated notes related to the above noted financial covenants. These
waivers were retroactive to March 31, 1994.
On August 11, 1994 and September 8, 1994, the subordinated notes' financial
covenants were amended on the same terms as the revolving credit
agreement's financial covenants, as fully described in note 7.
The detachable warrants can be converted to 20 percent (36.7340 shares) of
the issued and outstanding Class A common stock for an aggregate purchase
price of $1.00. The warrants may be exercised after April 3, 1992 and
expire on March 31, 1997. The warrants were assigned a value of $259,830,
net of deferred taxes and issuance costs, and are included as a component
of additional paid-in capital. In conjunction with the recording of the
stock purchase warrants, the Company established a related imputed original
issue discount on the
F-15
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
subordinated notes which approximated the market yield on the subordinated
notes, without the stock purchase warrants. The Company is accreting the
discount using the effective yield method over the life of the subordinated
notes. Amortization expense, which is included in interest expense,
amounted to $96,179 and $81,383 during the fiscal years ended March 31,
1994 and 1993, respectively. In addition, there are deferred loan fees in
the amount of $127,735 and $125,796 included in other assets as of March
31, 1994 and 1993, respectively. Amortization expense, which is included in
selling, general and administrative expenses, amounted to $41,699 and
$45,245 during the fiscal years ended March 31, 1994 and 1993,
respectively.
On September 26, 1994, the Company entered into an Agreement and Plan of
Reorganization which provided for the repayment of the subordinated notes
and accrued unpaid interest thereon [(see note 1l(c)].
(9) INCOME TAXES
As of April 1, 1992, the date the Company was required to change its tax
status from an S corporation to a C corporation, the Company adopted SFAS
No. 109. The adoption of SFAS No. 109 had a cumulative effect of $13,700
for the year ended March 31, 1993.
Total income tax attributable to the recovery of detachable stock purchase
warrants, which resulted in a reduction in additional paid-in capital for
the tax effect associated with the issuance of stock warrants, amounted to
$191,176 for the year ended March 31, 1993.
The provision for income tax expense (benefit) consists of the following:
March 31,
----------------
1994 1993
---- ----
Current:
Federal $ - (70,713)
State and local - (12,105)
---- --------
- (82,818)
Deferred:
Federal - (164,710)
State and local - (28,195)
---- --------
- (192,905)
---- --------
Total income tax
expense (benefit) $ - (275,723)
==== ========
(Continued)
F-16
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Income tax expense (benefit) from continuing operations differed from the amount
computed by applying the statutory federal income tax rate of 34 percent, to
income (loss) before income taxes as a result of the following:
March 31,
-------------------------
1994 1993
---- ----
Computed expense (benefit) $ 214,239 $(930,358)
Increase (decrease) resulting from:
Establishment of valuation allowance - 719,663
State tax benefit - (40,300)
Other - (24,728)
Income tax expense (benefit) associated
with net operating loss carryforward (214,239) -
--------- ---------
Income tax expense (benefit) $ - $(275,723)
========= =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
March 31,
-------------------------
1994 1993
---- ----
Deferred tax asets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 199,369 $ 81,879
Inventories, principally due to reserves for obsolete
inventory and additional costs inventoried for tax pur-
poses pursuant to the Tax Reform Act of 1986 188,000 12,822
Deferred rent, principally due to accrual for financial
reporting purposes 18,520 18,163
Accrued vacation expense, principally due to accrual for
financial reporting purposes 10,111 9,994
Property and equipment, principally due to differences in
depreciation 5,852 -
Net operating loss carryforwards, principally due to
correction of errors in the prior years 474,052 919,308
--------- ---------
Total gross deferred tax assets 895,904 1,042,166
Less valuation allowance (544,129) (719,663)
--------- ---------
Net deferred tax assets 351,775 322,503
--------- ---------
(Continued)
F-17
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
March 31,
--------------------
1994 1993
--------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation $ - $ (5,135)
Prepaid expenses, principally due to deferral
for financial reporting purposes (119,225) (50,435)
Subordinated notes, principally due to an
unamortized discount associated with the
issuance of detachable stock warrants (117,550) (151,933)
--------- ---------
Total gross deferred tax liabilities (236,775) (207,503)
--------- ---------
Net deferred tax asset $ 115,000 $ 115,000
========= =========
At March 31, 1994, the Company had available net operating loss
carryforwards of $1.26 million for federal and state income tax purposes,
which expire in 2008. A valuation allowance attributable to the net
operating loss carryforward has been established as of March 31, 1994 and
1993 in the amount of $359,052 and $719,663, respectively. Upon a
subsequent acquisition Internal Revenue Code Section 382 could limit the
utilization of net operating loss carryforwards in future periods.
The valuation allowance for deferred tax assets as of March 31, 1994 and
1993 was $544,129 and $719,663, respectively, a decrease of $175,534. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment.
(10) COMMITMENTS AND CONTINGENCIES
(a) LEASES
Substantially all of the Company's facilities, including distribution
centers and retail stores are leased under long-term leases accounted
for as operating leases. In addition, the Company leases office
equipment and vehicles. Under the terms of the leases, the Company is
required to maintain adequate insurance coverage.
The real estate leases generally contain provisions for increases
based on the Consumer Price Index, and contain options to renew at the
then fair rental value. Certain leases provide for scheduled rent
increases or for rent-free periods. In these cases, the Company
recognizes the aggregate rent expense on a straight-line basis over
the lives of the leases, including the rent-free period, resulting in
deferred rent credits of $49,256 and $48,872 as of March 31, 1994 and
1993, respectively, which are being amortized over the terms of the
related leases.
F-18
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
Future minimum annual rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of March 3l, 1994 are as follows:
Year ended Amount
---------- -----------
1995 $1,375,700
1996 1,208,805
1997 1,159,965
1998 730,472
1999 177,630
----------
Total minimum lease
payments $4,652,572
==========
Rent expense included in selling, general and administrative expenses
amounted to approximately $959,000, $725,000, $136,000 and $531,000 for the
years ended March 31, 1994 and 1993, the three months ended March 31, 1992
and the year ended December 31, 1991, respectively.
(b) LEGAL MATTERS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. Management believes that the ultimate
liability, if any, with respect to these claims and legal actions will not
have a material effect on the financial position or results of operations
of the Company.
(C) RELATED PARTY AGREEMENTS
In March 1992, the Company entered into two five-year consulting agreements
with a stockholder and a subordinated note holder, respectively, which
provides for an aggregate annual fee of $150,000 for services performed for
the Company.
In March 1992, the Company entered into employment agreements with two
stockholders/officers which expire in March 1997. The aggregate annual
average base compensation under such agreements is approximately $390,000.
The respective employment agreements provide such stockholders/officers
with the use of automobiles, full medical coverage, reimbursement for life
insurance policies, paid vacations, cash incentive bonuses, stock incentive
bonus, additional special equity (stock) incentive and substantial
severance pay if the Company terminates the stockholders/officers without
cause. In addition, 25 percent of the incentive bonuses are applied against
the notes receivable from stockholders (see note 4).
F-19
ROSS WHITE ENTERPRISES, INC.
(d/b/a National Computer Distributors)
NOTES TO FINANCIAL STATEMENTS
(11) SUBSEQUENT EVENTS
(a) EQUITY INFUSION
On June 30, 1994, the Company sold an aggregate of 11.54 shares of
Class A common stock, $.01 par value per share, for an aggregate
consideration of $351,958 to various members of management of the
Company.
(b) MAJORITY STOCKHOLDER'S FINANCING ARRANGEMENT
On September 2, 1994, the Company received a representation from the
majority stockholder that they are prepared to provide, and will
provide the Company with additional subordinated indebtedness and/or
capital contributions in the aggregate amount up to $1.5 million,
which amount should be sufficient to enable the Company to meet, as of
October 31, 1994, the financial covenants as described in notes 7 and
8. On September 26, 1994, the Company entered into an Agreement and
Plan of Reorganization which may modify the majority stockholder's
financing arrangement [(see note 11(c)].
(c) MERGER WITH AMERIQUEST TECHNOLOGIES, INC.
On September 26, 1994, the Company entered into an Agreement and Plan
of Reorganization with AmeriQuest Technologies, Inc. ("AmeriQuest"), a
publicly held company, for the acquisition of the Company by
AmeriQuest pursuant to a merger of the Company into a wholly-owned
subsidiary of AmeriQuest. In connection with the merger, the Company's
common stock and warrants will be exchanged for approximately 1.86
million newly issued shares of AmeriQuest common stock, $3.5 million
in cash, and the purchase by AmeriQuest of the subordinated notes at
face value plus accrued unpaid interest thereon (see note 8). The
merger is subject to the approval of the bank (as defined in note 7)
and any United States federal or state governmental commission, board
or other regulatory body which are required for the consummation of
the merger on or before October 14, 1994 (the "effective date").
In addition, AmeriQuest shall infuse at least $1.5 million into the
Company and shall provide to the majority stockholder a written
conformation that from and after the effective date of the merger, the
majority stockholder would have no further obligation to provide debt
or equity financing to the Company [see note 1l(b)].
F-20
ROSS WHITE ENTERPRISES, INC.
(D/B/A NATIONAL COMPUTER DISTRIBUTORS)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(Unaudited)
ASSETS:
CASH $ 127,369
ACCOUNTS RECEIVABLE, NET 21,203,002
INVENTORY 27,368,730
NOTES RECEIVABLE - STOCKHOLDERS 66,856
PREPAID EXPENSES 600,810
OTHER RECEIVABLES 1,276,432
-----------
TOTAL CURRENT ASSETS 50,643,199
-----------
PROPERTY AND EQUIPMENT 1,796,570
LESS ACCUMULATED DEPRECIATION (831,397)
-----------
PROPERTY AND EQUIPMENT, NET 965,173
-----------
NOTES RECEIVABLE - STOCKHOLDERS 423,028
OTHER ASSETS 271,987
GOODWILL, NET 55,786
-----------
$52,359,173
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
REVOLVING CREDIT AGREEMENT $20,593,289
ACCOUNTS PAYABLE 26,982,414
ACCRUED EXPENSES 732,309
-----------
TOTAL CURRENT LIABILITIES 48,308,012
-----------
SUBORDINATED DEBT 2,736,986
DEFERRED RENT 54,484
-----------
TOTAL LIABILITIES 51,099,482
COMMON STOCK 2
PAID IN CAPITAL 2,095,892
RETAINED DEFICIT (836,203)
-----------
STOCKHOLDERS' EQUITY 1,259,691
-----------
$52,359,173
===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
ROSS WHITE ENTERPRISES, INC.
(D.B.A. NATIONAL COMPUTER DISTRIBUTORS)
CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994
1994 1993
------------ -----------
SALES, NET $117,695,527 $79,341,420
COST OF GOODS SOLD 108,555,636 73,430,484
------------ -----------
GROSS PROFIT 9,139,891 5,910,936
------------ -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,589,034 4,665,789
------------ -----------
OPERATING INCOME 2,550,857 1,245,147
OTHER INCOME AND EXPENSE:
OTHER EXPENSES, NET 259,957 192,388
INTEREST EXPENSE 1,296,594 798,866
------------ -----------
INCOME BEFORE INCOME TAXES 994,306 253,893
PROVISION FOR INCOME TAXES - -
------------ -----------
NET INCOME $ 994,306 $ 253,893
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-22
ROSS WHITE ENTERPRISES, INC.
(D/B/A NATIONAL COMPUTER DISTRIBUTORS)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
1994 1993
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET RESULTS OF OPERATIONS $ 994,306 $ 253,893
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 145,938 84,937
AMORTIZATION OF SUBORDINATED DEBT ISSUE COSTS 49,620 46,559
PROVISION FOR BAD DEBTS 239,442 323,423
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (1,347,292) (6,060,185)
(INCREASE) DECREASE IN INCOME TAX RECEIVABLE 369,315 -
(INCREASE) DECREASE IN INVENTORY 477,128 (3,029,418)
(INCREASE) DECREASE IN PREPAID EXPENSES (149,099) (84,198)
(INCREASE) DECREASE IN ACCOUNTS PAYABLE (1,881,526) 1,175,575
(INCREASE) DECREASE IN OTHER RECEIVABLES 275,373 (219,589)
(INCREASE) DECREASE IN OTHER ASSETS (283,061) 43,214
INCREASE (DECREASE) IN ACCRUED EXPENSES (569,817) 802,802
INCREASE (DECREASE) IN DEFERRED RENT 5,228 (13,590)
INCREASE IN DEFERRED INCOME TAX - 90,660
----------- -----------
TOTAL ADJUSTMENTS (2,668,751) (6,839,810)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,674,445) (6,585,917)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF FURNITURE AND FIXTURES (402,647) (84,319)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (402,647) (84,319)
----------- -----------
CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES:
NOTE RECEIVABLE PAYMENT 7,604 8,143
SALE OF COMMON STOCK 254,192 -
BORROWINGS CREDIT LINE LOAN, NET 1,830,625 7,251,126
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES 2,092,421 7,259,269
----------- -----------
NET INCREASE (DECREASE) IN CASH 15,329 589,033
CASH AT BEGINNING OF THE PERIOD 112,040 26,051
----------- -----------
CASH AT THE END OF THE PERIOD $ 127,369 $ 615,084
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
ROSS WHITE ENTERPRISES, INC.
(D/B/A National Computer Distributors)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
SEPTEMBER 30, 1994
1. Financial Statement Preparation
The accompanying condensed consolidated financial statements for the six
month periods ended September 30, 1994 and 1993 of Ross White Enterprises, Inc.
(the Company) have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been omitted pursuant to such
rules and regulations. However, the Company believes that the financial
statements, including the disclosures herein, are adequate to make the
information presented not misleading. In the opinion of management of the
Company, the condensed consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position and results of operations as of and for the periods
presented. These condensed consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
March 31, 1994 included elsewhere in this Form 8-K/A.
2. Statement of Cash Flows
Cash interest and income taxes paid during the six month periods ended
September 30, 1994 and 1993 aggregated $1,302,000 and $0, and $722,000 and
$100,000, respectively.
3. Subsequent Event
Effective November 14, 1994, AmeriQuest Technologies, Inc. acquired 100
percent of the outstanding common stock of the Company in exchange for
approximately $3.5 million in cash, extinguishment of the subordinated debt at
face value plus accrued interest thereon and 1,860,000 shares of AmeriQuest
Common Stock.
F-24
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of AmeriQuest
for fiscal year ended June 30, 1994, and three month period ended September 30,
1994, gives effect to acquisitions of 100 percent of the common stock of Kenfil,
Inc., and NCD, and 50.1 percent of Robec. In addition, the pro forma financial
statements give effect to the October 1994 Private Equity Placement and the
November 1994 Computer 2000 investment transactions. For the purpose of the
unaudited pro forma statement of operations, it is assumed that these
acquisitions and financing transactions were complete on July 1, 1993, and for
the purpose of the unaudited pro forma balance sheet, it is assumed that these
acquisitions and financing transactions were complete on September 30, 1994.
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
September 30,1994 (Unaudited)
(Dollars in thousands except share and per Share data)
ASSETS
AmeriQuest Pro Forma Pro Forma
Technologies, Inc.(A) NCD Adjustments Combined
--------------------- -------- ----------- ---------
CURRENT ASSETS
Cash $ 1,378 $ 127 $ 3,608 (L) $ 5,113
Accounts receivable, net 42,687 21,203 0 63,890
Inventories 47,291 27,369 0 74,660
Income taxes receivable 0 24 0 24
Prepaid expenses and other 1,668 1,920 0 3,588
-------------- -------- ----------- ---------
Total current assets 93,024 50,643 3,608 147,275
-------------- -------- ----------- ---------
PROPERTY AND EQUIPMENT, NET 4,043 965 0 5,008
INTANGIBLE ASSETS, NET 11,813 56 9,810 (F) 21,679
OTHER ASSETS 1,142 695 0 1,837
-------------- -------- ----------- ---------
$110,022 $52,359 $ 13,418 $175,799
============== ======== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. NCD Adjustments Combined
------------------ -------- ----------- ---------
CURRENT LIABILITIES
Accounts payable $ 29,722 $27,715 $ 0 $ 57,437
Notes payable 43,211 20,593 (11,287)(K) 52,517
Other 5,358 54 2,954 (N) 8,366
------------- -------- ----------- --------
Total current liabilities 78,291 48,362 (8,333) 118,320
------------- -------- ----------- --------
COMMON STOCK ADVANCE 0 0 18,000 (G) 18,000
LONG-TERM DEBT 0 2,737 (2,737)(K) 0
DEFERRED INCOME TAXES 267 0 0 267
MINORITY INTEREST 2,800 - - 2,800
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 10,000,000 shares;
issued and no shares issued
and outstanding 0 0 0 0
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding
17,136,935 shares 171 0 34 (H,I) 205
Additional paid-in capital 44,175 2,096 (2,096)(J) 51,889
3,594 (H)
4,120 (I)
Retained deficit (15,682) (836) 836 (J) (15,682)
------------- -------- ----------- --------
Total stockholders' equity 28,664 1,260 6,488 36,412(1)
------------- -------- ----------- --------
$110,022 $52,359 $ 13,418 $175,799
============= ======== =========== ========
OUTSTANDING COMMON
SHARES 17,136,935 20,541,702
============= ==========
(1) The Company valued its common stock issued in connection with its Kenfil,
Robec and NCD acquisitions at a discounted quoted market price, based upon
the weighted average discounts received in recently completed private
placement equity cash transactions. This valuation represents management's
best estimate of the fair value of the Company's common stock. This
valuation represents a significant discount from quoted market prices due to
the thin public trading volume and small public float of AmeriQuest common
stock.
F-25
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For year ended June 30, 1994
(Unaudited)
(Dollars in thousands, except share and per share data)
AmeriQuest Pro Forma Pro Forma
Technologies, Inc.(A) NCD Adjustments Combined
--------------------- --------- ----------- -------------
NET SALES (E) $ 394,798 $218,808 $ 0 (D) $ 613,606
COST OF SALES 359,702 202,114 0 561,816
------------- -------- -------- -----------
Gross profit 35,096 16,694 0 51,790
OPERATING EXPENSES
Selling, general and administrative 62,599 13,259 981 (M) 76,839
Restructuring charge and
earthquake loss (C) 9,130 0 0 9,130
------------- -------- -------- -----------
71,729 13,259 981 85,969
------------- -------- -------- -----------
Income (loss) from operations (36,633) 3,435 (981) (34,179)
OTHER INCOME (EXPENSE)
Other income 71 0 0 71
Interest expense (4,587) (1,908) 930 (B) (5,565)
------------- -------- -------- -----------
(4,516) (1,908) 930 (5,494)
------------- -------- -------- -----------
Minority interest 2,800 0 0 2,800
------------- -------- -------- -----------
Income (loss) before taxes (38,349) 1,527 (51) (36,873)
PROVISION FOR INCOME TAXES (797) 0 0 (797)
------------- -------- -------- -----------
Net income (loss) (C)(E) $ (37,552) $ 1,527 $ (51) $ (36,076)
============= ======== ======== ===========
Net income (loss) per common share $ (2.64) $ (2.05)
============= ===========
Common and common equivalent shares 14,235,613 17,640,380
============= ===========
F-26
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For three months ended September 30, 1994
(Unaudited)
(Dollars in thousands, except share and per share data)
AmeriQuest Pro Forma Pro Forma
Technologies, Inc. Robec, Inc. NCD Adjustments Combined
------------------ ----------- --------- ----------- ---------
NET SALES $ 49,476 $22,351 $ 61,364 $ 0 (D) $133,191
COST OF SALES 44,704 22,450 56,628 0 123,782
--------- -------- -------- -------- --------
Gross profit (loss) 4,772 (99) 4,736 0 9,409
OPERATING EXPENSES
Selling, general and administrative 5,222 3,317 3,582 340 (M) 12,461
Research and development 3 0 0 0 3
--------- -------- -------- -------- --------
5,225 3,317 3,582 340 12,464
--------- -------- -------- -------- --------
Income (loss) from operations (453) (3,416) 1,154 (340) (3,055)
OTHER INCOME (EXPENSE)
Other income 67 0 0 0 67
Interest expense (727) (201) (669) 233 (B) (1,364)
--------- -------- -------- -------- --------
(660) (201) (669) 233 (1,297)
--------- -------- -------- -------- --------
Income (loss) before taxes (1,113) (3,617) 485 (107) (4,352)
PROVISION FOR INCOME TAXES 0 0 0 0 0
--------- -------- -------- -------- --------
Net income (loss) $ (1,113) $ (3,617) $ 485 $ (107) $ (4,352)
========= ======== ======== ======== ========
Net income (loss) per common share $ (0.10) $ (0.21)
========= ========
Weighted average shares 11,622,873 20,647,186
========== ==========
F-27
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF AMERIQUEST TECHNOLOGIES, INC. AND ROBEC INC.
The following footnotes reflect the assumptions made in the preparation of the
Pro Forma Condensed Consolidated Financial Statements.
(A) The AQS pro forma condensed consolidated statement of operations for the
year ended June 30, 1994, under the heading "AmeriQuest Technologies,
Inc.," include the historical operating results of AQS, KENFIL, Inc. and
ROBEC, Inc. and related pro forma adjustments as reflected in the Company's
8-K/A dated September 12, 1994. Effective June 6, 1994, AQS acquired 51
percent of the outstanding common stock of KENFIL. The remaining 49 percent
of outstanding KENFIL common stock was acquired on September 12, 1994.
Effective September 22, 1994, AQS acquired 50.1 percent of the outstanding
common stock of ROBEC, Inc.
The AQS historical consolidated balance sheet at September 30, 1994
includes the balance sheet of KENFIL and ROBEC.
(B) To reduce interest expense associated with the redemptions of the following
instruments related to the NCD acquisition and the Computer 2000
investment.
INTEREST
DEBT INSTRUMENT REDEMPTION EXPENSE ELIMINATED
-------------------------- ------------------------------------
Fiscal Year Three Months Ended
June 30, 1994 September 30, 1994
------------- ------------------
NCD Subordinated Debt
of $2,737,000 $360,000 $ 82,000
AQS Notes Payable of
$11,287,000 570,000 151,000
-------- --------
$930,000 $233,000
======== ========
As the funds used to finance the NCD acquisition and the redemption of the
above debt instruments were provided by the October 1994 private placement
and the Computer 2000 investments, no forfeited investment earnings are
included in these pro forma financial statements (See Note L).
(C) The restructuring charge and earthquake loss of $9,130,000 included in
AmeriQuest's historical statement of operations includes $5,700,000 which
relates principally to the write-off of certain former personal computer
joint venture operations of AQS; and $3,430,000 for losses sustained by
Kenfil in the Southern California earthquake.
(D) On July 8, 1994, AmeriQuest reacquired 345,091 shares of its Common Stock
from Mr. James D'Jen, a former officer and director of AmeriQuest, as down
payment on an obligation of Mr. D'Jen to exchange 350,000 shares of
AmeriQuest Common Stock, in exchange for all (100%) of the common stock of
AmeriQuest's Singapore subsidiary, CMS Enhancements (S) PTE Ltd. The
Singapore subsidiary is a distributor of commodity disk drives. Sales for
this Singapore subsidiary approximate $20 million annually, with an
approximate breakeven in operating results. The balance of the 4,909 shares
of AQS Common Stock were never delivered to the Registrant. Accordingly,
after numerous demands of Mr. D'Jen to deliver the balance of the shares
due, the Board of Directors resolved on March 17, 1995 to return the shares
to Mr. D'Jen evidencing the down payment shares and to abandon the proposed
sale.
E) Effective December 1993, AQS acquired certain assets and assumed certain
liabilities of Management Systems Group and acquired the outstanding common
stock of Rhino Sales Company. Assuming these acquisitions were reflected in
the accompanying pro forma statement of operations as being effective July
1, 1993, the impact of these acquisitions would be to increase revenues
approximately $20 million, with no affect on net income.
(F) To effect the purchase of NCD, AmeriQuest issued 1,864,767 shares of
AmeriQuest Common Stock plus paid cash of $6,713,000 (including the
redemption of subordinate indebtedness of approximately $3 million) in
exchange for all 195 outstanding shares of NCD Common Stock and to
eliminate NCD's historical equity. The AmeriQuest Common Stock is assumed
to have market value of $2.22 per share at the time of the transaction. The
valuation of AmeriQuest common stock is based upon a discounted quoted
market price, using weighted average discounts received on recently
completed private equity cash transactions. The total purchase price,
including debt redemption, is approximately $10.9 million. This purchase
price exceeds the fair value of the net assets acquired resulting in
goodwill of approximately $9.8 million. The NCD goodwill amount reflects
management's preliminary estimate of the fair value of NCD net assets
acquired. Management is currently in the process of completing its detailed
analysis of the fair value of NCD net assets acquired, however management
does not expect that additional purchase price allocation adjustments will
have a material effect on the Company's future results of operations or
financial position.
(G) The $18 million advance from Computer 2000 AG to the Company is for the
purchase of 8.1 million shares of AmeriQuest Common stock. This transaction
is subject to approval by AmeriQuest's shareholders. Computer 2000 has
agreed, subject to certain conditions, to invest an additional $32 million
for an approximately 51 percent ownership interest in AmeriQuest, including
shares already owned by AmeriQuest and assuming consummation of the Merger.
Due to the contingent nature of the stock conversion, this advance is
reflected as a liability in the accompanying pro forma financial
statements.
(H) AmeriQuest completed a private placement of 1,540,000 Common Stock shares
and warrants in October, 1994 providing net proceeds of $3,608,000.
(I) Represents AmeriQuest's issuance of 1,864,767 shares of its common stock
associated with the acquisition of NCD. The AmeriQuest common stock is
assumed to have a market value of $2.22 per share at the time of the
acquisition (See Note F).
(J) To eliminate the historical equity of NCD.
(K) To reflect the reduction of NCD's subordinated indebtedness of $3,046,000,
net of discount of $309,000, and the repayment of a portion of AmeriQuest's
notes payable, financed by the net proceeds of the Computer 2000 investment
(See Note G) and the October, 1994 private placement (See Note H).
(L) Reflects net proceeds remaining from the October, 1994 private placement
and the Computer 2000 investment after the acquisition of NCD and the
retirement of certain debt as set forth in the following table:
Private placement $ 3,608,000
Computer 2000 investment 18,000,000
Cash purchase price of NCD (3,473,000)
NCD transaction costs (194,000)
Repayment of NCD
subordinated indebtedness (3,046,000)
Repayment of AQS notes payable (11,287,000)
------------
Pro forma adjustment $ 3,608,000
============
(M) To record goodwill amortization over the estimated economic life of 10
years.
Management believes that the most significant intangible acquired is that
of the distribution channels. Management has assigned a 10 year economic
life to this intangible asset as that is the period of time that management
expects to derive benefit from the existing vendor relationships and market
position. Management determined that 10 years is an appropriate economic
life based upon the historical length of the acquiree's vendor
relationships and the overall size and equality of the acquiree's vendors
and their product offerings.
(N) Amount reflects the estimated severance and other related costs associated
with the closing of NCD's administrative office and certain warehousing
locations.
F-28
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 3)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 30, 1994
Commission File Number 1-10397
AmeriQuest Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0244136
- --------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2722 Michelson Drive, Irvine, CA 92715
- --------------------------------------- --------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (714) 222-6000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark, whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At December 30, 1994 there were 20,974,736 shares of the Registrant's
Common Stock outstanding.
1
AmeriQuest Technologies, Inc.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information ................. 3
Consolidated Condensed Balance Sheets
December 30, 1994 and June 30, 1994 .................... 4
Consolidated Condensed Statements of Income
Three and Six Months Ended December 30,
1994 and 1993........................................... 5
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
December 30, 1994 ...................................... 6
Consolidated Statements of Shareholders' Equity
December 30, 1994....................................... 7
Notes to Consolidated Condensed Financial
Statements - December 30, 1994 ......................... 8-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........ 13-15
PART II. OTHER INFORMATION ...................................... 16
SIGNATURES ...................................................... 17
2
AMERIQUEST TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 30, 1994
PART I. STATEMENT REGARDING FINANCIAL INFORMATION
The financial statements included herein have been prepared by
AMERIQUEST TECHNOLOGIES, INC. (The "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been omitted pursuant to such
rules and regulations. However, the Company believes that the financial
statements, including the disclosures herein, are adequate to make the
information presented not misleading. It is suggested that the financial
statements be read in conjunction with the Annual Report on Form 10-K/A for the
fiscal year ended June 30, 1994 as filed with the Securities and Exchange
Commission.
3
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands) December 30, June 30,
1994 1994
- ------------------------------------------------------------------------------
(RESTATED
SEE NOTE 7)
ASSETS
CURRENT ASSETS
Cash $ 4,407 $ 3,200
Accounts receivable, less
allowances for doubtful
accounts of $1,227 and $452 66,781 24,708
as of December 30, 1994 and June 30,
1994, respectively
Inventories 79,944 24,165
Other current assets 2,774 1,627
------------- ------------
Total current assets 153,906 53,700
PROPERTY AND EQUIPMENT, NET 5,326 4,078
INTANGIBLE ASSETS, NET 27,522 6,490
OTHER ASSETS 972 877
------------- ------------
$ 187,726 $ 65,145
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 58,762 $ 23,408
Notes payable 72,706 23,059
Other current liabilities 3,254 2,361
------------- ------------
Total current liabilities 134,722 48,828
------------- ------------
LONG-TERM OBLIGATIONS 1,029 267
------------- ------------
SUBORDINATED NOTES PAYABLE 18,000 3,175
------------- ------------
MINORITY INTEREST 2,800 -
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 30,000,000 shares; issued
and outstanding, 20,974,736 and
9,857,779 shares, respectively 210 99
Additional paid-in capital 52,828 27,345
Retained deficit (20,738) (14,569)
Receivables from affiliates (1,125) -
------------- ------------
Total stockholders' equity 31,175 12,875
------------- ------------
$ 187,726 $ 65,145
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands) Three Months Ended Six Months Ended
December 30, December 30,
-------------------------------------------------------------------------------------
1994 1993 1994 1993
-------------------------------------------------------------------------------------
(RESTATED (RESTATED
SEE NOTE 7) SEE NOTE 7)
NET SALES $ 123,529 $ 20,286 $ 173,005 $ 39,846
COST OF SALES 117,052 16,666 161,756 33,060
--------------- -------------- --------------- --------------
Gross profit 6,477 3,620 11,249 6,786
OPERATING EXPENSES
Selling, general and administrative 9,596 3,498 14,821 6,527
Restructuring charge - 5,000 - 5,000
--------------- -------------- --------------- --------------
9,596 8,498 14,821 11,527
--------------- -------------- --------------- --------------
(Loss) from operations (3,119) (4,878) (3,572) (4,741)
OTHER (INCOME) EXPENSE
Other (income) expense 349 (47) 282 11
Interest expense 1,588 119 2,315 137
--------------- -------------- --------------- --------------
1,937 72 2,597 148
--------------- -------------- --------------- --------------
Net (loss) $ (5,056) $ (4,950) $ (6,169) $ (4,889)
=============== ============== =============== ==============
Net (loss) per common share and common
stock equivalent (Note 2) $ (0.25) $ (1.07) $ (0.40) $ (1.24)
=============== ============== =============== ==============
Weighted average shares 19,834,322 4,607,198 15,458,468 3,935,530
=============== ============== =============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
5
AMERIQUEST TECHNOLOGIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended December 30,
------------------------------
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------
(RESTATED
SEE NOTE 7)
Cash Flow from Operating Activities
Net (loss) $ (6,169) $ (4,889)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,267 513
Provision for losses on accounts receivable 1,514 (88)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (9,182) (1,849)
(Increase) decrease in inventories and other (14,194) (2,568)
(Increase) decrease in other assets 600 1,502
Increase (decrease) in accounts payable and other (10,058) 63
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (36,222) (7,316)
- -----------------------------------------------------------------------------------------------------
Cash Flow from Investing Activities
Purchases of property and equipment (1,047) (582)
Net cash paid for acquisition of businesses (1,973) (50)
- -----------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (3,020) (632)
- -----------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from line of credit borrowings, net 17,512 2,195
Proceeds from subordinated debt, less refundings 18,000 -
Proceeds from sale of common stock 4,937 5,984
- -----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 40,449 8,179
- -----------------------------------------------------------------------------------------------------
Increase ( decrease) in cash 1,207 231
Cash-beginning of the year 3,200 1,020
- -----------------------------------------------------------------------------------------------------
Cash-end of the year $ 4,407 $ 1,251
- -----------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest on line of credit: During the periods ended December 30, 1994 and
1993, the Company paid interest costs of
$2,315 and $137, respectively.
Income taxes: During the periods ended December 30, 1994 and
1993, the Company made no tax payments.
Businesses acquired: During the period ended December 30, 1994, the Company
acquired businesses summarized as follows (dollars in thousands):
Fair value of assets acquired $ 96,474
Liabilities assumed (77,998)
Common stock issued (14,847)
------------
Cash paid 3,629
Less cash acquired (1,656)
------------
Net cash paid for acquisitions $ 1,973
============
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMERIQUEST TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
December 30, 1994
(UNAUDITED)
(RESTATED SEE NOTE 7)
Additional Retained
Common Stock Paid-in (Deficit)
(Dollars in thousands) Shares Amount Capital Earnings
- ---------------------------------------------------------------------------------------------------------------
Balances at June 30, 1992 2,925,523 $ 29 14,757 $ (6,834)
Common stock issued to unrelated parties 143,000 2 286 -
Common stock issued for acquisitions 100,000 1 149 -
Exercise of employee stock options 12,187 - 18 -
Net income for the year ended June 30, 1993 - - - 236
- ---------------------------------------------------------------------------------------------------------------
Balances at June 30, 1993 3,180,710 $ 32 15,210 $ (6,598)
Common stock issued to unrelated parties 4,905,072 49 9,054 -
Exercise of employee stock options 41,667 1 70 -
Common stock issued for acquisitions 1,730,330 17 3,011 -
Net (loss) for the year ended June 30, 1994 - - - (7,971)
- ---------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 9,857,779 $ 99 $27,345 $ (14,569)
Common stock issued to related parties (Note 4) 2,588,400 26 6,006 -
Exercise of employee stock options 20,334 - 30 -
Common stock issued for acquisitions (Note 3) 8,508,223 85 19,447 -
Net (loss) for the six months ended
December 30, 1994 - - - (6,169)
- ---------------------------------------------------------------------------------------------------------------
Balances at December 30, 1994 20,974,736 $ 210 $52,828 $ (20,738)
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
7
AMERIQUEST TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
December 30, 1994
1. MANAGEMENT OPINION
In the opinion of management, the consolidated condensed financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods presented.
2. LOSS PER SHARE
Loss per common share and common share is computed on the basis of the
weighted average number of common shares outstanding plus common stock
equivalents related to dilutive stock options.
3. ACQUISITIONS
The Company is pursuing a growth through acquisition strategy of acquiring
regional distributors with the ultimate goal of creating a national
distributor of value added computers, subsystems and peripherals.
The success of this strategy is dependent upon the ability of the Company
to effectively consolidate and integrate the operations of the acquired
businesses, combine different business cultures and obtain adequate
financing to complete acquisitions and fund working capital requirements.
Since 1993, the acquisitions of the Company have included:
COMPLETED BY JUNE 30, 1993
Vitronix, Inc. ("Vitronix")
As of March 1993, the Company acquired certain assets of Vitronix for
common stock of the Company. Vitronix is a distributor of computer products
and services, specializing in UNIX applications, and is based in Boston,
Massachusetts.
COMPLETED BY JUNE 30, 1994
Management Systems Group ("MSG")
As of December 1993, the Company acquired certain assets and assumed
certain liabilities of MSG for common stock of the Company and certain
contingent consideration. MSG is a distributor of computer products and
services, specializing in systems and networking applications, and is based
in Long Island, New York.
8
Rhino Sales Company ("Rhino")
As of December 1993, the Company acquired the outstanding common stock of Rhino
for a combination of cash and common stock of the Company. Rhino is a
distributor of computer products and services, specializing in UNIX
applications, and is based in Fenton, Michigan.
Kenfil Inc. ("Kenfil")
As of June 1994, the Company acquired 51% of the outstanding common stock of
Kenfil for common stock of the Company. Kenfil distributes microcomputer
software and is based in Southern California.
COMPLETED BY DECEMBER 30, 1994
Kenfil Inc. ("Kenfil")
As of September 1994, the Company acquired the remaining outstanding 49% of the
common stock of Kenfil and converted certain trade and subordinated debt of
Kenfil for common and convertible preferred stock of the Company.
Robec, Inc. ("Robec")
As of September 1994, the Company acquired 51% of the outstanding common stock
of Robec for common stock of the Company. Robec is a distributor of computer
products and services, specializing in systems and UNIX applications, and is
based in Horsham, Pennsylvania.
National Computer Distributors ("NCD")
As of November 1994, the Company acquired the outstanding common stock of NCD
for cash and common stock of the Company. NCD is a distributor of computer
products and services, specializing in systems and connectivity applications,
and is based in Fort Lauderdale, Florida.
IN PROCESS AT JANUARY 1995
Robec, Inc. ("Robec")
The Company proposes to acquire the remaining 49% of the outstanding common
stock of Robec during 1995.
The following summarizes the cost of the Company's acquisitions (dollars in
thousands):
Common Shares Common Stock Cash Consideration and
Company Issued Consideration Transaction Cost
- ------- -------------- -------------- ----------------------
Completed by June 30, 1994
MSG 400,000 $ 700
Rhino 200,000 350 $ 50
Kenfil, 51% 1,130,330 1,978
--------- -------
1,730,330 $ 3,028
--------- -------
Completed by December 30, 1994
Kenfil, 49% 1,046,254 $ 2,511 $ 785
Robec, 51% 1,402,805 2,749 265
Kenfil, vendors 2,400,037 5,761
Kenfil, debt conversion 1,894,360 4,546
NCD 1,864,767 4,140 3,400
MSG contingency (100,000) (175)
--------- -------
8,508,223 $19,532
--------- -------
In process at January 1995
Robec, 49% 1,397,195
9
The acquisitions were accounted for using the purchase method and, accordingly,
the financial statements include the results of their operations from the
effective acquisition dates. As to common stock consideration, all such
acquisitions are reflected utilizing a per share valuation representing a
discounted quoted market price, based upon weighted average discounts received
on recently completed private equity cash transactions. This valuation
represents management's best estimate of the fair value of the Company's common
stock. This valuation represents a significant discount from quoted market
prices due to the thin public trading volume and small public float of
AmeriQuest common stock.
The contingent consideration granted to certain of the former owners of the
acquired businesses is dependent upon the attainment of certain defined profit
objectives of the acquired companies and consists of the right to acquire common
stock of the Company at previously agreed upon prices, additional cash
consideration or the issuance of additional common stock. Additional contingent
consideration earned in connection with the attainment of the profit objectives,
if any, will be reflected as an increase in the excess of cost over the fair
value of net assets acquired. As to the specific acquisitions of the Company,
such potential contingent common stock and cash consideration is less than
$400,000 in the aggregate and is limited to the MSG and Rhino acquisitions.
Management believes that the most significant intangible acquired as part of
these transactions is that of the distribution channels. Management has assigned
a 10 year economic life to this intangible asset as that is the period of time
that management expects to derive benefit from the existing vendor relationships
and market position. Management determined that 10 years is an appropriate
economic life based upon the historical length of the acquiree's vendor
relationships and the overall size and quality of the acquiree's vendors and
their product offerings.
The purchase price allocations associated with the Kenfil, Robec and NCD
acquisitions are based upon the Company's preliminary estimate of the fair value
of net assets acquired. The Company is currently in the process of completing
its detailed analysis of the fair value of Kenfil, Robec and NCD net assets
acquired and therefore the related intangible assets included in the
accompanying financial statements may change as a result of the completed
analysis.
The pro forma effects of the acquisitions as if they occurred at the
beginning of each period follow (dollars in thousands except per share
data):
Three Months Ended December 30, Six Months Ended December 30,
1994 1993 1994 1993
------------ --------------- ------------ --------------
Net sales $ 143,377 $ 176,440 $ 276,568 $ 334,756
Gross profit 8,060 14,717 17,469 32,018
Net (loss) (5,451) (13,545) (9,387) (13,519)
Net (loss) per common
share and common stock
equivalent $ (0.27) $ (1.02) $ (0.44) $ (1.03)
Weighted average shares 20,455,911 13,215,421 21,364,963 13,087,777
----------- ----------- ----------- -----------
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place at the beginning of the indicated period or the results
that may occur in the future. Furthermore, the pro forma results do not give
effect to cost savings which may occur as a result of the consolidation of the
acquired companies.
During the three month period ended December 30, 1994, intangibles increased
approximately $15.7 million. The November 1994 acquisition of NCD contributed
$9.8 million of this increase. The remaining $5.9 million related to additional
purchase price allocation adjustments associated with the Kenfil acquisition.
During the second quarter 1994, the Company completed its detailed review of
acquired Kenfil inventory and determined that a large portion of acquired titles
would need to be liquidated. The $5.9 million purchase price allocation
adjustment was required to state the acquired Kenfil inventory at its net
realizable value at the date of acquisition.
4. COMMON STOCK
Common stock issued to related parties and others during the six months ended
December 30, 1994 follows:
Common
Date Purchaser Shares Proceeds
- ----------------- ----------------- ---------- --------------
(In Thousands)
September 1994 Computer 2000 AG, 532,000 $1,236
a publicly traded
German company(1)
October 1994 Private placement(2) 516,400 1,188
October and
November 1994 Private placement(3) 1,540,000 3,608
--------- ------
2,588,400 $6,032
========= ======
(1) Computer 2000 AG was not related at the date of making this investment, but
subsequently entered into an Investment Agreement with the Company on
November 14, 1994 pursuant to which it loaned $18 million to the Company in
the first step of a transaction pursuant to which Computer 2000 may acquire
51% of the Company.
(2) Includes purchases by an affiliate of the Chairman of the Board, two
officers and directors, one employee and an outside consultant.
(3) Includes purchases by two directors totaling 290,000 shares as participants
in a placement to independent investors, two of which had earlier invested
in the Company.
10
In October 1994 the Company issued 516,400 common shares to certain
affiliates and an advisor to the Company. Proceeds from this issuance
included note obligations of $625,000, trade obligation assumption of
$63,360, services of $100,000 and an open account of $500,000. The notes are
non-interest bearing and are due in October 1995.
Additionally, in October, 1994 the Company issued subordinated debt of
approximately $3.3 million, which in November, 1994 automatically converted
to 1,540,000 shares of common stock of the Company, upon the acquisition of
NCD as described in Note 3. The conversion provided for the issuance of the
common stock at $2.40 per share and further for warrants to acquire 1,540,000
shares of common stock of the Company at $3.50 per share, subject to downward
adjustment, and exercisable through November 1998. Of the aggregate
1,540,000 shares and warrants, 290,000 were issued to affiliates of the
Company and 250,000 were issued to an affiliate of Computer 2000.
5. SUBORDINATED NOTES PAYABLE
In November 1994 the Company entered into an agreement to sell a controlling
interest, 51%, of its common stock to Computer 2000. Under the terms of the
agreement, Computer 2000 initially extended to the Company $18 million as
subordinated indebtedness. The Company's repayment obligations under the
subordinated debt will be satisfied by the issuance to Computer 2000 of up to
approximately 8.1 million shares of common stock of the Company at a rate of
$2.22 per share, subject however to approval thereof by stockholders of the
Company. The agreement further provides that, subject to certain conditions,
on or before September 1, 1995, Computer 2000 will invest an additional $32
million in the Company in exchange for 14.1 million additional newly issued
shares of common stock of the Company, bringing Computer 2000's total
ownership interest to approximately 22.9 million shares or 51% of the then
outstanding shares of the Company. The $32 million investment is contingent
upon a number of performance levels, including but not limited to the Company
achieving certain monthly and cumulative after-tax profitability conditions
during the first half of calendar 1995, including that the Company must
generate an operational profit of $3.3 million during the first six months of
calendar 1995. The Company also issued to Computer 2000 options to purchase
(i) additional shares of the Company equal to the number of common shares
issuable upon exercise of currently outstanding options and warrants and the
conversion of other convertible securities and (ii) an option to acquire
additional shares allowing Computer 2000 to increase its ownership of the
Company to 55 percent of the then outstanding common stock shares at a strike
price of $10.00 per share between June 30, 1996 and June 30, 1998 and at a
price of $20.00 per share at any time between July 1, 1998 and November 30,
1999.
6. OPERATING EXPENSES
Writedown of assets
In December, 1994 the Company wrote down certain of its assets aggregating $3
million. This write down relates to the Company's integration activities
associated with the recent acquisitions and includes the following components
(dollars in millions):
Inventories $2.1
Receivables 0.6
Other assets 0.3
----
3.0
====
The Company began its integration of Robec and NCD during the three months
ended December 30, 1994. As part of this integration process, management has
implemented an operating strategy to improve inventory management. Part of
this strategy includes improving inventory turnover by better matching
product purchases with customer demand. Management performed a detailed
review of its current inventory and identified certain items which are
projected to turn substantially slower than the newly developed targets. As a
result, the Company has provided additional inventory reserves in the amount
of $2,100,000 in the three month period ended December 30, 1994 associated
with the estimated cost to liquidated (i.e. primarily through discounts)
excess quantities of slow moving inventory items.
In addition, the Company provided an additional $600,000 in allowances for
bad debts. This was due to the identification of uncollectable accounts
associated with lower volume and higher credit risk customers. The Company is
in the process of repositioning it's customer base to focus on higher volume
customers.
The $300,000 provision for other asset write downs is associated with the
closure of certain sales offices.
These charges have been aggregated in the following statement of income
captions for the three and six months ended December 30, 1994 (dollars in
millions):
Cost of sales $ 2.1
Selling, general and
administrative 0.9
------
$ 3.0
======
11
The writedowns were determined in part based upon an evaluation of the
salability and/or collectibility of the related assets.
Restructuring charge -
During the six months ended December 30, 1993, the Company restructured
certain of its activities in order to emphasize and streamline its
operations, consistent with its core capabilities in value-added
distribution. Such restructuring spanned organizational aspects of product
and production alignment, market channel and customer delineation, vendor
arrangements and personnel capabilities. The components of the restructuring
charge follow (dollars in thousands):
Employee terminations $ 500
Facilities abandonment 300
Discontinued product line 4,200
------
$5,000
------
The discontinued product line related to the then direct manufacture of
personal computers utilizing proprietary designs with open architecture to
the myriad of compatible personal computing hardware and software available
in the marketplace. The restructuring charge consisted of incremental direct
costs and such costs were largely incurred and paid in fiscal year 1994,
other than for approximately $400,000 which extended through 1995.
7. RESTATEMENT
The unaudited condensed consolidated financial statements for the first
quarter ended September 30, 1994, have been restated to reflect certain
duplicate operating costs associated with the recent Kenfil acquisition as
operating expenses of the Company, rather than purchase accounting
adjustments. The effect of the restatement for the three months ended
September 30, 1994 is to increase selling, general and administrative
expenses by $700,000 and increase the loss from operations and the net loss
by this same amount. The net loss per share for the first quarter 1994
increased from ($0.04) to ($0.10) as a result of this restatement.
The restatement resulted from management's continued review of its purchase
accounting policies regarding the Kenfil acquisition and the determination
that certain costs required to integrate the Kenfil business did not meet the
APB number 16 criteria for purchase accounting.
The Company modified its method to determine the fair market value of its
common stock issued in connection with recent acquisition and related
transactions. The Company's valuations are based on a discounted quoted
market price based upon a weighted average of discounts received in recently
completed private equity cash transactions. The Company's condensed
consolidated financial statements included herein have been restated for this
change. The effect of this restatement is to increase stockholders' equity by
$4.6 million at December 30, 1994 and to increase the net loss for the three
and six month periods ended December 30, 1994 by $173,000.
12
ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
SUMMARY
The following table sets forth certain items in the Consolidated Condensed
Statements of Income as a percent of net sales.
Percent of Net Sales Percent of Net Sales
---------------------- -----------------------
Three Months Ended Six Months Ended
December 30, December 30,
1994 1993 1994 1993
--------------------- --------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 94.8% 82.2% 93.5% 83.0%
Gross profit, including inventory
writedowns 5.2% 17.8% 6.5% 17.0%
Selling, general and
administrative, including
receivable writedowns 7.7% 17.2% 8.5% 16.4%
Restructuring charge - 24.6% - 12.5%
Interest and other expense, net 1.6% 0.4% 1.5% 0.4%
Net (loss) (4.1)% (24.4)% (3.5)% (12.3)%
AmeriQuest is following a business strategy of growth by acquisition,
consistent with the consolidation that is occurring in the maturing personal
computer marketplace. This strategy creates the following risks involving the
ability to successfully:
. Consolidate the operations of previously unaffiliated businesses, some of
which were unprofitable
. Combine the business cultures of diverse operations
. Obtain adequate capital resources to complete acquisitions and working capital
required for continuing operations
RESULTS OF OPERATIONS
For the three and six months ended December 30, 1994, net sales increased
appreciably as contrasted to the same period in the prior year due to the
acquisitions of NCD, Robec and Kenfil during November, 1994, September, 1994 and
June, 1994, respectively. Net sales contributed by these acquisitions during
the three and six months ended December, 1994 were $19,732 and $94,996,
respectively.
13
Costs of sales as a percentage of net sales increased significantly for the
three and six months ended December 30, 1994 as compared to the same periods in
the prior year due to the significant sales volumes contributed by the Company's
recent acquisitions of lower margin distribution businesses. Prior period
gross margin percentages reflected a significantly higher sales mix towards
higher margin value added storage operations.
Selling, general and administrative costs as a percentage of net sales decreased
for the three and six months ended December 30, 1994 when compared to the same
periods the prior year due to the relatively lower cost structures required by
the acquired high volume distribution companies.
Gross margin and operating results were negatively impacted during the three and
six month periods ended December 30, 1994 by significant costs and management
efforts focused on the integration of the acquired businesses. Gross margin was
also negatively impacted during the fiscal 1995 periods due to the consolidation
of sales forces and the elimination of regional sales offices. Overall, $3
million of assets were written off during the three months ended December 30,
1994. The Company began its integration of Robec and NCD during the three months
ended December 30, 1994. As part of this integration process, management has
implemented an operating strategy to improve inventory management. Part of this
strategy includes improving inventory turnover by better matching product
purchases with customer demand. Management performed a detailed review of its
current inventory and identified certain items which are projected to turn
substantially slower than the newly developed targets. As a result, the Company
has provided additional inventory reserves in the amount of $2,100,000 in the
three month period ended December 30, 1994 associated with the estimated cost to
liquidated (i.e. primarily through discounts) excess quantities of slow moving
inventory items.
In addition, the Company provided an additional $600,000 in allowances for bad
debts. This was due to the identification of uncollectable accounts associated
with lower volume and higher credit risk customers. The Company is in the
process of repositioning it's customer base to focus on higher volume
customers.
The $300,000 provision for other assets write downs is associated with the
closure of certain sales offices.
Interest expense increased substantially for the three and six months ended
December 30, 1994, when compared to the same period one year earlier, reflecting
the increased financing associated with the acquired operations.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has generated cash to meet its needs from operations by
sales of common stock, subordinated indebtedness and bank borrowings. At
December 30, 1994, the Company had $4.4 million in cash, and had borrowed
approximately $73 million against its existing lines of credit. The Company
experienced negative operating cash flow of $36.2 million during the six
months ended December 30, 1994 compared to negative operating cash flow of $7.3
million in the same period of the prior year. Operating cash flow was used
during the current year period to invest in business integration activities
associated with the current year acquisitions discussed above and investment in
working capital required to support the significant increase in business volume
associated with the acquired distribution companies. The Company's continued
product distribution emphasis and proposed expansion will require substantial
additional capital resources through fiscal 1995. At December 1994, AmeriQuest
has working capital lines of credit of over $80 million. Borrowings under these
accounts bear interest at from 1 to 3 percent over the prime rate and are
limited to specified percentages of eligible accounts receivable (a borrowing
base in excess of $50 million) and inventories (a borrowing base of over $50
million). Based on contractual advance rates, at March 10, 1995, the Company had
credit line availability of approximately $5 million.
During the three month period ended December 30, 1994, intangibles increased
approximately $15.7 million. The November 1994 acquisition of NCD contributed
$9.8 million of this increase. The remaining $5.9 million related to additional
purchase price allocation adjustments associated with the Kenfil acquisition.
During the second quarter 1994, the Company completed its detailed review of
acquired Kenfil inventory and determined that a large portion of acquired
software titles would need to be liquidated. The $5.9 million purchase price
allocation adjustment was required to state the acquired Kenfil inventory at its
net realizable value at the date of acquisition.
In November 1994 the Company entered into an agreement to sell a controlling
interest, 51%, of it's common stock to Computer 2000 AG, a publicly held German
company in the same line of business (see Note 5 of the accompanying
consolidated condensed financial statements). Of the aggregate proceeds of $50
million, $18 million was received in November 1994, with the remaining $32
million expected in September 1995 (see notes).
The management of the Company is implementing a cost reduction and efficiency
program as part of its efforts to integrate the acquired distribution businesses
and provide a cost structure which will allow for the future profitable
operations of the Company. This program will focus on centralized
administrative operations, product procurement efficiencies and a continuing
cost/benefit analysis of resource allocation. Committed capital expenditures
at December 30, 1994, are less than $2 million.
14
Management believes that its existing product lines will enable the Company to
generate sufficient cash through operations, supplemented by the periodic use of
its lines of credit, to finance a continuation of the Company's existing
business over the next twelve months. However, as the Company continues to
execute its strategy, significant cash resources will be required to effect this
effort. There is no assurance that required funds for acquisitions will be
available, or that sufficient funds can either be obtained or if available, that
such funds can be secured at commercially acceptable rates of costs.
An aggregate warranty and returns reserve of approximately $2 million is
reflected in the balance sheet of the Company at December 30, 1994. Since the
Company began its distribution operations in December 1993, the effect of the
market development funds received through December 30, 1994 was not significant.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
AmeriQuest is both a plaintiff and defendant from time-to-time in
lawsuits incidental to its business.The management of AmeriQuest
believes that none of such current proceedings individually or in the
aggregate, will have a material adverse effect on AMERIQUEST. While not
expected to be of material effect to the Company, Kenfil Inc. vs. RLI
-------------------
Insurance Company, Superior Court of the State of California, County of
-----------------
Los Angeles, No. BC 108564 filed July 12, 1994, involves litigation
instituted by Kenfil Inc. to recover additional monies for the damage
it incurred in the Northridge earthquake of January 17, 1994. The
defendant cross-claimed on August 12, 1994 for return of the $840,000
it had paid on claims submitted by Kenfil Inc., based on affidavits
from former Kenfil empoyees alleging that they had been instructed
following the earthquake to intentionally destroy additional inventory.
The defendant's theory is that it is not obligated to even cover that
portion of the damage cause by the earthquake because of the possible
fraud involved with such actions; while the management of Kenfil
maintains that only that portion of damages actually incurred by the
earthquake were submitted as claimed losses. There exists a question of
fact as to whether the actions of Kenfil's employees were instigated by
upper-level management and a question of law as to whether the lower-
level managers of Kenfil are able to take ultra vires actions which can
be attributed to Kenfil. The testimony to date appears fragmented and
uncorroborated, such that a close examination of the evidence deduced
to date reveals no clear evidence that would allow one to conclude that
the defendant was in any way defrauded. Additionally, it appears that
the defendant insurance company failed to terminate the contract upon
discovery of the alleged "fraud," and merely chose to not renew the
contract upon its expiration. Although there are pictures available to
prove the actual damage immediately following the earthquake, no
assurance can be given that the defendant will not ultimately prevail.
The ability of Kenfil Inc. to satisfy any possible future judgement is
dependent on the results of its future operations. However, such a
judgement would not directly impact the other subsidiaries of
AmeriQuest nor AmeriQuest itself.
On November 17, 1994, three days after the announcement of the proposed
investment by Computer 2000 pursuant to the Investment Agreement, an
action was filed against the Board of Directors of AmeriQuest, Computer
2000 and AmeriQuest styled Erica Hartman vs. Marc L. Werner, Harold
----------------------------------------
L. Clark, Stephen G. Holmes, Eric J. Werner, Terren S. Peizer, William
----------------------------------------------------------------------
N. Silvis, William T. Walker, Jr. and Computer 20000 AG, Defendants and
-----------------------------------------------------------------------
AmeriQuest Technologies, Inc., Nominal Defendant, Court of Chancery of
------------------------------------------------
the State of Delaware, New Castle County, C.A. No. 13883. The Complaint
seeks to have the Court either (i) enjoin the consummation of the
Investment Agreement or (ii) enter a monetary judgment for damages in
an unspecified amount against the Directors of AmeriQuest for an
alleged failure of the Board of Directors to discharge their fiduciary
duties in causing AmeriQuest to enter into the Investment Agreement.
The director Defendants filed a motion to dismiss the Complaint on
January 15, 1995. Pending resolution of that motion, discovery has been
stayed. The Plaintiff has not responded to the motion or taken any
other action concerning the same. The general allegations of the
Complaint relate solely to a comparison of the proposed sale price with
market value and book value and the sale of control without extracting
a premium and an allegation that the consideration to be paid by
Computer 2000 is inadequate. It is the opinion of the Board of
Directors that the Plaintiff fails to understand AmeriQuest's
growth-by-acquisition strategy or the synergies examined by the Board
of Directors and the value to AmeriQuest of a world-wide alliance with
Computer 2000. In the opinion of the Board of Directors, the proposed
transaction with Computer 2000 is fair to and in the best interests of
AmeriQuest and its shareholders for the reasons set forth above. The
Board of Directors and AmeriQuest intend to vigorously defend against
such litigation, and do not expect the litigation to have a material
adverse impact on AmeriQuest's financial condition or results of
operations, since AmeriQuest is only a nominal defendant.
Item 2. Changes in Securities.
----------------------
None.
Item 3. Defaults upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated November 14, 1994 to report (i)
the acquisition of Ross White Enterprises, Inc. d/b/a "National
Computer Distributors" ("NCD") and (ii) the execution of an
Investment Agreement with Computer 2000 AG.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIQUEST TECHNOLOGIES, INC.
-----------------------------
(Registrant)
Date: May 8, 1995 By: /s/ Harold L. Clark
----------------- ----------------------------------------
Harold L. Clark
Chief Executive Officer
Date: May 8, 1995 By: /s/ Stephen G. Holmes
----------------- -----------------------------------------
Stephen G. Holmes
Chief Financial Officer
17
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1995
REGISTRATION NO. 33-57611
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
REGISTRATION STATEMENT
ON
FORM S-4
(PRE-EFFECTIVE AMENDMENT NO. 2)
UNDER
THE SECURITIES ACT OF 1933
----------------
AMERIQUEST TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5045 33-0244136
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
OF INCORPORATION OR CODE NUMBER)
ORGANIZATION)
3 IMPERIAL PROMENADE, STE. 300, SANTA ANA, CA 92707, (714) 437-0099
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN G. HOLMES, SECRETARY
AMERIQUEST TECHNOLOGIES, INC.
3 IMPERIAL PROMENADE, STE. 300
SANTA ANA, CALIFORNIA 92707
(714) 437-0099
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT INDEX IS ON PAGE . PAGE 001 OF PAGES
AMERIQUEST TECHNOLOGIES, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A)
S-4 HEADING IN PROSPECTUS/JOINT
ITEM NO. TITLE OF FORM S-4 ITEM PROXY STATEMENT
-------- ------------------------------------- ------------------------------
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Sheet; Cross Reference
Sheet; Outside Front Cover
Page
Item 2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page; Table
of Contents
Item 3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information. Summary; Risk Factors;
Business of the Companies;
Information Regarding the
Merger; Selected Historical
Financial Data; Pro Forma
Financial Information;
Comparative Per Share Data;
Comparative Market Prices of
Common Stock; The Special
Meeting; Dissenters Appraisal
Rights
Item 4. Terms of the Transaction............. Information Regarding the
Merger; Description of Capital
Stock of AmeriQuest;
Comparison of Shareholder
Rights
Item 5. Pro Forma Financial Information...... Pro Forma Financial
Information
Item 6. Material Contacts with the Company
Being Acquired...................... *
Item 7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........... *
Item 8. Interests of Named Experts and
Counsel............................. *
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... *
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information With Respect to S-3
Registrants......................... *
Item 11. Incorporation of Certain Information
by Reference........................ *
Item 12. Information With Respect to S-2 or S-
3 Registrants....................... Businesses of the Companies
Item 13. Incorporation of Certain Information
by Reference........................ Inside Front Cover Page;
Businesses of the Companies
Item 14. Information With Respect to
Registrants Other Than S-2 or S-3
Registrants......................... *
S-4 HEADING IN PROSPECTUS/JOINT
ITEM NO. TITLE OF FORM S-4 ITEM PROXY STATEMENT
-------- ------------------------------------- ---------------------------
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
Item 15. Information With Respect to S-3
Companies........................... *
Item 16. Information With Respect to S-2 or S-
3 Companies......................... Inside Front Cover Page;
Businesses of the Companies
Item 17. Information With Respect to Companies
Other Than S-2 or S-3 Companies..... *
Item 18. Information if Proxies, Consents or
Authorizations Are to be Solicited.. The Special Meeting;
Information Regarding the
Merger
Item 19. Information if Proxies, Consents or
Authorizations Are Not to be
Solicited in an Exchange Offer...... *
- --------
* Omitted because inapplicable or answer is in the negative.
ROBEC, INC.
425 PRIVET ROAD
HORSHAM, PA 19044
MAY , 1995
Dear Shareholder:
You are invited to attend a special meeting of shareholders of Robec, Inc.
("Robec") to be held at 425 Privet Road, Horsham, Pennsylvania 19044, on June
, 1995 at 10:00 a.m., local time (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Plan of Merger (the "Plan of Merger") pursuant to which
RI Acquisition, Inc., a Pennsylvania corporation and a wholly-owned subsidiary
of AmeriQuest Technologies, Inc., a Delaware corporation ("AmeriQuest"), will
be merged with and into Robec (the "Merger"), with Robec surviving the Merger
as a wholly-owned subsidiary of AmeriQuest. Under the terms of the Merger, each
share of common stock, par value $.01 per share, of Robec ("Robec Common
Stock") that is issued and outstanding on the effective date of the Merger,
other than shares held by AmeriQuest or by shareholders who perfect their
statutory dissenters rights, will be converted automatically into the right to
receive .63075 shares of common stock, par value $.01 per share, of AmeriQuest
("AmeriQuest Common Stock"), subject to upward adjustment if the closing price
of AmeriQuest Common Stock is below $3.00 per share on the business day prior
to the day on which the Merger becomes effective, all as more fully described
in the accompanying Prospectus/Proxy Statement and the Plan of Merger attached
as Appendix I thereto.
Pursuant to an Amended and Restated Agreement and Plan of Reorganization (the
"Amended Agreement") dated as of August 11, 1994 among AmeriQuest, Robec and
four principal shareholders of Robec (the "Principal Shareholders"), on
September 22, 1994, the Principal Shareholders exchanged certain of their
shares, representing 50.1% of the outstanding shares of Robec Common Stock, for
shares of AmeriQuest Common Stock at the same conversion ratio as will apply to
shares to be converted in the Merger, subject to the same adjustment mechanism.
The Amended Agreement is attached as Appendix II to the accompanying
Prospectus/Proxy Statement.
Approval and adoption of the Plan of Merger requires the affirmative vote of
a majority of the votes cast by all shareholders entitled to vote thereon at a
meeting at which a quorum is present. Shareholders entitled to notice of and to
vote at the Special Meeting are the holders of outstanding shares of Robec
Common Stock on April 3, 1995 (the "Record Date"). AmeriQuest has sufficient
voting power to approve and adopt the Plan of Merger even if no other
shareholder of Robec votes in favor of such proposal. AmeriQuest has agreed to
vote in favor of the approval and adoption of the Plan of Merger.
THE BOARD OF DIRECTORS OF ROBEC HAS UNANIMOUSLY APPROVED AND ADOPTED THE PLAN
OF MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE PLAN OF
MERGER. In reaching its determination regarding the Plan of Merger, the Board
considered, among other things, the opinion of Compass Capital Advisors as to
the fairness, from a financial point of view, of the consideration to be
received by holders of shares of Robec Common Stock pursuant to the Plan of
Merger. The opinion of Compass Capital Advisors is attached as Appendix III to
the accompanying Prospectus/Proxy Statement.
In view of the importance of the matter to be acted upon at the Special
Meeting, you are invited to personally attend the Special Meeting. Whether or
not you plan to attend the Special Meeting in person and regardless of the
number of shares of Robec Common Stock you own, please date, sign and return
the enclosed proxy in the accompanying envelope, which requires no postage if
mailed in the United States.
Sincerely,
Robert H. Beckett
Chairman, Chief Executive Officer
and President
SHARE CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE MERGER
IS CONSUMMATED, SHAREHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR EXCHANGING
THEIR ROBEC COMMON STOCK FOR AMERIQUEST COMMON STOCK.
ROBEC, INC.
425 PRIVET ROAD
HORSHAM, PA 19044
TELEPHONE (215) 675-9300
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE , 1995
----------------
To the Shareholders of Robec, Inc.:
Notice is hereby given that a special meeting of shareholders (the "Special
Meeting") of Robec, Inc., a Pennsylvania corporation ("Robec"), will be held at
Robec's principal offices, 425 Privet Road, Horsham, Pennsylvania, on June ,
1995 at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Plan of
Merger (the "Plan of Merger") pursuant to which (a) RI Acquisition, Inc., a
Pennsylvania corporation and a wholly-owned subsidiary of AmeriQuest
Technologies, Inc., a Delaware corporation ("AmeriQuest"), will be merged
with and into Robec (the "Merger"), with Robec surviving the Merger as a
wholly-owned subsidiary of AmeriQuest and (b) each share of common stock,
par value $.01 per share, of Robec ("Robec Common Stock") that is issued
and outstanding on the effective date of the Merger, other than shares held
by AmeriQuest or by shareholders who perfect their statutory dissenters
rights, will be converted automatically into the right to receive .63075
shares of the common stock, par value $.01 per share, of AmeriQuest
("AmeriQuest Common Stock"), subject to adjustment if the closing price of
AmeriQuest Common Stock is below $3.00 per share on the business day prior
to the day on which the Merger becomes effective; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Plan of Merger is more fully described in the accompanying
Prospectus/Proxy Statement and is attached as Appendix I thereto.
Robec shareholders have the right to dissent from the Merger and obtain
payment for their shares by following the procedures prescribed in Subchapter
15D of the Pennsylvania Business Corporation Law, which is attached as Appendix
IV to, and summarized under "Dissenters Appraisal Rights" in, the accompanying
Prospectus/Proxy Statement.
Only shareholders of record at the close of business on April 3, 1995 are
entitled to notice of the Special Meeting and to vote at the Special Meeting
and any adjournments thereof. You are cordially invited to attend the Special
Meeting and vote your shares in person.
By Order of the Board of Directors,
Robert S. Beckett
Secretary
May , 1995
YOUR PROXY IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENVELOPE PROVIDED WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DECIDE TO ATTEND THE MEETING,
YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
ROBEC, INC.
425 PRIVET ROAD
HORSHAM, PENNSYLVANIA 19044
----------------
PROSPECTUS/PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
JUNE , 1995
This Prospectus/Proxy Statement is being furnished to the shareholders of
Robec, Inc., a Pennsylvania corporation ("Robec"), in connection with the
solicitation of proxies by the Board of Directors of Robec for use at a special
meeting of shareholders to be held on June , 1995 at 10:00 a.m., local time,
at Robec's principal executive offices, 425 Privet Road, Horsham, Pennsylvania
and at any adjournments thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Plan of Merger (the "Plan of Merger") pursuant to which
RI Acquisition, Inc., a Pennsylvania corporation ("AmeriQuest Sub") and a
wholly-owned subsidiary of AmeriQuest Technologies, Inc., a Delaware
corporation ("AmeriQuest"), will be merged with and into Robec (the "Merger"),
with Robec surviving the Merger as a wholly-owned subsidiary of AmeriQuest and
renamed AmeriQuest/Robec, Inc. (the "Surviving Corporation"). Under the terms
of the Merger, each share of common stock, par value $.01 per share, of Robec
("Robec Common Stock") that is issued and outstanding on the effective date of
the Merger (the "Effective Date"), other than shares held by AmeriQuest or by
shareholders who perfect their statutory dissenters rights, will be converted
automatically into the right to receive .63075 (the "Applicable Fraction")
shares of the common stock of AmeriQuest ("AmeriQuest Common Stock"), subject
to adjustment if the closing price of AmeriQuest Common Stock is below $3.00 on
the business day prior to the day on which the Merger becomes effective (the
Applicable Fraction including any adjustments thereto, the "Exchange Ratio").
See "Information Regarding the Merger--The Merger." A copy of the Plan of
Merger is attached as Appendix I to this Prospectus/Proxy Statement and is
incorporated herein by this reference. Pursuant to an Amended and Restated
Agreement and Plan of Reorganization (the "Amended Agreement") dated as of
August 11, 1994 among AmeriQuest, Robec and four principal shareholders of
Robec (the "Principal Shareholders"), on September 22, 1994, the Principal
Shareholders exchanged certain of their shares (the "Exchange"), representing
50.1% of the outstanding shares of Robec Common Stock, for shares of AmeriQuest
Common Stock at the Exchange Ratio. A copy of the Amended Agreement is attached
as Appendix II to this Prospectus/Proxy Statement and is incorporated herein by
this reference. The summaries of the portions of the Plan of Merger and Amended
Agreement set forth in this Prospectus/Proxy Statement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the texts of the Plan of Merger and the Amended Agreement.
THE BOARD OF DIRECTORS OF ROBEC HAS UNANIMOUSLY APPROVED AND ADOPTED THE PLAN
OF MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE PLAN OF
MERGER. In reaching its determination regarding the Plan of Merger, the Board
considered, among other things, the opinion of Compass Capital Advisors
("Compass") as to the fairness, from a financial point of view, of the
consideration to be received by holders of shares of Robec Common Stock
pursuant to the Plan of Merger. A copy of the opinion of Compass is attached as
Appendix III to this Prospectus/Proxy Statement and is incorporated herein by
this reference.
AMERIQUEST HAS FILED A REGISTRATION STATEMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION IN WASHINGTON, D.C. COVERING SHARES OF AMERIQUEST COMMON
STOCK TO BE ISSUED BY AMERIQUEST IN CONNECTION WITH THE MERGER DESCRIBED IN THE
FOLLOWING PROSPECTUS/PROXY STATEMENT. THE PROSPECTUS/PROXY STATEMENT WAS FILED
AS PART OF SUCH REGISTRATION STATEMENT.
----------------
THE SHARES OF AMERIQUEST COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THE SHARES OF AMERIQUEST COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
INVOLVE CERTAIN IMPORTANT FACTORS TO BE CONSIDERED. SEE "RISK FACTORS."
The date of this Prospectus/Proxy Statement is May , 1995.
AVAILABLE INFORMATION
Robec (SEC File No. 0-18115) and AmeriQuest (SEC File No. 1-10397) are each
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith each files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Reports, proxy statements and other
information filed by Robec and AmeriQuest can be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048 and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
SEC's prescribed rates. Such material with respect to AmeriQuest can also be
inspected and copied at the offices of the New York Stock Exchange, on which
AmeriQuest's Common Stock is listed.
AmeriQuest has filed with the SEC a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
certain shares of AmeriQuest Common Stock to be issued in connection with the
Merger. This Prospectus/Proxy Statement does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. A copy of the
Registration Statement may be inspected without charge at the principal offices
of the SEC in Washington, D.C.
ADDITIONAL INFORMATION
This Prospectus/Proxy Statement is accompanied by AmeriQuest's Annual Report
on Form 10-K/A (Amendment No. 6) for the year ended June 30, 1994 and its
Quarterly Report on Form 10-Q/A (Amendment No. 3) for the quarter and six
months ended December 30, 1994, as well as Robec's Annual Report on Form 10-K/A
(Amendment No. 1) for the year ended December 31, 1994.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
(1) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1
and 2) dated June 14, 1994, the most recent of which was filed May 9,
1995;
(2) AmeriQuest's Annual Report on Form 10-K (including Amendment Nos. 1
thru 6) for the fiscal year ended June 30, 1994, the most recent of
which was filed May 9, 1995;
(3) AmeriQuest's Current Report on Form 8-K (including Amendment No. 1)
dated July 18, 1994, the most recent of which was filed April 6,
1995;
(4) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1
thru 4) dated September 12, 1994, the most recent of which was filed
May 9, 1995;
(5) AmeriQuest's Quarterly Report on Form 10-Q (including Amendment Nos.
1 thru 3) for the quarter ended September 30, 1994, the most recent
of which was filed May 9, 1995;
(6) AmeriQuest's Current Report on Form 8-K (including Amendment Nos. 1
thru 5) dated as of November 14, 1994, the most recent of which was
filed May 9, 1995;
(7) AmeriQuest's Quarterly Report on Form 10-Q (including Amendment Nos.
1 thru 3) for the quarter ended December 30, 1994, the most recent of
which was filed May 9, 1995;
(8) AmeriQuest's Proxy Statement dated May , 1995;
(9) Robec's Annual Report on Form 10-K (including Amendment No. 1) for
the fiscal year ended December 31, 1994, the most recent of which was
filed May 10, 1995;
(10) Kenfil Inc.'s Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, SEC File No. 0-19905;
(11) Kenfil Inc.'s Quarterly Report on Form 10-Q for the quarter and three
months ended September 30, 1993;
(12) Kenfil Inc.'s Quarterly Report on Form 10-Q for the quarter and six
months ended December 31, 1993;
(13) Kenfil Inc.'s Quarterly Report on Form 10-Q for the quarter and nine
months ended March 31, 1994.
In addition, all reports and other documents filed by Robec or AmeriQuest
prior to the date of the Special Meeting pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act and after the date of this Prospectus/Proxy
Statement, shall be deemed to be incorporated by reference herein and shall be
deemed to be a part hereof from the date of the filing of each such report or
document.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE REGARDING
ROBEC AND AMERIQUEST WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS ARE AVAILABLE UPON REQUEST AS FOLLOWS: WITH RESPECT TO ROBEC,
FROM ROBERT S. BECKETT, SECRETARY, ROBEC, INC., 425 PRIVET ROAD, HORSHAM,
PENNSYLVANIA 19044, AND WITH RESPECT TO AMERIQUEST, FROM STEPHEN G. HOLMES,
SECRETARY, AMERIQUEST TECHNOLOGIES, INC., 3 IMPERIAL PROMENADE, STE. 300, SANTA
ANA, CA 92707. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY JUNE , 1995.
ii
Any statement incorporated herein by reference shall be deemed to be modified
or superseded for purposes of this Prospectus/Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement. Subject to the foregoing, all information appearing
in this Prospectus/Proxy Statement is qualified in its entirety by the
information appearing in the documents incorporated herein by this reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ROBEC OR
AMERIQUEST. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
iii
TABLE OF CONTENTS
SUMMARY.................................................................... 1
THE MEETING................................................................ 1
TERMS OF THE MERGER........................................................ 2
RISK FACTORS............................................................... 11
Recent Developments and Possible Default on Computer 2000 Loan........... 11
Recent Losses; Possible Need for Additional Capital...................... 11
Integration of Companies................................................. 12
Changing Methods of Software Distribution................................ 12
Need for Product Development; Manufacturing.............................. 12
Competition; Dominance of Industry Leaders............................... 13
Competition; Products and Gross Margin................................... 13
Dependence upon Key Personnel............................................ 13
Possible Sales by Shareholders........................................... 13
Volatility of Stock Price; Trading Volume................................ 13
THE SPECIAL MEETING........................................................ 14
Purpose of the Special Meeting........................................... 14
Record Date; Solicitation of Proxies..................................... 14
Vote Required............................................................ 14
Stock Ownership of Robec by Management and Certain Beneficial Owners..... 15
Certified Public Accountants............................................. 16
BUSINESSES OF THE COMPANIES................................................ 16
AMERIQUEST............................................................... 16
General................................................................ 16
Incorporation of Certain Information by Reference...................... 17
Recent Developments.................................................... 17
Computer 2000 Investment............................................. 17
Acquisition of NCD................................................... 19
ROBEC.................................................................... 22
General................................................................ 22
Incorporation of Certain Information by Reference...................... 22
INFORMATION REGARDING THE MERGER........................................... 23
THE MERGER............................................................... 23
BACKGROUND OF THE MERGER................................................. 23
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ROBEC; REASONS FOR THE
MERGER.................................................................. 25
OPINION OF ROBEC'S FINANCIAL ADVISOR..................................... 25
DISSENTERS APPRAISAL RIGHTS.............................................. 30
CERTAIN ANTITRUST MATTERS................................................ 33
INTEREST OF CERTAIN PERSONS IN THE MERGER................................ 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................. 33
Federal Tax Matters.................................................... 33
Tax Consequences to Robec Shareholders................................. 34
Tax Consequences to Robec and AmeriQuest............................... 34
Information Reporting.................................................. 34
Backup Withholding..................................................... 35
ACCOUNTING TREATMENT..................................................... 35
iv
THE PLAN OF MERGER..................................................... 35
The Merger........................................................... 35
Effective Date....................................................... 35
Terms of the Merger.................................................. 35
Payment of Merger Consideration...................................... 36
Surviving Provisions................................................. 36
Dissenting Shares.................................................... 36
THE AMENDED AGREEMENT.................................................. 37
The Exchange......................................................... 37
Robec Stock Options.................................................. 37
Representations and Warranties; Conduct of Business Pending the
Merger.............................................................. 37
Conditions to Consummation of the Merger............................. 38
Indemnification; Insurance........................................... 38
Termination.......................................................... 39
Amendment; Waiver.................................................... 39
Registration Rights.................................................. 39
PRO FORMA FINANCIAL INFORMATION.......................................... 40
CAPITALIZATION........................................................... 45
COMPARATIVE MARKET PRICES OF COMMON STOCK................................ 45
DIVIDEND POLICY.......................................................... 46
DESCRIPTION OF CAPITAL STOCK OF AMERIQUEST............................... 46
General................................................................ 46
Dividends.............................................................. 46
Voting Rights.......................................................... 46
Liquidation............................................................ 46
Pre-Emptive Rights..................................................... 47
Anti-Takeover Provisions............................................... 47
COMPARISON OF SHAREHOLDER RIGHTS......................................... 47
By-Laws................................................................ 47
Dividend Declarations.................................................. 47
Terms of Directors..................................................... 48
Removal of Directors................................................... 48
Meetings of Shareholders............................................... 48
Action by Shareholders Without Meeting................................. 48
Dissenters Rights...................................................... 48
Supermajority Provisions............................................... 49
Business Combinations with Interested Shareholders..................... 49
Fiduciary Duty......................................................... 49
Derivative Actions..................................................... 50
LEGAL MATTERS............................................................ 50
EXPERTS.................................................................. 50
SHAREHOLDER PROPOSALS.................................................... 51
OTHER MATTERS............................................................ 51
PLAN OF MERGER........................................................... I-1
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION................ II-1
FAIRNESS OPINION......................................................... III-1
SUBCHAPTER 15D OF THE PENNSYLVANIA BUSINESS CORPORATION LAW--DISSENTERS
RIGHTS.................................................................. IV-1
v
SUMMARY
The following brief summary of certain features of the proposal to merge RI
Acquisition, Inc., a Pennsylvania corporation ("AmeriQuest Sub") and wholly-
owned subsidiary of AmeriQuest Technologies, Inc. ("AmeriQuest"), with and into
Robec, Inc. ("Robec") is not a complete statement of all of the proposal's
material features and is qualified in its entirety by reference to the
Prospectus/Proxy Statement which each shareholder of Robec is urged to examine
carefully and consider in its entirety. Cross references in this Summary refer
to appropriate sections of the Prospectus/Proxy Statement where detailed
information is set forth. A copy of the Plan of Merger is attached as Appendix
I hereto and is incorporated herein by this reference.
THE MEETING
Company Soliciting Proxies: Robec, Inc., 425 Privet Road, Horsham, PA
19044, (215) 675-9300. See "Robec Special Meet-
ing."
Company Issuing Securities: AmeriQuest Technologies, Inc., 3 Imperial Prom-
enade, Ste. 300, Santa Ana, CA 92707, (714)
437-0099.
Businesses of Companies: Robec is engaged primarily in the distribution
of computer hardware to value-added resellers,
dealers and computer retailers. AmeriQuest is
also engaged in the distribution of computer
hardware to value-added resellers through its
CDS Distribution, Inc. subsidiary, and, through
its recently acquired Ross White Enterprises,
Inc. d/b/a National Computer Distributors sub-
sidiary ("NCD"), is engaged in the distribution
of computer hardware to value-added resellers,
systems integrators and computer retailers.
Through its Kenfil, Inc. ("Kenfil") subsidiary,
AmeriQuest is engaged in the distribution of
microcomputer software to the retail market-
place. AmeriQuest and Computer 2000 AG ("Com-
puter 2000") have entered into an agreement
pursuant to which Computer 2000 has agreed to
invest approximately $50 million in AmeriQuest
in exchange for an approximately 51 percent
ownership interest in AmeriQuest, including
shares already owned by Computer 2000 and as-
suming consummation of the Merger. The invest-
ment by Computer 2000 is tiered, with $32 mil-
lion of the investment being contingent upon
the monthly and cumulative performance of
AmeriQuest in the first half of calendar 1995,
approval by AmeriQuest's stockholders and cer-
tain regulatory approvals. See "Businesses of
the Companies."
Date and Time of Meeting:
June , 1995 at 10:00 a.m. See "Notice of Spe-
cial Meeting."
Place: The principal executive offices of Robec at 425
Privet Road, Horsham, Pennsylvania. See "Notice
of Special Meeting."
Record Date: April 3, 1995. See "Notice of Special Meeting"
and "The Special Meeting--Record Date; Solici-
tation of Proxies."
Principal Purpose of Robec To consider and vote upon the Plan of Merger,
Meeting: pursuant to which AmeriQuest Sub will be merged
with and into Robec. See "Notice of Special
Meeting" and "The Special Meeting."
Shares Outstanding and 4,439,180 shares of the common stock, par value
Entitled to Vote on Record $.01 per share, of Robec ("Robec Common
Date: Stock"). See "The Special Meeting."
1
Shares of Robec Common Stock On the Record Date, AmeriQuest owned 2,224,029
Owned on the Record Date by shares of Robec Common Stock and officers and
Officers, Directors and directors of Robec owned an additional 671,671
Principal Shareholders: shares of Robec Common Stock, which cumula-
tively represent approximately 65.23% of the
outstanding shares of Robec Common Stock. This
is greater than the simple majority of votes
cast which is required to adopt the Plan of
Merger. See "The Special Meeting--Vote Re-
quired."
Robec Required Vote: Affirmative vote of the majority of the votes
cast by all of the holders of outstanding
shares of Robec Common Stock entitled to vote
thereon at a meeting at which a quorum is pres-
ent.
Proxies: Revocable at any time before being voted by (1)
giving written notice to the Secretary of
Robec, (2) by substitution of a new Proxy bear-
ing a later date or (3) by request for return
of the Proxy at the special meeting of share-
holders of Robec called to consider and vote
upon the Plan of Merger (the "Special Meet-
ing"). See "The Special Meeting--Vote Re-
quired."
TERMS OF THE MERGER
The Exchange by the Principal AmeriQuest became the owner of 50.1% of the
Shareholders: outstanding Robec Common Stock on September 22,
1994 when four principal shareholders of Robec
(the "Principal Shareholders") exchanged (the
"Exchange") certain of their shares of Robec
Common Stock for shares of common stock, par
value $.01 per share, of AmeriQuest
("AmeriQuest Common Stock") at the Exchange Ra-
tio (as defined below).
Exchange Ratio: On the effective date of the Merger (the "Ef-
fective Date"), each outstanding share of Robec
Common Stock, other than shares owned by
AmeriQuest or by shareholders who perfect their
dissenters rights, will be converted automati-
cally into the right to receive .63075 (the
"Applicable Fraction") shares of newly issued
AmeriQuest Common Stock; provided, however,
that in the event the closing price of
AmeriQuest Common Stock on the New York Stock
Exchange on the business day prior to the Ef-
fective Date as reported in the Wall Street
Journal (the "Closing Date Market Price") is
less than $3.00 per share, then on the Effec-
tive Date each such share of Robec Common Stock
shall instead be converted into the number of
shares of AmeriQuest Common Stock equal to (i)
.63075 multiplied by (ii) a quotient, the nu-
merator of which is $3.00 and the denominator
of which is the Closing Date Market Price (the
Applicable Fraction, including any adjustment
thereto, the "Exchange Ratio"). See "Informa-
tion Regarding the Merger--The Plan of Merger--
Terms of the Merger."
Proposed Effective Date: As soon as possible after the conclusion of the
Special Meeting upon the completion of the nec-
essary formalities required by Pennsylvania law
and certain other conditions precedent, includ-
ing the listing of the shares of AmeriQuest
Common
2
Stock to be issued pursuant to the Merger with
the New York Stock Exchange. See "Information
Regarding the Merger--The Plan of Merger--Ef-
fective Date."
Risk Factors: Holders of Robec Common Stock should carefully
consider certain risk factors in evaluating the
Merger prior to voting upon the Plan of Merger.
See "Risk Factors."
Principal Reasons for Merger: The combined companies will have an expanded
customer base for operations, greater access to
capital markets and the opportunity for manage-
rial and administrative efficiencies and over-
head expense savings as a result of the consol-
idation of certain operations. See "Information
Regarding the Merger--Recommendation of the
Board of Directors; Reasons for the Merger."
Factors Considered in The Exchange Ratio was negotiated at arm's
Determining Exchange Ratio: length between AmeriQuest and Robec. Factors
considered by Robec included the respective fi-
nancial condition of each company, including
shareholders' equity, their future prospects
and various other factors. See "Information Re-
garding the Merger--Background of the Merger."
Recommendation of Robec's The Board of Directors of Robec has unanimously
Board of Directors: approved and adopted the Plan of Merger and
recommends that the holders of Robec Common
Stock vote FOR approval and adoption of the
Plan of Merger. See "Information Regarding the
Merger--Recommendation of the Board of Direc-
tors of Robec; Reasons for the Merger."
Fairness Opinion: Compass Capital Advisors has delivered its
written opinion to the Board of Directors of
Robec that as of September 20, 1994 the Merger
is fair to Robec's shareholders from a finan-
cial point of view. For information on the as-
sumptions made, matters considered and limits
on the review by Compass Capital Advisors, see
"Information Regarding the Merger--Opinion of
Robec's Financial Advisor."
Dissenters Rights: Under Pennsylvania law, shareholders of Robec
who file a written objection prior to the vote
on the Plan of Merger and do not vote in favor
of approval and adoption of the Plan of Merger
have the right to demand an appraisal of the
"fair value" of their shares of Robec Common
Stock if the required procedures under
Subchapter 15D of the Pennsylvania Business
Corporation Law of 1988, as amended (the
"BCL"), are followed. APPRAISAL RIGHTS WILL BE
FORFEITED IF THE REQUIREMENTS OF SUBCHAPTER 15D
ARE NOT FULLY AND PRECISELY SATISFIED. See "In-
formation Regarding the Merger--Dissenters Ap-
praisal Rights" and a copy of the text of
Subchapter 15D of the BCL attached as Appendix
IV to this Prospectus/Proxy Statement.
Required Approvals: The approval of the shareholders of Robec. The
early termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") has
been received. See "Information Regarding the
Merger--Certain Legal Matters."
3
Appointment of Robert H. AmeriQuest has appointed Robert H. Beckett,
Beckett as a Director of currently the Chairman, Chief Executive Officer
AmeriQuest After the and President of Robec, to the Board of Direc-
Exchange: tors of AmeriQuest and agreed to nominate him
for re-election at each of the next two annual
meetings of AmeriQuest stockholders. See "In-
formation Regarding the Merger--Interest of
Certain Persons in the Merger."
Federal Tax Consequences of The Merger is intended to qualify as a tax-free
the Merger: reorganization under the provisions of Section
368 of the Internal Revenue Code of 1986, as
amended. See "Information Regarding the Merg-
er--Certain Federal Income Tax Consequences."
Accounting: The Merger will be accounted for as a reorgani-
zation of unaffiliated companies and recorded
as a purchase by AmeriQuest for accounting and
financial reporting purposes. See "Information
Regarding the Merger--Accounting Treatment."
Comparison of Shareholders' Holders of Robec Common Stock will become hold-
Rights: ers of AmeriQuest Common Stock as a result of
the Merger. There are certain differences in
the rights of holders of Robec Common Stock and
AmeriQuest Common Stock, including differences
due to the fact that Robec is organized under
the laws of Pennsylvania whereas AmeriQuest is
organized under the laws of Delaware. See "Com-
parison of Shareholders Rights."
Surrender of Certificates: As soon as practicable after the Effective
Date, American Stock Transfer & Trust Company,
or another entity mutually acceptable to both
Robec and AmeriQuest, in its capacity as ex-
change agent for the Merger (the "Exchange
Agent"), will send a transmittal letter to each
Robec shareholder. The transmittal letter will
contain instructions with respect to the sur-
render of certificates representing Robec Com-
mon Stock to be exchanged for AmeriQuest Common
Stock. See "Information Regarding the Merger--
The Plan of Merger--Surrender and Payment."
ROBEC SHAREHOLDERS SHOULD NOT FORWARD CERTIFI-
CATES FOR ROBEC COMMON STOCK TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LET-
TERS. ROBEC SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
4
Comparative Per Share Prices: AmeriQuest Common Stock trades on the New York
Stock Exchange ("NYSE") under the trading sym-
bol ("AQS"). The following table sets forth the
range of high and low closing prices reported
on the NYSE for AmeriQuest Common Stock for the
calendar periods indicated:
HIGH LOW
------- -------
Calendar 1994
First Quarter............................. 5 7/8 4 1/8
Second Quarter............................ 4 1/8 3
Third Quarter............................. 4 1/4 3 1/8
Fourth Quarter............................ 3 3/4 2 7/8
Robec Common Stock has been traded on the Nasdaq
National Market System since Robec's initial
public offering under the trading symbol "ROBC".
The following table sets forth the range of high
and low bid quotations reported on the Nasdaq
National Market System for Robec Common Stock
for the calendar periods indicated:
HIGH LOW
------- -------
Calendar 1994
First Quarter............................. 2 7/8 1 1/2
Second Quarter............................ 1 7/8 1/2
Third Quarter............................. 2 1/8 1 1/4
Fourth Quarter............................ 1 7/8 1 9/16
On June 29, 1994, the last trading day prior to
the first public announcement by AmeriQuest and
Robec concerning the proposed Merger, the last
sale price of AmeriQuest Common Stock reported
on the NYSE was $3.25 per share and the last
sale price of Robec Common Stock reported on
the Nasdaq National Market System was $0.88 per
share. Based on the Exchange Ratio of .63075
shares of AmeriQuest Common Stock for each
share of Robec Common Stock and the quoted
closing sale price of AmeriQuest Common Stock
on that date, AmeriQuest would be issuing stock
that had an equivalent value on that date of
$2.05 per share of Robec Common Stock. On May
, 1995, the last sale price of AmeriQuest
Common Stock as reported on the NYSE was
$ per share and the last sale price of
Robec Common Stock reported on the Nasdaq
National Market System was $ per share.
Based on the Exchange Ratio, adjusted to
reflect the decrease in the sale price of
AmeriQuest Common Stock below $3.00 per share,
AmeriQuest would be issuing stock having an
equivalent market value on that date of $1.89
per share of Robec Common Stock. For
information regarding earlier periods, see
"Comparative Market Prices of Common Stock."
5
SELECTED HISTORICAL AND PRO FORMA FINANCIAL COMPARATIVE PER SHARE DATA
The following selected historical information of AmeriQuest, Robec, and NCD
has been derived from their respective historical financial statements and
should be read in conjunction with such financial statements and notes thereto.
AmeriQuest's Consolidated Financial Statement for three years ended June 30,
1994, 1993 and 1992 has been audited by Arthur Andersen LLP, independent public
accountants. Robec's Consolidated Financial Statements for the three years
ended December 31, 1994, 1993 and 1992 has been audited by Coopers & Lybrand
LLP, independent public accountants. NCD's Financial Statements for the two
years ended March 31, 1994 and 1993 have been audited by KPMG Peat Marwick LLP,
independent public accountants. NCD's Statement of Operations for the three
months ended March 31, 1992 has been audited by Hansen, Barnett & Maxwell,
independent public accountants. AmeriQuest's statements of income data for the
six months ended December 30, 1994 and the balance sheet data at December 30,
1994 and NCD's statement of income data for the six months ended September 30,
1994 and balance sheet data at September 30, 1994 are unaudited but have been
prepared on the same basis as their audited financial statements and, in the
opinion of their respective managements, contain all adjustments consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of operations for such periods. The selected unaudited pro forma
condensed combined financial data is qualified in its entirety by reference to,
and should be read in conjunction with, the pro forma unaudited combining
financial statements and notes thereto that are included elsewhere in this
Prospectus/Proxy Statement. The unaudited pro forma condensed combined
statement of income combines the results of operations of AmeriQuest, Kenfil,
Robec and NCD for the twelve months ended June 30, 1994 and the six months
ended December 30, 1994 giving effect to the acquisitions as if it had occurred
on July 1, 1993. The unaudited pro forma condensed combined balance sheet data
as of December 30, 1994, gives effect to the Company's acquisition of the
remaining 49.9 percent of Robec common stock, not owned by the Company as if it
had occurred on that date. The pro forma information is not necessarily
indicative of the operating results or financial position that would have
occurred had the acquisitions been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results or
financial position. The acquisitions discussed above have been accounted for
under the purchase method of accounting.
6
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS
ENDED
DECEMBER 30 YEARS ENDED JUNE 30
----------- -----------------------------------------------
1994 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
(UNAUDITED)
AMERIQUEST
Historical Statement of Income Data:
Net sales............. $ 173,005 $ 87,593 $ 73,082 $115,054 $130,062 $187,724
Income (loss) from
operations........... (3,572) (7,274) 487 (9,047) (11,730) 1,245
Income (loss) before
income taxes......... (6,169) (7,971) 236 (9,623) (12,027) 652
Net income (loss)..... (6,169) (7,971) 236 (8,894) (8,501) 405
Earnings (loss) per
share................ (0.40) (1.33) 0.08 (3.04) (2.89) 0.13
Weighted average
shares outstanding... 15,458,468 5,974 3,061 2,922 2,942 3,156
DECEMBER 30 JUNE 30
----------- -----------------------------------------------
1994 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
(UNAUDITED)
Historical Balance Sheet
Data:
Working capital....... $ 19,184 $ 4,872 $ 5,904 $ 5,217 $ 15,081 $ 22,463
Total assets.......... 187,726 65,145 20,274 23,522 40,747 41,084
Long-term obligations. 19,029 3,442 1,817 274 1,851 1,134
Shareholders' equity.. 31,175 12,875 8,644 7,952 16,806 26,065
SIX MONTHS
ENDED
DECEMBER 30 YEARS ENDED JUNE 30
----------- -----------------------------------------------
1994 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
KENFIL
Historical Statement of Income Data:
Net sales............. (1) $138,759 $184,054 $167,451 $133,219 $139,246
Income (loss) from
operations........... (18,167) 4,799 5,081 1,786 2,225
Income (loss) before
income taxes......... (20,753) 1,636 1,407 (2,501) (36)
Net income (loss)..... (20,770) 1,086 873 (1,663) (25)
Earnings (loss) per
share................ (4.72) 0.17 0.06 (0.70) (0.01)
Weighted average
shares outstanding... 4,399 4,399 2,798 2,869 3,108
DECEMBER 30 JUNE 30
----------- -----------------------------------------------
1994 1994 1993 1992 1991 1990
----------- -------- -------- -------- -------- --------
Historical Balance Sheet
Data:
Working capital....... (1) (1) $ 17,897 $ 5,212 $ 5,162 $ 2,048
Total assets.......... 56,050 41,484 36,144 33,245
Long-term obligations. 6,480 11,380 11,452 1,525
Shareholders' equity
(deficiency)......... 13,146 (8,628) (8,784) 2,640
- --------
(1) Kenfil operating results and balance sheet data for the six months ended
December 30, 1994 are consolidated with the results of AmeriQuest.
7
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
------------------------------------------------
1994 1993 1992 1991 1990
-------------------- -------- -------- --------
ROBEC
Historical Statement of Income Data:
Net sales................. $ 141,106 $203,233 $202,564 $201,131 $190,867
Income (loss) from
operations............... (4,893) (8,141) (5,353) 4,994 7,890
Income (loss) before
income taxes............. (6,148) (9,994) (6,785) 3,237 6,178
Net income (loss)......... (6,172) (9,118) (4,589) 2,104 3,956
Earnings (loss) per share. (1.39) (2.05) (1.03) 0.47 0.87
Weighted average shares
outstanding.............. 4,439 4,459 4,459 4,457 4,571
DECEMBER 31
------------------------------------------------
1994 1993 1992 1991 1990
-------------------- -------- -------- --------
Historical Balance Sheet Da-
ta:
Working capital........... $ 6,423 $ 12,208 $ 42,078 $ 45,168 $ 22,788
Total assets.............. 36,049 57,075 65,685 71,750 62,519
Long-term obligations..... -- -- 21,336 20,000 --
Shareholders' equity ..... 8,089 14,261 23,379 27,964 25,860
SIX MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30 YEARS ENDED MARCH 31 MARCH 31 YEARS ENDED DECEMBER 31
------------ --------------------- ------------ ----------------------------
1994 1994 1993 1992 1991 1990
------------ --------------------- ------------ ----------- ---------------
(UNAUDITED) (UNAUDITED)
NCD
Historical Statement of Income Data:
Net sales............. $117,696 $196,513 $ 113,306 $15,256 $ 40,505 $ 38,689
Income (loss) from
operations........... 2,551 2,433 (1,481) 119 617 338
Income (loss) before
income taxes......... 994 630 (2,736) 51 309 137
Net income (loss)..... 994 630 (2,461) 51 309 137
Earnings (loss) per
share................ 4,247.86 2,859.00 (13,395.00) 423.00 3,094.00 1,370.00
Weighted average
shares outstanding... 234 184 184 120 100 100
SEPTEMBER 30 MARCH 31 DECEMBER 31
------------ ----------------------------------- ----------------------------
1994 1994 1993 1992 1991 1990
------------ --------------------- ------------ ----------- ---------------
(UNAUDITED) (UNAUDITED)
Historical Balance Sheet
Data:
Working capital....... $ 2,335 $ 20,052 $ 620 $ 1,676 $ (200) $ 262
Total assets.......... 52,359 51,677 27,984 9,711 9,656 7,153
Long-term obligations. 2,737 21,499 2,663 94 136 135
Shareholders' equity
(deficiency)......... 1,260 11 (619) 1,582 697 500
8
AMERIQUEST, KENFIL, ROBEC AND NCD
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1994 DECEMBER 30, 1994
------------------- -----------------
Pro Forma Combined Statement of Income
Data:
Net sales.............................. $613,606 $276,568
Income (loss) from operations.......... (34,179) (6,180)
Income (loss) before taxes............. (39,673) (9,387)
Net income (loss)...................... (38,876)(1) (9,387)
Net income (loss) applicable to common
stockholders.......................... (38,876) (9,387)
Net income (loss) per share............ (2.04) (0.44)
Weighted average shares outstanding.... 19,040 21,365
DECEMBER 30, 1994
-----------------
Pro Forma Combined Balance Sheet Data:
Working capital............................................. $19,184
Total assets................................................ 187,726
Long-term obligations....................................... 19,029
Total stockholders' equity.................................. 33,975
Book value per share (2).................................... 1.52
Common shares outstanding................................... 22,372
- --------
(1) The restructuring charge of $5,000,000 included in AmeriQuest's historical
statement of operations relates principally to the write-off of certain
former personal computer joint venture operations. The restructuring charge
and earthquake loss of $3,305,000 included in Kenfil's historical
financials included charges of $2,821,000 for losses sustained in the
Southern California earthquake and restructuring charges of $484,000
relating to severance costs and lease termination costs. The restructuring
charge of $336,000 included in Robec's historical statement of operations
relates to a reduction in office and warehouse space. Such restructuring
charges, although non-recurring in nature, have been included in the
proforma condensed combined statement of operations in conformity with
Article 11 of Regulation S-X of the Securities and Exchange Commission.
(2) Book value per share is computed by dividing pro forma stockholders' equity
by the pro forma number of shares of common stock outstanding at December
30, 1994.
9
UNAUDITED COMPARATIVE PER SHARE DATA. The following table sets forth (1) the
historical net income (loss) per share and the historical book value per share
of AmeriQuest Common Stock; (2) the historical net income (loss) per common
share and the historical book value per share of Robec; (3) the unaudited pro
forma combined net income (loss) per common share and the unaudited pro forma
combined book value per share after giving effect to the proposed Merger; and
(4) the unaudited pro forma net income (loss) per equivalent Robec share and
the unaudited pro forma book value per equivalent Robec share assuming the
exchange ratio of 0.63075. The information presented in the table should be
read in conjunction with the unaudited pro forma condensed combined financial
statements and the interim consolidated unaudited condensed financial
statements and the notes thereto appearing elsewhere herein or incorporated
herein by reference.
EQUIVALENT
HISTORICAL(3) AMERIQUEST ROBEC
----------------- PRO FORMA PRO FORMA
AMERIQUEST ROBEC COMBINED(1)(3) COMBINED(2)
---------- ------ -------------- -----------
Net Income (Loss) Per Share(3)
Twelve months ended
June 30, 1994.................. $(1.33) $(2.52) $(2.04) $(1.29)
Six months ended
December 30, 1994.............. (0.40) (0.92) (0.44) (0.28)
Book Value Per Share at
June 30, 1994.................. 1.31 2.65 1.70 1.07
December 30, 1994.............. 1.49 1.76 1.52 0.96
(1) The unaudited pro forma combined net income (loss) per share is based on
the weighted average number of common shares of AmeriQuest Common Stock
outstanding during the period adjusted to give effect to shares assumed to
be issued had the Merger taken place as of the beginning of the period
presented.
(2) The unaudited equivalent Robec pro forma combined per share amounts are
calculated by multiplying the AmeriQuest pro forma combined per share
amounts by the exchange ratio of 0.63075 of a share of AmeriQuest Common
Stock for each share of Robec Common Stock.
(3) AmeriQuest's and Robec's book value per share are computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period. Pro forma combined book value per share is computed
by dividing pro forma combined stockholders' equity by the pro forma
combined number of shares of common stock outstanding at the end of the
period.
10
RISK FACTORS
The following are certain risk factors to be considered by Robec's
shareholders in voting upon the Plan of Merger, in addition to the risks and
other information described elsewhere in this Prospectus/Proxy Statement.
RECENT DEVELOPMENTS AND POSSIBLE DEFAULT ON COMPUTER 2000 LOAN. AmeriQuest
has a policy of growth, both internal and by acquisition. On June 6, 1994,
AmeriQuest acquired 51.9% of Kenfil Inc., a distributor of computer software
products, and on September 12, 1994 acquired the balance of the outstanding
shares of Kenfil Inc. in a merger between AmeriQuest's wholly-owned subsidiary,
AmeriQuest/Kenfil Inc. and Kenfil Inc. AmeriQuest now owns 100% of the
resultant company, AmeriQuest/Kenfil Inc. ("Kenfil"). On September 22, 1994,
AmeriQuest acquired 50.1% of Robec from the Principal Shareholders, and it is
contemplated that AmeriQuest will own 100% of Robec upon consummation of the
Merger. On November 14, 1994, AmeriQuest acquired Ross White Enterprises, Inc.,
a Florida corporation d/b/a "National Computer Distributors" ("NCD"). Both
Robec and NCD are distributors of computer hardware. The combination of
AmeriQuest (including Kenfil and NCD) and Robec after consummation of the
Merger is referred to in this Prospectus/Proxy Statement as the "Combined
Company."
In addition, on November 14, 1994, AmeriQuest entered into an Investment
Agreement and a Loan Agreement with Computer 2000 AG ("Computer 2000") which
contemplated that Computer 2000 would invest approximately $50 million in
AmeriQuest in exchange for a 51% ownership interest in AmeriQuest, including
shares already owned by Computer 2000, and assuming consummation of the Merger.
The investment by Computer 2000 is tiered, with $32 million originally being
contingent upon the monthly and cumulative performance of AmeriQuest in the
first half of calendar 1995 (which at the date of this Prospectus/Proxy
Statement the Company has failed to achieve), approval by AmeriQuest
stockholders and certain regulatory approvals. Given the failure of AmeriQuest
to achieve the performance goals, AmeriQuest has no right to compel Computer
2000 to make such investment. This investment is part and parcel of a proposed
global alliance between AmeriQuest and Computer 2000. If the shareholders of
AmeriQuest fail to approve the Investment Agreement, AmeriQuest may be required
by Computer 2000 to either repay the $18 million advanced to date as a secured
loan or repay approximately $12 million and issue to Computer 2000 new shares
which when added to its current holdings would increase its current ownership
to 19.9% of AmeriQuest's outstanding Common Stock. Although the sale of the
shares to Computer 2000 would be at a price below the quoted market price on
November 14, 1994, the Board of Directors of AmeriQuest evaluated the prospects
of AmeriQuest in the alliance for improved purchasing margins, improved vendor
lines and cross-selling opportunities, and determined that the interests of all
shareholders of AmeriQuest would be best served by the arrangement. However,
should such alliance synergies not materialize, AmeriQuest could be viewed as
having sold the shares below market without the receipt of any additional
benefit from the arrangement. No assurance can be given that the anticipated
synergies from the alliance will materialize. A shareholders derivative lawsuit
has been filed against AmeriQuest, its directors and Computer 2000 with respect
to the Investment Agreement. For additional information, see "The Business of
the Companies--Ameriquest--Recent Developments--Investment by Computer 2000
Investment."
RECENT LOSSES; POSSIBLE NEED FOR ADDITIONAL CAPITAL. AmeriQuest experienced
significant net losses for fiscal years 1991 and 1992. Although AmeriQuest had
net earnings of $236,000 for the year ended June 30, 1993, it had a loss of
$7,971,000 for the year ended June 30, 1994, including a write-off of $5.7
million with respect to restructuring and the disposition of assets related to
hardware operations. For the six months ended December 30, 1994, AmeriQuest
experienced a loss of approximately $6,169,000 compared with a net loss of
approximately $4,889,000 for the same period a year earlier. NCD had a net
income for the fiscal year ended March 31, 1994 of $630,115 on revenues of
$196,512,724 compared with a net loss of $2,460,624 the year earlier on
revenues of $113,306,494. For the six months ended September 30, 1994, NCD had
a net income of $994,000 on sales of $117,696,000. Robec experienced a net loss
of $6,172,000 for the year ended December 31, 1994. The Combined Company is
continuing to incur losses as it attempts to restructure its operations, and
there can be no assurance that the Combined Company will be able to achieve
profitability in subsequent periods even though it is cutting costs
significantly in an attempt to achieve a profitable level of operations as soon
as possible. In fiscal 1994, AmeriQuest raised approximately $5,600,000 from
the sale of 3,400,000 shares of AmeriQuest Common Stock, which shares have been
registered for resale on a Registration Statement on Form S-3. On June 30,
1994, it raised another $2,000,000 in a sale of its securities to foreign
11
investors. On October 17, 1994, AmeriQuest raised approximately $3,432,000 upon
the placement of unsecured, convertible promissory notes which were
automatically converted to shares of AmeriQuest Common Stock and warrants to
purchase AmeriQuest Common Stock at $2.40 per unit upon the acquisition of NCD.
In the event that the Combined Company does not achieve profitability in the
near term, AmeriQuest may be required to seek additional financing, but the
Investment Agreement with Computer 2000 prohibits the issuance of additional
shares of AmeriQuest Common Stock without its consent. However, if AmeriQuest
were to need additional capital and obtain Computer 2000's consent to issue
additional shares of AmeriQuest Common Stock, AmeriQuest would be obligated to
issue an equal number of additional shares to Computer 2000, thus reducing the
price per share to be paid by Computer 2000. There can be no assurance that any
such financing will be available to AmeriQuest if and when required, or on
terms acceptable to AmeriQuest, or that such additional financing, if
available, would not result in substantial dilution of the equity interests of
existing stockholders.
STOCK REPURCHASE AGREEMENT. AmeriQuest is party to a Stock Repurchase
Agreement dated November 14, 1994 pursuant to which certain former shareholders
of NCD have the right at any time and from time-to-time after February 13, 1995
to require AmeriQuest to repurchase up to 661,486 shares of AmeriQuest Common
Stock at $3.50 per share for a total potential obligation of $2,315,201.
Although no demand has been made of AmeriQuest to date, such a request could be
received at any time.
INTEGRATION OF COMPANIES. In determining the terms of the proposed Merger,
the management of Robec and AmeriQuest evaluated the companies' respective
businesses based in part on expectations concerning the future operations of
the Combined Company. The evaluations reflected to a material extent the
expectation that there would be an increase in the sales of each company's
products, as well as the expectation that the combination of the companies
would produce other beneficial effects. There can be no assurance that these
expectations will be fulfilled. AmeriQuest and Robec believe that a key benefit
to be realized from the Merger will be the integration of their strategies and
product lines. Certain of the anticipated benefits of the Merger may not be
achieved unless the respective operations of each company are successfully
integrated in a timely manner. The difficulties of such integration may
initially be increased by the necessity of maintaining multiple accounting
systems and integrating personnel with disparate business backgrounds and
corporate cultures. Such problems could be further exacerbated in combining
Robec's and NCD's operations with those of AmeriQuest because of the
geographical diversity of the companies. There can be no assurance that the
Combined Company will be able to integrate effectively the products and
services of Robec with the products and services of AmeriQuest, Kenfil and/or
NCD. Nor can there be any assurance that, even if integrated, the Combined
Company's product and service offerings will be successful. If the Combined
Company is not successful in integrating its product strategies and services or
if its integrated products and services fail to achieve market acceptance, the
business of the Combined Company could be adversely affected.
CHANGING METHODS OF SOFTWARE DISTRIBUTION. The manner in which microcomputer
software products are distributed and sold is changing, and new methods of
distribution may emerge or expand. Software publishers have sold, and may
intensify their efforts to sell, their products directly to resellers and end-
users, including certain major reseller customers. From time-to-time certain
publishers have instituted programs for the direct sale of large-order
quantities of software to certain major corporate accounts, and these types of
programs may continue to be used by various publishers. In addition, certain
major publishers have implemented programs for master copy distribution (site
licensing) of software. These programs generally grant an organization the
right to make any number of copies of software for distribution within the
organization provided that the organization pays a fee to the publisher for
each copy made. Also, publishers may attempt to increase the volume of software
products distributed electronically to end-users' microcomputers. If these
programs become more common or if other methods of distribution of software
become more widely accepted, the Combined Company's business and financial
results could be materially adversely affected.
NEED FOR PRODUCT DEVELOPMENT; MANUFACTURING. AmeriQuest (including NCD) and
Robec compete in an industry which is affected by technological change. The
inability of the Combined Company to develop or obtain new products which
respond to industry demands could adversely affect its operational and
financial performance. AmeriQuest depends on original equipment manufacturers
("OEMs") to manufacture various
12
portions of its products, but has no contractual commitments from its suppliers
where no single supplier provides the entirety of any product needs. Although
AmeriQuest performs quality control checks on these components, there can be no
assurance that component defects will not occur in the future. AmeriQuest has
in the past experienced component reliability problems with respect to new
components. AmeriQuest believes that this problem is typical in the industry
and it performs product quality inspection and final testing to prevent, detect
and remedy such problems. There can be no assurance that component reliability
problems will not have a material adverse effect on the business of the
Combined Company. Robec and AmeriQuest also purchase components, subassemblies
and fabricated parts from independent suppliers. Robec and AmeriQuest attempt
to maintain adequate inventories of parts to cover their respective short-term
requirements and have never experienced difficulties in obtaining inventories
of parts to cover their respective short-term requirements for components.
However, Robec and AmeriQuest do purchase several key components from a limited
number of sources. There can be no assurance that, with respect to such
components, the loss of key sources would not have a material adverse effect on
business of the Combined Company.
COMPETITION; DOMINANCE OF INDUSTRY LEADERS. Most of the Combined Company's
competitors have financial, marketing or management resources substantially
greater than those of the Combined Company. The personal computer industry is
dominated by companies with annual revenues that exceed a billion dollars. The
Combined Company's principal markets are comprised predominantly of personal
computer resellers with a moderate volume of sales. Robec and AmeriQuest are
facing increasing competition from many competitors. AmeriQuest and Robec
believe that the market will be increasingly dominated by the industry leaders.
There can be no assurance that the Combined Company will develop into one of
the industry leaders.
COMPETITION; PRODUCTS AND GROSS MARGIN. Robec and AmeriQuest compete in an
industry characterized by intense competition. Because the products
traditionally resold by distributors such as Robec and AmeriQuest have shorter
and shorter product life cycles and are offered by many resellers, the gross
margins which can be earned from the sale of such products reduce quickly over
short periods of time. In addition, the products are subject to loss in value
due to technological obsolescence. Accordingly, the Combined Company's primary
marketing strategy will be to sell products with increasing data storage
capacities. There can be no assurance that the Combined Company will be able to
develop or obtain such higher capacity products or maintain adequate gross
margins on the sales of such products.
DEPENDENCE UPON KEY PERSONNEL. The Combined Company will be dependent upon
the marketing and management expertise of certain key personnel. While other
qualified persons may be found to assume the responsibilities of these key
personnel if they were to leave the Combined Company, the search for successors
could take a substantial amount of time, and the disruption to the Combined
Company's operations could have a material adverse effect on its business; and
AmeriQuest does not maintain key-man insurance policies.
POSSIBLE SALES BY SHAREHOLDERS. AmeriQuest has earlier registered 4,238,639
outstanding shares (20.3%) of AmeriQuest Common Stock on Form S-3 for resale by
certain selling shareholders, and currently has pending another registration
statement on Form S-3 for the resale by still other selling shareholders,
including the principal shareholders, of 8,528,725 outstanding shares (40.8%)
of AmeriQuest Common Stock. AmeriQuest has also agreed to register the shares
to be issued to Computer 2000 upon consummation of the transactions
contemplated by the Investment Agreement with Computer 2000. The sale of such
shares, or the perception that such shares may be sold, may have the effect of
substantially depressing the market price of AmeriQuest's Common Stock and
causing substantial fluctuations in the price of AmeriQuest Common Stock.
VOLATILITY OF STOCK PRICE; TRADING VOLUME. The price of AmeriQuest's Common
Stock has been subject to significant price fluctuations. There can be no
assurance that the price of the AmeriQuest's Common Stock will stabilize at any
time or at a price equal to or above the price of such shares at the time of
the Merger. Until recently, the trading volume for AmeriQuest's Common Stock
has generally been low. A large increase in share trading volume in a short
period of time could cause a significant reduction in share trading prices.
13
THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The Special Meeting is being called (i) to consider and vote upon a proposal
to approve and adopt the Plan of Merger pursuant to which (a) AmeriQuest Sub
will be merged with and into Robec, with Robec surviving the Merger as a
wholly-owned subsidiary of AmeriQuest and (b) each share of Robec Common Stock
that is issued and outstanding on the Effective Date, other than shares held by
AmeriQuest or by shareholders who perfect their statutory dissenters rights,
will be converted automatically into the right to receive shares of AmeriQuest
Common Stock at the Exchange Ratio and (ii) to transact such other business as
may properly come before the Special Meeting or any adjournments thereof.
Approval and adoption of the Plan of Merger by Robec's shareholders is one of
the conditions to the consummation of the Merger. See "Information Regarding
the Merger--The Amended Agreement--Conditions to Consummation of the Merger."
THE BOARD OF DIRECTORS OF ROBEC HAS UNANIMOUSLY APPROVED AND ADOPTED THE PLAN
OF MERGER AND RECOMMENDS THAT HOLDERS OF SHARES OF ROBEC COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE PLAN OF MERGER.
RECORD DATE; SOLICITATION OF PROXIES
The close of business on April 3, 1995 has been fixed as the record date (the
"Record Date") for the determination of shareholders entitled to notice of and
to vote at the Special Meeting. Accordingly, only holders of Robec Common Stock
of record at the close of business on the Record Date are entitled to notice of
and to vote at the Special Meeting and any adjournments thereof. At the close
of business on the Record Date, there were 4,439,180 shares of Robec Common
Stock outstanding. Robec has 5,000,000 authorized shares of preferred stock of
which no shares are outstanding.
Shares of Robec Common Stock which are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted FOR approval and
adoption of the Plan of Merger and in the discretion of the proxy holder as to
any other matter which may properly come before the Special Meeting. Under the
rules of the National Association of Securities Dealers, brokers may not give a
proxy to vote without complying with the rules of any national exchange to
which the broker is also a member. Brokers that are member firms of the New
York Stock Exchange, Inc. ("NYSE") and who hold shares in street name for
customers have authority under the rules of the NYSE to vote those shares with
respect to the Plan of Merger only if they have received instructions to do so
from the beneficial owners thereof. Under the Pennsylvania Business Corporation
Law of 1988, as amended (the "BCL"), if a shareholder (including a nominee or
other record owner) either records the fact of abstention or otherwise
withholds authority to vote or fails to vote in person or by proxy, such action
would not be considered a "vote cast" and would have no effect in the approval
and adoption of the Plan of Merger, other than to reduce the number of
affirmative votes needed for such approval. A shareholder who has given a proxy
may revoke it at any time prior to its exercise at the Special Meeting by
delivering a written notice of revocation of the proxy being revoked or by
submission of a properly executed proxy bearing a later date than the proxy
being revoked, to Robert S. Beckett, Secretary, Robec, Inc., 425 Privet Road,
Horsham, Pennsylvania 19044, or by voting the shares of Robec Common Stock
covered thereby in person at the Special Meeting.
Robec will bear the cost of the Special Meeting and of soliciting proxies
therefor, including the costs of the printing and mailing of this
Prospectus/Proxy Statement and related materials, and the reasonable expenses
incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of shares of Robec Common
Stock.
VOTE REQUIRED
In general, a majority of the outstanding shares of Robec Common Stock
entitled to vote, represented in person or by proxy, is required for a quorum
at the Special Meeting. However, those shareholders entitled to vote who
attend, in person or by proxy, any adjournment or adjournments of the Special
Meeting that have been previously adjourned for one or more periods aggregating
at least 15 days because of an absence of a
14
quorum, although less than a quorum as fixed by law or in the Articles of
Incorporation or By-Laws of Robec, shall nevertheless constitute a quorum for
the purpose of acting upon the Plan of Merger. Provided that a quorum is
present at the Special Meeting, the affirmative vote of a majority of the votes
cast by all of the holders of the outstanding shares of Robec Common Stock
entitled to vote thereon as of the Record Date is required for approval and
adoption of the Plan of Merger. Any other matter which may properly come before
the Special Meeting at which a quorum is present for such purpose requires the
affirmative vote of a majority of the votes cast on the matter unless a greater
vote is required by law or the Articles of Incorporation or By-Laws of Robec.
Holders of shares of Robec Common Stock are entitled to one vote at the Special
Meeting for each share of Robec Common Stock held of record by such holders on
the Record Date.
Robec shareholders have the right to dissent from the approval and adoption
of the Plan of Merger and, subject to certain requirements of the BCL, to
receive payment for the fair value of their shares of Robec Common Stock. See
"Information Regarding the Merger--Dissenters Appraisal Rights" and a copy of
the text of Subchapter 15D of the BCL attached as Appendix IV hereto.
On the Record Date, AmeriQuest held 2,224,029 shares of Robec Common Stock
and the officers and directors held an additional 671,671 shares of Robec
Common Stock, excluding exercisable "out of the money" options, constituting
approximately 65.23% of the outstanding shares of Robec Common Stock entitled
to vote at the Special Meeting. The affirmative vote of AmeriQuest would be
more than the simple majority of votes cast which is required to approve and
adopt the Plan of Merger even if all shares of Robec Common Stock were voted.
See "Share Ownership of Robec by Management and Certain Beneficial Owners."
AmeriQuest has agreed to vote all of the outstanding shares of Robec Common
Stock beneficially owned by it on the Record Date in favor of the approval and
adoption of the Plan of Merger.
STOCK OWNERSHIP OF ROBEC BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 24, 1995, or as of such other
date as may be noted below, information related to the beneficial ownership of
Robec Common Stock by (i) each person known to Robec to be the beneficial owner
of more than five percent of the outstanding shares of Robec Common Stock, (ii)
each director of Robec, (iii) the chief executive officer and certain named
executive officers of Robec, and (iv) all directors and current executive
officers as a group. In the case of directors and executive officers, this
information has been provided by them at the request of Robec.
NAME OF INDIVIDUAL OR NUMBER OF SHARES PERCENT OF COMMON
IDENTITY OF GROUP OF COMMON STOCK(1) STOCK OUTSTANDING(2)
--------------------- ------------------ --------------------
AmeriQuest (3)................... 2,224,029 50.10
Robert H. Beckett(4)(5).......... 452,812 10.20
Dimensional Fund Advisors
Inc.(6)......................... 281,100 6.33
G. Wesley McKinney(4)............ 132,420 2.98
Robert S. Beckett(4)(8).......... 49,342 1.11
Alexander C. Kramer, Jr.(4)...... 30,697 *
John P. Puckett.................. 3,500 *
Louis J. Cissone................. 1,700 *
Edward Ray....................... 1,200 *
George R. Hornig................. 0 --
Richard J. Pinola................ 0 --
All directors and current
executive officers
as a group (11 persons)(5)(7)... 671,671 15.13
- --------
(1) In accordance with SEC regulations, the table lists all shares as to which
such persons have or share the power to vote or direct disposition. Unless
otherwise indicated, each person has the sole power to vote and to direct
disposition of the shares listed as beneficially owned by such person. The
table includes options exercisable on March 24, 1995 or within 60 days
thereafter, regardless of whether such options are "in-the-money" or "out-
of-the-money," but does not include options which are not exercisable
within 60 days of such date.
15
(2) Percentages calculated with reference to an aggregate 4,439,180 shares of
Robec Common Stock outstanding on March 24, 1995.
(3) On September 22, 1994, Messrs. Robert H. Beckett, Robert S. Beckett,
Alexander C. Kramer, Jr. and G. Wesley McKinney, exchanged 1,427,913,
281,733, 96,803 and 417,580 shares, of Robec Common Stock, respectively,
for shares of AmeriQuest Common Stock. Accordingly, AmeriQuest became the
holder of shares of Robec Common Stock representing 50.1% of the
outstanding stock of Robec as of that date. AmeriQuest has agreed that
until the effective date of the Merger, it will vote its shares of Robec
Common Stock against the nomination or election of any directors of Robec
other than Robec's current directors, or any successors nominated by its
current directors, and also to vote such shares in favor of the Plan of
Merger. See "Information Regarding the Merger--The Amended Agreement--The
Exchange."
(4) The address of Messrs. Robert H. Beckett, G. Wesley McKinney and Robert S.
Beckett is: c/o Robec, Inc., 425 Privet Road, Horsham, Pennsylvania 19044.
(5) Excludes 49,342, 108,350 and 108,350 shares of Robec Common Stock held by
Mr. Beckett's children, Robert S. Beckett, Susan K. Childers and Thomas T.
Beckett, respectively.
(6) As of December 31, 1994 as reflected in Amendment No. 3 to Schedule 13G
dated March 1995. According to Dimensional Fund Advisors Inc.
("Dimensional"): (i) it is a Delaware corporation; (ii) it is an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940; (iii) it is deemed to have beneficial ownership of 281,100 shares of
Robec Common Stock as of December 31, 1994, all of which shares are held in
portfolios of DFA Investment Dimensions Group, Inc., a registered open-end
investment company (the "Fund"), or in series of the DFA Investment Trust
Company, a Delaware business trust (the "Trust"), or the DFA Group Trust
and DFA Participation Trust, investment vehicles for qualified employee
benefit plans, for all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all of such shares; (iv)
persons who are officers of Dimensional also serve as officers of the Fund
and the Trust, and in such capacities vote 99,200 shares of Robec Common
Stock owned by the Fund and 16,100 shares of Robec Common Stock owned by
the Trust; and (v) it has its principal business office at 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401.
(7) Excludes 452,812 108,350 and 108,350 shares of Robec Common Stock held by
Mr. Beckett's father Robert H. Beckett, his sister Susan K. Childers and
his brother Thomas T. Beckett, respectively.
* Less than 1%
CERTIFIED PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") has served as Robec's
independent accountants since 1987. Robec has requested that a representative
of Coopers & Lybrand attend the Special Meeting. Such representative will have
an opportunity to make a statement, if he or she desires, and will be available
to respond to appropriate shareholders' questions.
BUSINESSES OF THE COMPANIES
AMERIQUEST
GENERAL
AmeriQuest Technologies, Inc. has its principal office at 3 Imperial
Promenade, Ste. 300, Santa Ana, CA 92707, and its telephone number is (719)
437-0099. AmeriQuest is a Delaware corporation that conducts business through
its subsidiaries.
16
CDS Distribution, Inc., a Delaware corporation and wholly-owned subsidiary of
AmeriQuest ("CDS"), is a national value-added wholesale distributor of
microcomputers and related products to value-added resellers, dealers and
computer retailers. CDS markets, sells and supports a variety of products
ranging from individual components, which are typically sold in volume, to
complete systems that have been fully configured, assembled and tested prior to
delivery to its customers.
Kenfil was formed as a partnership in 1983 and was incorporated in California
in 1984. In April 1992, Kenfil reincorporated in the state of Delaware. Kenfil
was acquired by AmeriQuest in a two-step transaction completed in September,
1994. Kenfil is a distributor primarily of microcomputer software. Kenfil
presently carries over 3,500 software titles from over 200 software publishers
for sale to approximately 1,100 resellers. Kenfil focuses on software products
in high growth categories such as the business application, utilities,
graphics, communications, consumer (education and entertainment) and
productivity segments.
CMS Enhancements, Inc., a California corporation and wholly-owned subsidiary
of AmeriQuest ("CMS"), is a supplier of hard disk drive subsystems for IBM
compatible and other leading personal business computers, including Apple and
Compaq. CMS also offers disk array, magneto optical, CD-ROM, floppy disk drives
and magnetic tape back-up subsystems having a variety of data storage
capacities as well as personal computers, networking, graphics, communications
and connectivity and accessory products.
NCD, a Florida corporation, was acquired by AmeriQuest on November 14, 1994.
NCD is a national value-added wholesale distributor of computer hardware to
value-added resellers, systems integrators and computer retailers. NCD is based
in Hollywood, Florida and serves as AmeriQuest's Southeast distribution
facility.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The business of AmeriQuest is described in greater detail in the periodic
reports filed by AmeriQuest with the Securities and Exchange Commission
pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange
Act"), portions of which are incorporated herein by the reference thereto
below:
(a) Part I, Item 1. Business, as contained in AmeriQuest's Annual Report
on Form 10-K/A for the year ended June 30, 1994.
(b) Part II, Item 6. Selected Financial Data, as contained in
AmeriQuest's Annual Report on Form 10-K/A for the year ended June 30, 1994.
(c) Part II, Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition, as contained in AmeriQuest's Annual
Report on Form 10-K/A (Amendment No. 5) for the year ended June 30, 1994;
and as set forth as Part I, Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition, in AmeriQuest's Quarterly
Reports on Form 10-Q/A (Amendments No. 3) for the three months ended
September 30, 1994 and the six months ended December 30, 1994.
RECENT DEVELOPMENTS
COMPUTER 2000 INVESTMENT. Computer 2000 is a company organized under the laws
of the Federal Republic of Germany ("Computer 2000"). Computer 2000 claims to
be the third largest distributor of computer products with approximately $2.6
billion in sales in fiscal 1994. On November 14, 1994, AmeriQuest and Computer
2000 entered into an Investment Agreement and a Loan Agreement pursuant to
which Computer 2000 agreed to invest approximately $50 million in AmeriQuest in
exchange for an approximately 51 percent ownership interest in AmeriQuest,
including shares already owned by Computer 2000. The transaction has been
approved by the boards of both companies, and is subject to approval by the
stockholders of AmeriQuest and to certain regulatory approvals.
Under the terms of the Investment Agreement and the related Loan Agreement,
Computer 2000 has initially loaned to AmeriQuest 2000, Inc., a Delaware
corporation and a wholly-owned subsidiary of AmeriQuest ("Sub"), $18 million
(the "Loan"). Sub's repayment obligations under the Loan are secured by
17
a pledge by AmeriQuest of a security interest in all of the outstanding shares
of capital stock of NCD and Kenfil and the 2,224,029 shares of Robec Common
Stock owned by AmeriQuest. The Investment Agreement further provides that,
subject to certain conditions, on or before September 1, 1995, Computer 2000
has an option to invest an additional $32 million in AmeriQuest, which would
bring Computer 2000's total ownership interest to approximately 22.9 million
shares or 51% of the total outstanding shares of AmeriQuest Common Stock
(assuming consummation of the Merger) at an average price of $2.22 per share.
The ability of AmeriQuest to require Computer 2000 to make the $32 million
investment was contingent upon a number of conditions, including AmeriQuest's
meeting certain monthly and cumulative after-tax operating profitability
conditions during the first half of calendar 1995. AmeriQuest has failed to
meet these profitability conditions, so that Computer 2000 now has an option to
make the $32 million investment, but AmeriQuest can not compel Computer 2000 to
make such investment.
IF THE TRANSACTION IS NOT APPROVED BY THE SHAREHOLDERS OF AMERIQUEST PRIOR TO
JUNE 30, 1995, COMPUTER 2000 WILL HAVE THE RIGHT TO TERMINATE THE INVESTMENT
AGREEMENT, AND AMERIQUEST WILL BE OBLIGATED TO PAY COMPUTER 2000 ON JUNE 30,
1995, THE FULL AMOUNT OF THE LOAN, TOGETHER WITH INTEREST, AND A $1.8 MILLION
BREAK-UP FEE. COMPUTER 2000 WILL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO
APPLY A PORTION OF AMERIQUEST'S INDEBTEDNESS TO PURCHASE FROM AMERIQUEST, FOR
$2.00 PER SHARE, A NUMBER OF SHARES OF AMERIQUEST COMMON STOCK WHICH WHEN ADDED
TO ITS CURRENT HOLDINGS WOULD BE EQUAL TO 19.9% OF ALL OF AMERIQUEST'S THEN
OUTSTANDING SHARES OF AMERIQUEST COMMON STOCK, AND AMERIQUEST WOULD BE
OBLIGATED TO PAY IN EXCESS OF $12 MILLION TO COMPUTER 2000. AMERIQUEST DOES NOT
CURRENTLY HAVE THE FINANCIAL RESOURCES TO MEET THIS OBLIGATION. AMERIQUEST
WOULD NEED TO SEEK ADDITIONAL FINANCING TO RAISE THE NECESSARY FUNDS BY JUNE
30, 1995 OR THE LOAN WOULD BE IN DEFAULT. IF SUCH A DEFAULT UNDER THE LOAN
OCCURS, COMPUTER 2000 COULD, IN ADDITION TO ITS OTHER REMEDIES, EXERCISE ITS
SECURITY INTEREST TO ACQUIRE AMERIQUEST'S OWNERSHIP OF KENFIL, ROBEC AND NCD,
WHICH WOULD NEGATE ALL EFFORTS TO DATE TO IMPLEMENT THE BUSINESS PLAN BY REASON
OF A LOSS OR APPROXIMATELY $550 MILLION IN ANNUAL SALES, WITHOUT WHICH
AMERIQUEST HAS NO REASONABLE EXPECTATION OF BEING ABLE TO ACHIEVE A PROFITABLE
LEVEL OF OPERATIONS. IN ADDITION, THE DEFAULT MAY CONSTITUTE AN EVENT OF
DEFAULT UNDER AMERIQUEST'S OTHER INDEBTEDNESS THEREBY CAUSING THAT INDEBTEDNESS
TO BECOME IMMEDIATELY DUE AND PAYABLE. Upon consummation of the $32 million
investment, AmeriQuest will also issue to Computer 2000 an option to purchase
additional shares of AmeriQuest Common Stock in an amount equal to the number
of AmeriQuest's shares issuable upon exercise of currently outstanding options
and warrants and conversion of any other convertible securities. Computer 2000
will also be issued an option to acquire an additional 4,000,000 shares of
AmeriQuest Common Stock at $10.00 per share exercisable at any time between
June 30, 1996 and June 30, 1998, and at a price of $20 per share exercisable at
any time between July 1, 1998 and November 30, 1999; provided that the exercise
of this option does not cause Computer 2000 to own in excess of 55% of the
issued and outstanding shares of AmeriQuest Common Stock. All newly issued
shares of AmeriQuest Common Stock will be subject to resale restrictions under
Rule 144 of the Securities Act of 1933, but registration rights will be granted
with respect to such shares.
The Board of Directors of AmeriQuest has unanimously recommended that the
stockholders of AmeriQuest vote for the approval of the Investment Agreement
and has authorized the mailing as soon as practicable of a proxy statement to
AmeriQuest's stockholders relating to approval of the Investment Agreement and
the increase in number of shares of AmeriQuest Common Stock necessary to
consummate the transactions contemplated thereby.
On November 17, 1994, three days after the announcement of the proposed
investment by Computer 2000 pursuant to the Investment Agreement, an action was
filed against AmeriQuest, the Board of Directors of AmeriQuest and Computer
2000 pursuant to which the plaintiffs seek to have the court either (i) enjoin
the consummation of the transactions contemplated by the Investment Agreement
or (ii) enter a monetary judgment against the Directors of AmeriQuest for an
alleged failure of the Board of Directors to discharge their fiduciary duties
in causing AmeriQuest to enter into the Investment Agreement. AmeriQuest and
the other defendants are defending the action. The Board of Directors of
AmeriQuest has received an opinion from L.H. Friend, Weinress & Frankson, Inc.
that the Investment Agreement and the transactions contemplated thereby were
fair to AmeriQuest and its stockholders, from a financial point of view.
18
ACQUISITION OF NCD. Effective November 15, 1994, AmeriQuest issued 1,864,767
shares of AmeriQuest Common Stock and paid $3,413,312 in exchange for 100% of
the issued and outstanding equity securities of NCD.
GENERAL. NCD was established in 1987 by Greg White and Tom Ross to distribute
computer hardware to value-added resellers ("VARs"), systems integrators and
computer retailers. NCD has grown from a single location in Hollywood, Florida
selling in the southeastern United States, to a company with six distribution
centers, selling products throughout the United States and Latin America. NCD
sells to a broad base of customers, with its largest customer accounting for
only 2.1% of sales. NCD is a leading distributor of microcomputer hardware to
VARs, systems integrators and computer retailers. The Company purchases its
products directly from over fifty different manufacturers and sells to a base
of more than 8,000 customers.
PRODUCTS. NCD sells leading products in network systems, data storage and
computer peripherals. The strategic focus of management has been to add vendors
and to continually expand and change the mix of the product line to ensure that
high demand, fast moving products are available to customers. The expansion of
the product line also protects NCD from relying on any one vendor to too great
a degree. For the fiscal year ending March 31, 1993, NCD generated over 65% of
its sales from its top four vendors. During this last fiscal year, the top
three vendors accounted for only 35% of total sales. Based on the Company's
projected sales by product, the top three vendors (Leading Edge, Western
Digital and Samsung) are expected to account for only 29% of sales for the year
ending March 31, 1995.
NCD is one of the largest distributors in the United States for Epson storage
products, Leading Edge computers, AOC monitors, Citizen printers, CTX, Hyundai,
Acer and Samsung. Its recognition as one of the leading national distributors
was reinforced when AST made NCD only its fifth authorized distributor, joining
Ingram Micro D, Merisel, Tech Data and Gates/FA. The Company's leadership
position in the Latin American market was also recognized by Hewlett Packard
and Apple Computer, both of which made NCD an authorized distributor to Latin
America during fiscal 1994.
The following is a description of the major categories of products currently
sold by NCD and the principal current vendors of those products.
Microcomputers--NCD distributes desktop and portable personal computers and
multiuser microcomputers manufactured by Acer, AST, Samsung, Hyundai and
Zenith.
Printers--NCD distributes a broad line of dot matrix, laser and ink-jet
printers manufactured by Citizen, Panasonic, Lexmark and Samsung.
Monitors and Terminals--NCD distributes monitors and terminals manufactured
by CTX, AOC, AST, Samsung, Sony, Goldstar, Wyse, Viewsonic, Hyundai and Leading
Edge.
Local Area Networks--A local area network ("LAN") permits microcomputers to
communicate with one another and to function on an integrated basis. NCD
distributes LAN specialized hardware products manufactured by Allied Telesis,
Alta Research, Boca Research, CNET, SMC, and Xecom.
Accessories and Supplies--NCD distributes hard and floppy disk drives, board
products, diskettes, stand-by power supplies, modems and other communications
products, accessories and supplies manufactured by numerous companies including
Boca Research, Colorado Memory Systems, Diamond Multimedia, Micro Solutions,
Tandberg Data, PNY Memory and Orchid.
19
VENDOR RELATIONS. To maintain a strong relationship with its principal
vendors, NCD focuses on marketing the products of a limited number of key
vendors. NCD selects its product line to minimize competition among vendors'
products while maintaining some overlap to provide protection against product
shortages or discontinuations. In addition, NCD enhances its relationship with
its vendors by providing feedback on products, assisting in new product
development and working with vendors to develop marketing programs.
NCD, like AmeriQuest and Robec, sells products throughout the United States
for vendors on a non-exclusive basis without geographic restrictions. NCD has
distribution agreements with most of its vendors and believes they are in the
form customarily used by each vendor and generally contain provisions which
allow termination by either party upon as little as 30 days notice. Most of
NCD's major distribution agreements provide price protection by giving NCD a
credit, subject to specified limitations, in the amount of any price reductions
by the vendor between the time of the initial sale to NCD and the subsequent
sale by NCD to its customer. However, numerous situations arise where it is not
possible to return all obsolete inventory. Accordingly, NCD has established
obsolete inventory reserves against the occurrence of such situations. Most of
the major distribution agreements also give NCD qualified return privileges on
slow-moving inventory. NCD's distribution agreements do not restrict NCD from
selling similar products manufactured by competitors. Any minimum purchase
provisions in NCD's distribution agreements are at levels that NCD believes do
not impose significant risk.
From time to time, the demand for certain products sold by NCD exceeds the
supply available from the vendor. NCD believes that its ability to compete has
not been adversely affected to a material extent by these periodic shortages,
although sales may be adversely affected for an interim period. In order to
limit the impact of such shortages, NCD generally attempts to include
comparable products from more than one vendor in its product line and endeavors
to provide direction to its customers in their selection of products.
COMPETITION. Competition in the distribution of microcomputer products is
intense. Principal national distributors are Micro D, Merisel and Tech Data.
NCD also competes with numerous manufacturers, resellers, retailers and
regional distributors. Most of NCD's major competitors have substantially
greater financial resources than NCD has or than the Combined Company will
have.
Competition is primarily based upon availability of product, price, speed of
delivery, convenience, technical support and other support services. NCD
believes that it is generally competitive with respect to each of these factors
and that its principal, competitive advantages are its technical support and
other support services, and speed of delivery.
SALES AND MARKETING. NCD is a marketing and product driven company whose
focus on sales and customer service mentality pervades throughout the entire
organization. NCD is continually broadening its customer base and sells high
quality, high demand products. In order to do this, management knows that NCD
must consistently provide high levels of service and support, and must expand
its product base to appeal to greater segments of the market. NCD's ability to
broaden its customer base is evidenced by the fact that for the fiscal year
1994, the single largest customer accounted for only 2.1% of $196.5 million of
net sales.
NCD offers its customers a broad product selection and gives them customized
service and support by a highly trained staff. Customers are provided with
quick access to sales and technical support personnel ensuring that questions
are answered and problems resolved in a most efficient and timely manner. When
appropriate, NCD provides customers with educational and promotional seminars
to explain new products and relevant features. This is particularly helpful in
Latin America.
NCD's responsiveness is evidenced by the fact that all orders received by
5:00 p.m. will go out the same day and that there is a one day turnaround on
any system configurations. There is also a one day turnaround on any customer
returns. Salespeople can look up on-line, the stocking levels and product
availability at any of the Company's distribution centers and can react to
customers quickly and efficiently.
20
NCD has 62 salespeople who are primarily telemarketers selling to an
established base of over 8,000 customers. NCD also has one field salesman,
calling in California. Salespeople are paid a base salary and a percentage of
gross profit over and above a prescribed minimum. Salespeople are given
ongoing, in-depth training.
NCD reaches its clients and potential clients through its ongoing
telemarketing efforts, weekly faxed broadcasts of specific product sales
programs, monthly direct mail efforts and through its catalog, which is mailed
to customers twice a year. NCD also advertises regularly in Computer Reseller
News, VARBusiness, CRN MicroMarketplace and Reseller Management. NCD also
participates in certain trade shows. Over the next year, NCD will be an
exhibitor at the following trade shows:
. Comdex - Atlanta (Spring) . Comdex Sucesu - Brazil
. Comdex - Las Vegas (Fall) . Softel - Chile
. NetWorks - Dallas (Summer) . Inforven - Venezuela
. NetWorks - Boston (Winter) . Computel - Columbia
NCD was one of the first large wholesale distributors to open channels of
distribution into Latin America. NCD has been successful in developing this
segment because of its long business history in the Latin American market and
its understanding of the complexities of duties, import and export taxes, and
the governmental regulations peculiar to individual countries in South and
Central America. NCD has a multi-lingual marketing, sales, credit and technical
support staff. The majority of NCD's sales to Latin America are actually to
agents and distributors who have offices in South Florida and pay in U.S.
dollars drawn on local banks. The agents and distributors are responsible for
actually shipping the products into Latin America.
NCD is optimistic about the long term prospects for the Latin American market
and establishing high quality channels of distribution into the market has been
an important part of its corporate growth strategy. However, the business
generated through large resellers in Latin America tends to be lower margin
business than that which is available domestically. In addition, Latin American
markets may be more volatile than domestic markets. NCD plans to expand its
offshore business as profitable opportunities exist and will look to
specifically broaden its business in Latin America, but the highest growth area
for NCD will continue to be the domestic market for the foreseeable future.
EMPLOYEES. As of October 31, 1994, NCD had 179 full time employees, including
87 in sales, support and purchasing/marketing functions. None of NCD's
employees are covered by a collective bargaining agreement. NCD considers its
relations with its employees to be good.
PROPERTIES. NCD's executive, administrative and domestic sales offices are
located in Hollywood, Florida. This facility consists of 31,887 square feet of
office space. This is a leased space with a termination date of August 1997.
NCD maintains an international sales and administrative office in Miami along
with a Miami shipping warehouse. The current configuration is 10,000 square
feet of office with 20,000 square feet of warehouse. In May 1995, NCD has plans
to relocate to a new warehouse/office of which 3,700 square feet will be office
and 26,300 will be warehouse and storage.
NCD maintains a total of six shipping warehouses. Five of these locations are
outside the state of Florida. These warehouses are predominantly shipping
points, having no sales, marketing or administrative support. Customer returns
are accepted at four locations and tech support personnel are located in four
locations.
NCD leases all of it's facilities. The leases generally provide for base
minimum rental rates per square foot. In addition, NCD is generally responsible
for its pro rata share of maintenance expenses for common areas, real estate
taxes and insurance.
21
The following table sets forth information regarding NCD's locations:
LOCATION SQ. FEET LEASE EXPIRATION YR OPENED
-------- -------- ---------------- ---------
Hollywood, FL 31,887 08/01/97 10/92
Miami, FL** 30,000 10/31/94 06/89
Miami, FL 30,000 06/28/2000 Est 02/01/95
Visalia, CA 46,800 03/01/99 04/94
Norcross, GA 13,800 01/31/95 02/90
Fairfield, NJ 10,700 07/10/97 07/09/02
Addison, IL 15,582 11/30/97 12/01/92
Carrollton, TX 13,520 03/31/96 03/31/93
- --------
** Miami, FL is in transition to move to a new location. A hold over period is
in effect until the new location is occupied. Lease payments at the new
location will not begin until occupancy occurs.
ROBEC
GENERAL
Robec, Inc. has its principal office at 425 Privet Road, Horsham,
Pennsylvania 19044, and its telephone number is (215) 675-9300. The predecessor
of Robec was incorporated in Nevada in 1977. On August 16, 1989, this
predecessor company was merged into a new Pennsylvania corporation to form
Robec. Robec is primarily a national value-added wholesale distributor of
microcomputers and related products to value-added resellers, dealers and
computer retailers and primarily operates in this one business segment. Robec
markets, sells and supports a variety of products ranging from individual
components, which are typically sold in volume, to complete systems that have
been fully configured, assembled and tested prior to delivery to its customers.
Upon completion of the Merger, Robec will serve as AmeriQuest's Northeast
distribution facility.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The business of Robec is described in greater detail in the periodic reports
filed by Robec with the Securities and Exchange Commission pursuant to Section
13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), portions of
which are incorporated herein by the reference thereto below:
(a) Part I, Item 1. Business, as contained in Robec's Annual Report on
Form 10-K for the year ended December 31, 1994.
(b) Part II, Item 6. Selected Financial Data, as contained in Robec's
Annual Report on Form 10-K for the year ended December 31, 1994.
(c) Part II, Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition, as contained in Robec's Annual Report
on Form 10-K for the year ended December 31, 1994.
22
INFORMATION REGARDING THE MERGER
THE MERGER
The Amended Agreement provides that the Merger will be consummated if the
approval of Robec's shareholders required therefor is obtained and all other
conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, AmeriQuest Sub will be merged with and into Robec, with Robec surviving
the Merger as a wholly-owned subsidiary of AmeriQuest. The name of the
surviving entity will be AmeriQuest/Robec, Inc. (previously defined as the
"Surviving Corporation"). Upon consummation of the Merger, each share of Robec
Common Stock that is outstanding on the Effective Date, other than shares held
by AmeriQuest or by holders of Robec Common Stock who perfect their statutory
dissenters rights, will be converted automatically into the right to receive
.63075 shares of AmeriQuest Common Stock (previously defined as the "Applicable
Fraction"); provided, however, that in the event the closing price of
AmeriQuest Common Stock on the New York Stock Exchange on the business day
prior to the Effective Date as reported in the Wall Street Journal (the
"Closing Date Market Price") is less than $3.00 per share, then on the
Effective Date each such share of Robec Common Stock shall be converted into
the number of shares of AmeriQuest Common Stock equal to the product of (i)
.63075 multiplied by (ii) a quotient, the numerator of which is $3.00 and the
denominator of which is the Closing Date Market Price (the Applicable Fraction
including any adjustment thereto having been previously defined as the
"Exchange Ratio"). After the Merger, holders of Robec Common Stock, other than
AmeriQuest, will possess no further interest in, or rights as shareholders of,
Robec.
BACKGROUND OF THE MERGER
Following an extended period of growth and relatively stable profitability
between 1984 and 1990, Robec began to experience difficulty in 1991 and
incurred substantial losses in 1992, 1993 and the first three quarters of 1994
(Robec's loss continued for the fourth quarter of 1994). Price discounting by
its competitors forced Robec to reduce its prices, resulting in deteriorating
gross margins. The effects of price discounting by competitors were compounded
by customers' increasing focus on price as the basis for purchasing decisions
which reduced Robec's ability to distinguish itself based on service. Finally,
as a result of Robec's failure to comply with certain covenants in its bank
credit agreement, Robec's banks limited its borrowings under its line of
credit.
In March, 1994, Robec hired Penn Hudson Financial Group ("Penn Hudson") to
assist it in developing a plan to return to profitability. Penn Hudson advised
Robec's Board of Directors that the options available to Robec were to (i)
restructure operations to reduce costs, (ii) merge or be acquired or (iii)
liquidate Robec. The Board of Directors directed management to restructure
operations to reduce costs, investigate alternate financing sources and
investigate and solicit merger opportunities. Robec designed and implemented
cost reduction activities including, among other items, closing certain
warehouse and sales locations, downsizing its employee base and refocusing on
its core distribution business. While its losses have been reduced by these
activities, Robec is still operating at a loss.
In April, 1994, Robec and its banks reached an oral agreement to limit
Robec's borrowings under its line of credit to $18 million, of which not more
than $6 million could be based on qualifying inventory, with a commitment to
fund under the line of credit until at least May 11, 1994, which date was later
extended until June 30, 1994. At June 30, 1994, Robec and its banks entered
into an agreement whereby the banks agreed to forbear from taking any action
with respect to any known defaults until September 30, 1994. The forbearance
was contingent upon Robec receiving (and providing to the banks) by August 15,
1994 a firm written commitment from a source reasonably satisfactory to the
banks with respect to a sale, merger or refinancing under the express terms of
which sufficient funding would be provided to satisfy in full Robec's
obligations to the banks not later than September 30, 1994.
At June 30, 1994, Robec entered into a letter of intent with AmeriQuest
pursuant to which AmeriQuest would acquire Robec in an exchange by the
Principal Shareholders followed by a merger, pursuant to which each Robec
shareholder would receive .5 shares of AmeriQuest Common Stock for each share
of his or her
23
Robec Common Stock or a total of approximately 2.22 million shares of
AmeriQuest Common Stock. The letter of intent, the terms of which were publicly
announced by Robec and AmeriQuest, did not restrict Robec from soliciting other
merger or acquisition proposals, and Robec continued to explore other
acquisition alternatives. Robec also continued to seek financing from a new
lender which would loan to Robec a sufficient amount to repay the banks and
provide additional working capital.
On August 4, 1994, Robec's Board of Directors met to discuss the proposed
AmeriQuest transaction and was updated as to the status of negotiations with
potential alternative lenders and acquirors. Robec's Board of Directors was
presented with information relating to AmeriQuest and the synergies expected to
be created by combining AmeriQuest's and Robec's operations. Robec's Board of
Directors expressed concern that Robec was contributing a high proportion of
the revenues of the combined operations relative to the percentage of total
equity to be received by Robec's shareholders in the combined entity. Robec's
Board of Directors also expressed concern that the exchange ratio was subject
to market variances which could result in Robec's shareholders receiving shares
worth less than what was then expected. As a result of these concerns, Robec's
Board of Directors directed its Chairman to go back to AmeriQuest and attempt
to negotiate a higher exchange ratio as well as a floor which would guarantee
holders of Robec Common Stock that they would receive shares of AmeriQuest
Common Stock worth a specific minimum amount regardless of future fluctuations
in AmeriQuest's stock price. Robec's Board of Directors also requested that
additional information be obtained from AmeriQuest regarding AmeriQuest's
publicly announced agreement to acquire Kenfil. Robec's Board of Directors also
questioned whether the transaction needed to be completed in two steps rather
than one step, but was informed by the Chairman that the two-step structure was
a material aspect of AmeriQuest's offer and that the Selling Shareholders were
agreeable to the first step. The Chairman reported that AmeriQuest desired to
consolidate Robec for accounting purposes as soon as possible. Based upon the
fact that all shareholders would ultimately receive the same consideration,
Robec's Board of Directors accepted the two-step structure provided that its
other concerns were addressed. Robec's Board of Directors was informed that
Robec had not received any other substantive acquisition or alternative
financing proposals other than the acquisition proposal submitted by
AmeriQuest. Management also informed the Board of Directors that, in its
opinion, if all alternatives were exhausted and Robec was forced to liquidate,
Robec's assets could only be sold at a deep discount to book value for an
amount not likely to be in excess of Robec's liabilities. Management also
presented to the Board of Directors projections relating to the ability of
Robec to achieve profitability in 1995 as a stand-alone entity, which assumed
adequate financing would be available.
The Chairman successfully addressed with AmeriQuest the concerns expressed by
Robec's Board of Directors, and on August 11, 1994, Robec entered into an
Agreement and Plan of Reorganization (the "Agreement") providing for the
acquisition of the Company by AmeriQuest for approximately 2.8 million shares
of AmeriQuest Common Stock in a two step transaction in which the Principal
Shareholders would exchange, upon the satisfaction of certain conditions, at
least 50.1% of the outstanding shares of Robec Common Stock, for AmeriQuest
Common Stock at the Exchange Ratio, with this exchange to be followed by a
merger in which each outstanding share of Robec Common Stock (other than shares
held by AmeriQuest or by shareholders who perfect their statutory dissenters
rights) would automatically be converted into the right to receive AmeriQuest
Common Stock at the Exchange Ratio. Accordingly, the Principal Shareholders
would receive the same consideration per share of Robec Common Stock in the
Exchange as would be received by the holders of Robec Common Stock in the
Merger.
On September 8, 1994, Robec's Board of Directors met and received the oral
opinion of Compass that the consideration to be paid upon the terms and
conditions set forth in the Agreement to Robec's shareholders is fair, from a
financial point of view, to the current shareholders of Robec. Robec's Board of
Directors discussed managements 1995 projections relating to the operation of
Robec as a stand-alone entity. Robec's Board of Directors was also informed
that at this time no lender had firmly committed to provide Robec as a stand-
alone entity with a sufficient line of credit to repay its bank line of credit
and have sufficient remaining credit for working capital. Robec's Board of
Directors challenged the value of management's projections based upon
management's failure to demonstrate that adequate financing could be arranged
to maintain Robec as a stand-alone entity. Robec's Board of Directors discussed
the terms of the Agreement and the analysis of Compass. As part of this
discussion, the Chairman pointed out that Robec's banks were insisting that
they be paid in full and that a new credit agreement be put in place in
accordance with the June 30,
24
1994 forbearance agreement. Following this discussion, the Chairman suggested
requesting AmeriQuest to clarify in the Agreement that Robec's banks would be
paid in full prior to or simultaneously with the Exchange and amending the
Agreement to insert this condition to replace the existing condition in the
Agreement providing that prior to the Exchange, AmeriQuest would arrange for
Robec's banks to be paid in full on or prior to September 30, 1994. The Board
was also informed that AmeriQuest was engaged in confidential negotiations to
acquire NCD, and that AmeriQuest was engaged in discussions with Computer 2000.
On September 20, 1994, Robec's Board of Directors received the written
opinion of Compass that the consideration to be paid to Robec's shareholders
under the Amended Agreement is fair, from a financial point of view, to the
shareholders of Robec. Also on September 20, 1994, Robec's Board of Directors
unanimously approved entering into the Amended Agreement, including the Plan of
Merger attached thereto, and borrowing up to a maximum of $20 million to be
lent by IBM Credit Corporation pursuant to a collateralized line of credit (the
"IBM Line of Credit"), subject to certain tests and other conditions (including
an AmeriQuest guarantee), to replace Robec's bank credit facility and the
proceeds of a portion of which would repay all of its outstanding borrowings
under such bank credit facility simultaneously with the closing of the
Exchange.
On September 21, 1994, Robec entered into the Amended Agreement with
AmeriQuest and the Principal Shareholders and an Inventory and Working Capital
Financing Agreement dated September 21, 1994 with IBM Credit Corporation
relating to the IBM Line of Credit.
On September 22, 1994, Robec used the proceeds of a portion of the IBM Line
of Credit to repay all of its outstanding borrowings under its existing bank
credit facility. Also on September 22, 1994, as contemplated by the Amended
Agreement, the Principal Shareholders exchanged 2,224,029 shares of Robec
Common Stock, or approximately 50.1% of the outstanding shares of Robec Common
Stock, for 1,402,805 newly issued shares of AmeriQuest Common Stock, subject to
adjustment if the closing price of AmeriQuest Common Stock on the business day
immediately prior to the Merger closing is less than $3.00 per share.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ROBEC; REASONS FOR THE MERGER
THE BOARD OF DIRECTORS OF ROBEC HAS UNANIMOUSLY APPROVED AND ADOPTED THE PLAN
OF MERGER AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF ROBEC COMMON
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE PLAN OF MERGER. In reaching its
decision, Robec's Board of Directors considered, among other things, the
following factors: (i) its knowledge of the business, operations, properties,
assets, financial condition and operating results of Robec; (ii) judgments as
to Robec's future prospects; (iii) presentations by Robec's management and by
Compass with respect to Robec and AmeriQuest; (iv) the opinion of Compass as to
the fairness from a financial point of view of the consideration to be received
by the shareholders of Robec in the Merger (See "Opinion of Robec's Financial
Advisor"); (v) the terms of the Amended Agreement and Plan of Merger which were
the product of extensive "arm's length" negotiations; (vi) the fact that no
other bidder came forward with an offer despite nearly three months between the
announced letter of intent and the Amended Agreement; (vii) the historical
trading prices for Robec Common Stock and AmeriQuest Common Stock; and (viii)
the opportunity for Robec shareholders to participate, as holders of AmeriQuest
Common Stock, in a larger, more diversified company of which Robec would become
a significant part. Robec's Board of Directors also believes that the Merger
will allow the Combined Company to enjoy an expanded customer base for
operations, greater access to capital markets and the opportunity for
managerial and administrative efficiencies and overhead expense savings as a
result of the consolidation of certain operations.
The foregoing discussion of the information and factors considered and given
weight by Robec's Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, Robec's Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
Robec's Board of Directors may have given different weights to different
factors.
25
OPINION OF ROBEC'S FINANCIAL ADVISOR
Compass Capital Advisors (previously defined as "Compass") has delivered a
written opinion to Robec's Board of Directors that, as of September 20, 1994,
the Merger was fair, from a financial point of view, to the shareholders of
Robec. No limitations were imposed by Robec's Board of Directors upon Compass
with respect to the investigations made, procedures followed or otherwise in
connection with Compass rendering its opinion.
THE FULL TEXT OF COMPASS' OPINION, DATED SEPTEMBER 20, 1994, IS ATTACHED AS
APPENDIX III TO THIS PROSPECTUS/PROXY STATEMENT. SHAREHOLDERS ARE URGED TO READ
THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN BY COMPASS. COMPASS' OPINION IS DIRECTED ONLY
TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE SHAREHOLDERS OF
ROBEC AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF ROBEC AS
TO HOW SUCH SHAREHOLDER SHOULD VOTE SUCH SHAREHOLDER'S SHARES OF ROBEC COMMON
STOCK REGARDING APPROVAL AND ADOPTION OF THE PLAN OF MERGER. THE SUMMARY OF THE
OPINION OF COMPASS SET FORTH IN THIS PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Compass (i) reviewed the Amended Agreement and
Plan of Merger, (ii) reviewed the filings of Robec and AmeriQuest with the SEC
in 1993 and 1994 to the date of its opinion, including AmeriQuest's
registration statement on Form S-4 as filed with the SEC on July 20, 1994,
(iii) reviewed Robec's 1994 budget income statement and 1995 projected
consolidated statement of operations prepared by Robec's management, (iv)
reviewed AmeriQuest's budget model, (v) reviewed AmeriQuest's internally
prepared projected financial statements for Robec and AmeriQuest operations for
1994 through 1998, (vi) reviewed press releases issued by Robec between August
1993 and August 10, 1994 and by AmeriQuest between December 1993 and August 12,
1994, (vii) reviewed price and volume information relating to trading in shares
of Robec Common Stock and AmeriQuest Common Stock from 1992 through September
16, 1994, (viii) reviewed and analyzed market trading and financial information
on comparable companies, (ix) reviewed information on reported acquisitions in
the computer industry and (x) met with the management of Robec to discuss the
business and prospects of Robec.
In connection with its review, Compass did not independently verify any of
the foregoing information and relied on all such information being complete and
accurate in all material respects. In addition, Compass did not make an
independent evaluation or appraisal of the assets of Robec, nor was it
furnished with any such appraisals.
In arriving at its opinion and delivering its opinion to Robec's Board of
Directors, Compass performed a variety of financial analyses, including those
summarized below. The summary set forth below includes summaries of all of the
material financial analyses discussed by Compass with Robec's Board of
Directors, but does not purport to be a complete description of the analyses
performed by Compass in arriving at its opinion. Arriving at a fairness opinion
is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not necessarily susceptible to partial analysis or summary description. In
performing its analyses, Compass made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Robec.
Any estimates incorporated in the analyses performed by Compass are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses and securities neither
purport to be appraisals nor necessarily reflect the prices at which businesses
or securities actually may be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty. No public company utilized
as a comparison is identical to Robec, and none of the acquisition transactions
utilized as a comparison is identical to the Merger. Accordingly, an analysis
of publicly traded comparable companies and comparable acquisition transactions
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
26
The following is a summary of the material financial analyses performed by
Compass in connection with its fairness opinion:
Market Price Analysis.
Compass reviewed pricing and volume information concerning Robec Common
Stock and AmeriQuest Common Stock from 1992 through September 16, 1994.
Compass focused particularly on the trading ranges of Robec Common Stock
and AmeriQuest Common Stock immediately before and after significant
announcements, including announcements regarding quarterly and annual
financial information. Compass reviewed the reported daily price and volume
activities of Robec Common Stock and AmeriQuest Common Stock for the period
January 4 through August 19, 1994, which was the fifth trading day
following the announcement of the signing of the definitive agreement
relating to AmeriQuest's acquisition of Robec. Compass also focused on the
periods five trading days before and five trading days after certain
announcements:
ROBEC CLOSING PRICE
-------------------------------------------------------------------------------------
DATE ANNOUNCEMENT FIVE DAYS PRIOR ON DATE FIVE DAYS AFTER
------- ------------ --------------- ------- ---------------
4/15/94 1993 Year End Results 1 3/8 1 1/2 3/4
5/16/94 First Quarter Results 5/8 3/4 1
6/30/94 Letter of Intent with AmeriQuest 3/4 1 1/16 1 7/8
8/12/94 Definitive Agreement with AmeriQuest 1 1/2 1 13/16 1 15/16
AMERIQUEST CLOSING PRICE
-------------------------------------------------------------------------------------
DATE ANNOUNCEMENT FIVE DAYS PRIOR ON DATE FIVE DAYS AFTER
------- ------------ --------------- ------- ---------------
6/7/94 Acquisition of 51% in Kenfil 3 1/2 3 7/8 3 1/2
6/30/94 Letter of Intent with Robec 3 1/8 3 3/8 3 5/8
8/12/94 Definitive Agreement with Robec 4 3 7/8 3 3/4
Compass concluded that $7/8 (not shown on the above chart), the closing
price on the day prior to the announcement of the letter of intent, was a
representative price for Robec Common Stock that reflected the market's
valuation of Robec's independent financial results. Compass calculated
various multiples using a stock price of $7/8 per share and concluded that,
at $7/8 per share, the price of Robec Common Stock reasonably reflected the
value of Robec Common Stock before the announcement of the proposed
transaction with AmeriQuest. Compass calculated "Total Capital" (defined as
stock price times primary shares outstanding plus interest-bearing debt) to
latest twelve-month revenue (TC/REV), Total Capital to latest twelve month
"EBIT" (defined as earnings before interest expense and taxes) (TC/EBIT),
Total Capital to latest reported interest-bearing debt plus book equity
(TC/(DEBT+EQUITY)), Total Capital to projected 1994 revenue (TC/94REV) and
Total Capital to projected 1995 EBIT (TC/95EBIT), using the $7/8 price per
share of Robec Common Stock at June 29, 1994 and interest-bearing debt as
reported in Robec's quarterly report on Form 10-Q for the quarter ended
June 30, 1994. The calculated values for Robec were:
TC/REV = 0.1x,
TC/EBIT = NEGATIVE,
TC/(DEBT+EQUITY) = 0.7x,
TC/94REV = 0.1x,
TC/94EBIT = NEGATIVE, and
TC/95EBIT = 9.0x.
Compass also concluded that $3 1/4, the closing price on the day prior to
the announcement of the letter of intent, was a representative price for
AmeriQuest Common Stock that reflected the market's valuation of
AmeriQuest's independent financial results (including pro forma results for
the previously announced Kenfil acquisition). Compass calculated various
multiples using a stock price of $3 1/4 per share and concluded that, at $3
1/4 per share, the price of AmeriQuest's Common Stock reasonably reflected
the value of AmeriQuest Common Stock before the announcement of the
proposed transaction
27
with Robec. Compass calculated Total Capital to latest twelve month revenue
(TC/REV), Total Capital to latest twelve month EBIT (TC/EBIT), Total
Capital to latest reported interest-bearing debt plus book equity
(TC/(DEBT+EQUITY)), Total Capital to projected 1994 revenue (TC/94REV),
Total Capital to projected 1994 EBIT (TC/94EBIT) and Total Capital to
projected 1995 EBIT (TC/95EBIT), using the $3 1/4 price per share of
AmeriQuest Common Stock at June 29, 1994 and interest-bearing debt as
reported in AmeriQuest's quarterly report on Form 10-Q for the quarter
ended March 31, 1994. The calculated values for AmeriQuest were:
TC/REV = 0.3x,
TC/EBIT = NEGATIVE,
TC/(DEBT+EQUITY) = 1.3x,
TC/94REV = 0.4x,
TC/94EBIT = 19.9x, and
TC/95EBIT = 11.0x.
Compass also analyzed AmeriQuest's Common Stock price at August 15, 1994,
after AmeriQuest's announcement of the signing of the definitive
acquisition agreement with Robec, and calculated the same multiples based
on the post-signing price of $3 3/4 per share. Such analysis was performed
on a pro forma basis to include Robec's operating results for the twelve
months ended June 30, 1994, though AmeriQuest will account for the
acquisition using the purchase method of accounting, and balance sheet as
of June 30, 1994, and to calculate total capitalization based on the shares
of Robec's Common Stock that would be outstanding immediately following the
acquisition. The calculated values were:
TC/REV = 0.3x,
TC/EBIT = NEGATIVE,
TC/(DEBT+EQUITY) = 1.3x,
TC/94REV = 0.3x,
TC/94EBIT = 44.9x, and
TC/95EBIT = 12.4x.
Compass compared these multiples to those it calculated for comparable
public companies (See Comparable Companies Analysis, below) and concluded
that, with the exception of the TC/94EBIT multiple of 44.9x calculated for
a combined AmeriQuest and Robec, all such multiples were within the range
of multiples calculated for the comparable companies. Inasmuch as the
TC/EBIT multiple had been negative both for Robec and AmeriQuest prior to
the announcements as well as for one of the comparable companies, Compass
did not consider the TC/94EBIT to be a significant valuation measure.
Based on the foregoing, Compass concluded that the market was efficient
in evaluating the business and prospects of Robec and AmeriQuest.
Comparable Companies Analysis.
Compass reviewed financial and market price information for the latest
twelve-month periods with respect to five public companies that it deemed
comparable to Robec and AmeriQuest. The public companies selected were
Gates/F.A. Distributing Inc., IRG Technologies, Inc., Merisel Inc.,
Southern Electronics Corp., and Tech Data Corp.
Each of these companies is exclusively engaged as a distributor of
computer equipment, peripherals and accessories. No significant publicly-
traded competitor of either Robec or AmeriQuest was excluded and no
publicly traded company that was exclusively a computer distributor was
excluded.
Compass derived multiples of Total Capital at August 8, 1994 to the
latest reported (i) revenue, (ii) EBIT and (iii) debt plus book equity for
such comparables. The range of such multiples was 0.1x to 0.5x for TC/REV;
NEGATIVE to 14.4x for TC/EBIT; and 0.8x to 2.0x for TC/(DEBT+EQUITY).
As with the Market Price Analysis above, the range of multiples for Robec
and AmeriQuest were within the range of similar multiples calculated for
the public company comparables.
28
Comparable Acquisitions Analysis.
Compass analyzed the market information available with respect to recent
reported acquisitions in the computer industry, which analysis was limited
by the scarcity of financial information available because nearly all the
transactions were private transactions, and the lack of comparability of
the companies (with one exception noted below), since none of the acquired
companies, except Kenfil, was engaged purely in distribution related to
computer products. The only information that Compass could find for
publicly announced acquisitions of companies in the computer industry
(other than for Kenfil) was the transaction price, the seller's net
earnings, the seller's revenues and, in some cases, the seller's net worth.
No detail of operating income was available, nor was there any historical
information to show historical growth rates or lack thereof. Furthermore,
no information was available with respect to the amount of debt assumed in
the price paid. All of such information would be required to arrive at a
reasonable conclusion as to the applicability of the calculated multiples
to Robec. However, the range of multiples of price/revenues (which is not
directly comparable because debt is not included in the numerator) and
price/book value (which is not directly comparable because debt is not
included in the denominator) for such acquisitions included the multiples
derived in Compass' analysis of Robec and of the comparable public
companies, as discussed above. The acquisitions analyzed by Compass were
AmeriQuest's June, 1994 announcement of the acquisition of Kenfil, Inc.;
LEGENT Corp.'s 1992 acquisition of GOAL Systems International Inc.; the
acquisition of WICAT Systems Inc. by Jostens Inc. in 1992; Storage
Technology Corp's acquisition of XL/Data Comp. Inc. in 1991; Cadence Design
Systems Inc.'s acquisition of Valid Logic Systems Inc. in 1991; Borland
International Inc.'s acquisition of Ashton-Tate Corp. in 1991; and Computer
Associates International's acquisition of Pansophic Systems Inc. in 1991.
The range of multiples were P/REV = 0.1x to 1.9x; P/E = NEGATIVE to 47.4x;
and P/BK = 0.6x to 5.3x. The range of multiples for AmeriQuest's announced
acquisition of Kenfil was P/E = NEGATIVE; P/REV = 0.1x; and P/BK = 0.6x.
Compass did not calculate values for Robec using these multiples, but
merely compared these multiples to the multiples it calculated in its
comparable companies analysis. It did not give any weight to this analysis
in reaching its conclusion.
Share Price Analysis.
Based on the agreed-upon exchange ratio of .63075 shares of AmeriQuest
Common Stock for each share of Robec Common Stock, Compass analyzed the
value to Robec shareholders of the transaction based upon Robec and
AmeriQuest share prices before and after the letter of intent announcement
and before and after the announcement of the definitive agreement and also
at September 2, 1994. Such analysis is set forth below and indicates that
at each of such dates, the transaction represents a premium to the trading
value of Robec Common Stock.
AMERIQUEST VALUE TO ROBEC WITH
SHARE VALUE TO ROBEC AMERIQUEST AT $3.00
DATE ROBEC SHARE PRICE PRICE EXCHANGE RATIO PER SHARE PER SHARE
---- ----------------- ---------- -------------- -------------- -------------------
6/23/94 $0.750 $3.125 0.63075 $1.971 $1.892
6/29/94 $0.875 $3.250 0.63075 $2.050 $1.892
7/8/94 $1.875 $3.625 0.63075 $2.286 $1.892
8/5/94 $1.500 $4.000 0.63075 $2.523 $1.892
8/11/94 $1.688 $3.625 0.63075 $2.286 $1.892
8/19/94 $1.938 $3.750 0.63075 $2.365 $1.892
9/2/94 $1.875 $3.500 0.63075 $2.208 $1.892
Compass also prepared an analysis which is included in the above table
assuming an exchange ratio of $3.00 per share, in accordance with the
provision in the Amended Agreement which provides for additional shares to
be issued to Robec shareholders if the price of AmeriQuest Common Stock on
the business day prior to the Effective Date is less than $3.00 per share.
Compass noted that, based upon Robec's stock price of $ 7/8 prior to the
announcement of the letter of intent, Robec shareholders were receiving
premiums based on AmeriQuest's stock price at September 2, 1994 ($3 1/2) of
152.4% at the exchange ratio and 116.0% at the $3.00 price. When calculated
at Robec's share price before the
29
announcement of the definitive agreement ($1 11/16), those premiums were
30.8% and 12.0%, respectively. Furthermore, Compass noted that, while the
premium had narrowed at September 2, 1994, when Robec stock traded at $1
7/8, it was still at 17.8% at AmeriQuest's actual price ($3 1/2) and 0.8%
at the $3.00 price.
Contribution Analysis.
Compass analyzed Robec's percentage contribution to 1994 projected EBIT,
1995 projected EBIT, 1994 projected revenues based upon pro forma projected
combined financial results of AmeriQuest, Robec and Kenfil, and also
analyzed Robec's contribution to shareholders' equity. Compass noted that,
following the Merger, the Robec shareholders would hold 14.8% of AmeriQuest
Common Stock. Their contribution to 1994 projected EBIT would be negative,
to 1995 projected EBIT would be 18.6%, to 1994 projected revenue would be
41.2%, and to shareholders' equity would be 26.7%. Compass noted that the
market did not value Robec's prospective earnings, revenues or equity at
the same multiples as it did for AmeriQuest, and noted that if such
respective contributions were weighted in accordance with the multiples
accorded by the market to Robec and AmeriQuest, respectively, Robec's
contribution would be 6.9% of the total. Accordingly, Compass concluded
that, when taking the market's valuation of such parameters into
consideration, the proposed exchange ratio gives Robec's shareholders a
participation in AmeriQuest's equity (14.8%) that represents a 114% premium
over their contribution to pro forma combined results (6.9%).
Conclusion.
On the basis of the Market Price Analysis and the Comparable Companies
Analysis, Compass concluded that the market for both Robec and AmeriQuest
stock was efficient. Compass was unable to arrive at any conclusion based
on its Comparable Acquisitions Analysis. Compass considered the Share Price
Analysis and the Contribution Analysis to be equally important in reaching
its conclusion.
Based upon its analyses and assumptions, Compass concluded that as of
September 20, 1994, the Merger was fair, from a financial point of view, to
Robec's shareholders.
Compass, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with
mergers and acquisitions, employee benefit plans and valuations for
corporate, estate and other purposes. Compass is not affiliated with either
Robec or AmeriQuest, and prior to being retained by Robec to render the
foregoing opinion, had never been employed by Robec or AmeriQuest.
Robec has agreed to pay Compass a fee of $30,000. Robec has also agreed
to reimburse Compass for its reasonable out-of-pocket expenses up to
$1,000, including all reasonable fees and disbursements of counsel, and to
indemnify Compass and certain related persons against certain liabilities
relating to or arising out of its engagement, including certain liabilities
under the federal securities laws. The fee is payable to Compass without
regard to the opinion rendered by Compass and whether or not the Merger is
consummated.
DISSENTERS APPRAISAL RIGHTS
For purposes of this discussion of appraisal rights, the term "Company" means
Robec and, after the Effective Date, the Surviving Corporation.
Pursuant to the Plan of Merger and the BCL, holders of Robec Common Stock
will have dissenters rights in connection with the Merger under BCL Subchapter
15D ("Subchapter 15D"), a copy of which is attached as Appendix IV to this
Prospectus/Proxy Statement, and may object to the Plan of Merger and demand in
writing that the Company pay them the fair value of their Robec Common Stock.
Failure by any dissenting shareholder to comply with any procedure required
by Subchapter 15D may cause a termination of such shareholder's dissenters
rights. The Company will not give any notice of the following requirements
other than as described in this Prospectus/Proxy Statement and as required by
the BCL. The right to exercise dissenter's rights under Subchapter 15D is the
sole remedy of a holder of Robec Common Stock with respect to the Merger,
absent a showing of fraud or fundamental unfairness in connection with the
Merger.
30
A holder of record of Robec Common Stock may assert dissenters rights as to
fewer than all of the shares of Robec Common Stock registered in such holder's
name only if the holder dissents with respect to all of the Robec Common Stock
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder has
dissented and the other shares were registered in the names of different
holders. A beneficial owner of shares of Robec Common Stock who is not also the
record holder of such shares may assert dissenters rights with respect to
shares held on such owner's behalf and shall be treated as a dissenting
shareholder under the terms of Subchapter 15D if the beneficial owner submits
to the Company, not later than the time of filing the Notice of Intention to
Dissent (as defined below), a written consent of the record holder. Such
beneficial owner may not dissent with respect to less than all shares of Robec
Common Stock beneficially owned by such beneficial owner.
Holders of Robec Common Stock (or beneficial owners thereof as provided
above) who follow the procedures of Subchapter 15D as outlined below will be
entitled to receive from the Company the fair value of their shares of Robec
Common Stock immediately before the Effective Date, taking into account all
relevant factors but excluding any appreciation or depreciation in anticipation
of the effectuation of the Plan of Merger. Holders of Robec Common Stock (or
beneficial owners thereof) who elect to exercise their dissenters rights must
comply with all of the following procedures to preserve those rights.
Holders of Robec Common Stock (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand
the fair value of their shares of Robec Common Stock if the Merger is
effectuated (the "Notice of Intention to Dissent"). Such dissenters must file
the Notice of Intention to Dissent with the Secretary of the Company prior to
the vote by Robec shareholders on the Plan of Merger; they must make no change
in their beneficial ownership of Robec Common Stock from the date of filing
until the Effective Date; and they must refrain from voting their Robec Common
Stock for the approval and adoption of the Plan of Merger. The Notice of
Intention to Dissent must be in addition to and separate from any proxy or vote
against the Plan of Merger.
If the Plan of Merger is approved and adopted by the required vote at the
Special Meeting, the Company will mail a notice (the "Notice of Approval") to
all dissenters who filed a Notice of Intention to Dissent prior to the vote on
the Plan of Merger and who refrained from voting for the approval and adoption
of the Plan of Merger. The Company expects to mail the Notice of Approval
promptly after effectuation of the Merger. The Notice of Approval will state
where and when (the "Demand Deadline") a demand for payment must be sent and
certificates for shares of Robec Common Stock must be deposited in order to
obtain payment; it will supply a form for demanding payment (the "Demand Form")
which includes a request for certification of the date on which the holder, or
the person on whose behalf the holder dissents, acquired beneficial ownership
of the shares of Robec Common Stock; and it will be accompanied by a copy of
Subchapter 15D. Dissenters must ensure that the Demand Form and their
certificates for shares of Robec Common Stock are received by the Company on or
before the Demand Deadline. All mailings to the Company are at the risk of the
dissenter. However, the Company recommends that the Notice of Intention to
Dissent, the Demand Form and the holder's share certificates be sent by
certified mail.
Any holder (or beneficial owner) of Robec Common Stock who fails to file a
Notice of Intention to Dissent, fails to complete and return the Demand Form,
or fails to deposit share certificates with the Company, each within the time
periods provided above, will lose the holder's (or beneficial owner's)
dissenters rights under Subchapter 15D. A dissenter will retain all rights of a
shareholder, or beneficial owner, as the case may be, until those rights are
modified by effectuation of the Plan of Merger.
Upon timely receipt of the completed Demand Form, the Company is required by
the BCL either to remit to dissenters who have returned the Notice of Intention
to Dissent and the completed Demand Form and have deposited their certificates,
the amount the Company estimates to be the fair value for their shares or to
give written notice that no such remittance will be made. The Company does not
intend to make
31
payment of any part of the amounts payable to dissenters until the fair value
of the Robec Common Stock affected by the Merger has been finally determined.
The remittance or notice will be accompanied by:
(1) the closing balance sheet and statement of income of the Company for
the fiscal year ended December 31, 1994, together with the latest available
interim financial statements;
(2) a statement of the Company's estimate of the fair value of the Robec
Common Stock (the "Company's Estimate"); and
(3) a notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.
If the Company does not remit the amount of its estimate of fair value of the
Robec Common Stock, it will return any certificates that have been deposited,
and may make a notation on any such certificates that a demand for payment in
accordance with Subchapter 15D has been made. If shares carrying such notation
are thereafter transferred, each new certificate issued therefor may bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares will not acquire by such
transfer any rights in the Company other than those which the original
dissenter had after making demand for payment of their fair value.
After the Company gives notice of the Company's Estimate, without remitting
that amount, and if the dissenter believes that the Company's Estimate is less
than the fair value of the shares, the dissenter may send to the Company the
dissenter's own estimate (the "Holder's Estimate") of the fair value of the
shares as contemplated by BCL (S) 1578, which will be deemed a demand for
payment of the amount of the Holder's Estimate. If a dissenter does not file a
Holder's Estimate within 30 days after the mailing by the Company of its
remittance or notice, the dissenter will be entitled to more than the Company's
Estimate.
If, within 60 days after the Effective Date or after the timely receipt by
the Company of any Holder's Estimate, whichever is later, any demands for
payment remain unsettled, the Company may file in the Court of Common Pleas of
Montgomery County, Pennsylvania an application for relief requesting that the
fair value of the Robec Common Stock be determined by the court. There is no
assurance that the Company will file such an application. All dissenters,
wherever residing, whose demands have not been settled will be made parties to
any such appraisal proceeding. The court may appoint an appraiser to receive
evidence and recommend a decision on the issue of fair value. Each dissenter
who is made a party will be entitled to recover the amount by which the fair
value of the dissenter's Robec Common Stock is found to exceed the amount, if
any, previously remitted, plus interest. Interest shall be payable from the
Effective Date until the date of payment at such rate as is fair and equitable
under all the circumstances, taking into account all relevant factors,
including the average rate currently paid by the Company on its principal line
of credit. If the Company fails to file an application for relief, any
dissenter who has made a demand and who has not already settled the dissenter's
claim against the Company may do so in the name of the Company at any time
within 30 days after the expiration of the 60-day period. If a dissenter does
not file an application within the 30-day period, each dissenter entitled to
file an application shall be paid the Company's Estimate and no more, and may
bring an action to recover any amount thereof not previously remitted.
The costs and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against the Company, except that any part
of the costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment the court finds to be dilatory or in
bad faith. Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the Company, and
in favor of any or all dissenters, if the Company fails to comply substantially
with the requirements of Subchapter 15D. Such fees and expenses may be assessed
against either the Company or a dissenter, if the court finds that the party
against whom the fees and expenses are assessed acted in bad faith or in a
dilatory manner. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated
and should not be assessed against the Company, it may award such counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who
were benefitted.
32
Under the BCL, a shareholder of the Company has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Merger,
nor any right to valuation and payment of the fair value of the holder's shares
because of the Merger, except to the extent provided by the dissenters rights
provisions of Subchapter 15D. The BCL also provides that absent fraud or
fundamental unfairness, the rights and remedies provided by Subchapter 15D are
exclusive.
The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix IV to this Prospectus/Proxy
Statement, and is qualified in its entirety by the provisions of Subchapter
15D.
CERTAIN ANTITRUST MATTERS
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Company and AmeriQuest each filed
a Notification and Report Form for review under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the U.S. Department
of Justice (the "Antitrust Division"). The parties requested and were granted
early termination of the waiting period under the HSR Act with respect to such
filing on August 26, 1994. Even though the HSR Act waiting period has expired,
either the FTC or the Antitrust Division could take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking divestiture of substantial assets of Robec or AmeriQuest.
AmeriQuest does not believe that consummation of the Merger will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Merger on antitrust grounds will not be made or, if
such a challenge is made, of the result.
INTEREST OF CERTAIN PERSONS IN THE MERGER
AmeriQuest has appointed Robert H. Beckett, who is currently the Chairman,
Chief Executive Officer and President of Robec and a Principal Shareholder, to
the Board of Directors of AmeriQuest and has agreed to nominate him for re-
election at each of the next two annual meetings of AmeriQuest stockholders. In
addition, Robert H. Beckett, Robert S. Beckett and Alexander C. Kramer, Jr.
will continue to serve as officers of the Surviving Corporation and Robert H.
Beckett and Robert S. Beckett will continue to serve as directors of the
Surviving Corporation.
AmeriQuest has entered into agreements with Robert H. Beckett, Robert S.
Beckett and Alexander C. Kramer, Jr. that provide for their employment by the
Company for a two-year period following the Exchange at a base salary of not
less than $196,000, $150,000 and $150,000 per year, respectively.
The Amended Agreement also provides for certain indemnification rights for
the Principal Shareholders and the officers and directors of Robec. See "The
Amended Agreement--Indemnification; Insurance." In addition, the Principal
Shareholders have been granted certain registration rights by AmeriQuest. See
"Information Regarding the Merger--The Amended Agreement--Registration Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
FEDERAL TAX MATTERS
The following summary is a general discussion of the material Federal income
tax consequences to Robec's shareholders receiving AmeriQuest Common Stock in
the Merger and to Robec and AmeriQuest. This summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), administrative pronouncements,
judicial decisions and existing Treasury Regulations as of the date hereof, all
of which are subject to change, possibly with retroactive effect. Any such
change could affect the continuing validity of this summary. Arthur Andersen
LLP has rendered an opinion with respect to the material tax consequences (see
Exhibit 8.01 for complete opinion). Arthur Andersen's opinion is based upon its
best judgment on the application of current law to the facts of the Merger and
is not binding on the courts.
33
The following discussion does not consider the tax consequences of the Merger
under state, local or foreign tax law. The discussion also does not discuss all
aspects of income taxation that may be relevant to a particular Robec
shareholder or to certain types of shareholders such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, investment
companies and other special status taxpayers.
EACH ROBEC SHAREHOLDER IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER.
TAX CONSEQUENCES TO ROBEC SHAREHOLDERS
REORGANIZATION. In the opinion of Arthur Andersen LLP the Exchange and the
Merger qualify as a tax-free reorganization under Section 368 of the Code,
which requires in general that the consideration issued by AmeriQuest to the
holders of Robec Common Stock be stock of AmeriQuest. The AmeriQuest Common
Stock initially issued in the Exchange and the Merger will qualify as stock.
Notwithstanding the lack of compliance with all of the Service's advance ruling
guidelines, Arthur Andersen LLP has concluded that there is substantial
authority for the treatment of the Exchange and Merger as a tax-free
reorganization, and Arthur Andersen LLP also believes this treatment is more
likely than not proper. If the Exchange and Merger qualify as a tax-free
reorganization, no gain or loss will be recognized by a Robec shareholder who
receives AmeriQuest Common Stock in the Merger.
BASIS. Shareholders of Robec will take a basis in their new AmeriQuest shares
equal to the basis in their Robec Shares.
RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES. The receipt of cash in lieu of
any fractional shares of Robec Common Stock pursuant to the Merger will not
affect the question whether the Merger qualifies as a tax-free reorganization.
However, the receipt of such cash will be treated as a taxable redemption in
which the recipient shareholder will recognize gain or loss equal to the
difference between the amount of cash received and the shareholder's basis in
such fractional share.
TAX CONSEQUENCES TO ROBEC AND AMERIQUEST
No gain or loss will be recognized by either Robec or AmeriQuest in the
Merger. Robec will retain its historic basis and holding period in its assets
after the Merger. The basis of AmeriQuest in its stock of Surviving Corporation
immediately after the Merger will be equal to the basis of all Robec
shareholders, including AmeriQuest, in their shares of Robec Common Stock
immediately prior to the Effective Date. In addition, the tax attributes, if
any, of Robec will carry over. If it has not occurred prior to the Merger, the
Merger itself will likely cause a "change of ownership" to both Robec and
AmeriQuest (as defined by Section 382). Because of this, the future utilization
of certain tax attributes, if any, that were generated before the change of
ownership, including net operating loss carryovers, may be restricted.
INFORMATION REPORTING
Treasury Regulations require that every taxpayer who receives stock in
connection with a corporate reorganization must file with his or her income tax
return a statement of facts pertinent to the nonrecognition of gain or loss
upon the transaction, including (i) a statement of the basis of the stock
transferred in the transaction and (ii) a statement of the fair market value of
the stock received in the transaction. In addition, taxpayers are required to
maintain permanent records with respect to the foregoing information. Robec
shareholders will be required to comply with these requirements.
34
BACKUP WITHHOLDING
Under the backup withholding rules of the Code, a Robec shareholder may be
subject to backup withholding with respect to payments of cash in lieu of
fractional shares. To prevent such backup withholding, a Robec shareholder
must, unless an exception applies under the applicable law and regulations,
provide the payor of such cash with such shareholder's correct taxpayer
identification number ("TIN") on a Substitute Form W-9 and certify under
penalties of perjury that such number is correct and that such shareholder is
not subject to backup withholding. A Substitute Form W-9 will be provided to
each Robec shareholder in a letter of transmittal to be mailed to each
shareholder by AmeriQuest. If the correct TIN and certifications are not
provided, a $50 penalty may be imposed on the shareholder by the Service and
payments of cash to such shareholder may be subject to backup withholding at a
rate of 31%.
ACCOUNTING TREATMENT
The Merger will be accounted for by AmeriQuest as a reorganization of
unaffiliated companies and recorded as a purchase by AmeriQuest for accounting
and financial reporting purposes.
THE PLAN OF MERGER
The following description of the Plan of Merger does not purport to be
complete and is qualified in its entirety by reference to the Plan of Merger, a
copy of which is attached as Appendix I hereto and incorporated herein by prior
reference. Robec shareholders are urged to read the Plan of Merger carefully
and in its entirety.
THE MERGER. The Plan of Merger provides that AmeriQuest Sub will be merged
with and into Robec in accordance with Pennsylvania law, whereupon the separate
existence of AmeriQuest Sub will cease and Robec will survive the Merger as the
Surviving Corporation. On the Effective Date, the conversion of Robec Common
Stock and the conversion of shares of the common stock of AmeriQuest Sub
pursuant to the Plan of Merger will be effected as described below.
EFFECTIVE DATE. Following the adoption of the Plan of Merger and subject to
the satisfaction or waiver of all other conditions to closing contained in the
Amended Agreement discussed below under "The Amended Agreement--Conditions to
Consummation of the Merger," the Merger will become effective on the Effective
Date. The Articles of Merger will be filed as soon as practicable after all
conditions contemplated by the Amended Agreement have been satisfied or waived.
TERMS OF THE MERGER. At the Effective Date:
(i) except for shares of Robec Common Stock owned by AmeriQuest on the
Effective Date which shall be cancelled in the Merger, each share of Robec
Common Stock then issued and outstanding, other than shares owned by Robec
shareholders who perfect their statutory dissenters rights, shall be
converted into .63075 shares of AmeriQuest Common Stock; provided, however,
that in the event the closing price of AmeriQuest Common Stock on the New
York Stock Exchange on the business day prior to the Effective Date as
reported in the Wall Street Journal is less than $3.00 per share, each such
share of Robec Common Stock shall be converted into the number of shares of
AmeriQuest Common Stock equal to the product of (i) .63075 multiplied by
(ii) a quotient, the numerator of which is $3.00 and the denominator of
which is the Closing Date Market Price; and
(ii) each issued and outstanding share of the capital stock of AmeriQuest
Sub shall be converted into one share of common stock, par value $.01 per
share, of the Surviving Corporation.
Robec shareholders will not be issued fractional shares in connection with
the Merger. Instead, each Robec shareholder who would otherwise have been
entitled to a fraction of a share of AmeriQuest Common Stock will receive, at
such time as the holder receives stock certificates representing shares of
AmeriQuest
35
Common Stock, an amount of cash equal to the per share market value of the
AmeriQuest Common Stock (based on the closing price of AmeriQuest Common Stock
on the Effective Date) multiplied by the fraction of a share of AmeriQuest
Common Stock to which such holder would otherwise be entitled. On and after the
Effective Date, the holder of a certificate representing Robec Common Stock
shall cease to have any rights as a shareholder of Robec, except for the right
to surrender his or her certificate in exchange for payment of the
consideration to be received by such holder of Robec Common Stock in the Merger
(the "Merger Consideration").
PAYMENT OF MERGER CONSIDERATION. AmeriQuest will deposit the Merger
Consideration with the Exchange Agent. After the Effective Date, each Robec
shareholder will be entitled to receive, upon surrender to the Exchange Agent
of one or more certificates representing Robec Common Stock, certificates
representing the number of shares of AmeriQuest Common Stock into which such
shares were converted in the Merger and cash in consideration of fractional
shares, as described above. AmeriQuest Common Stock into which Robec Common
Stock will be converted in the Merger shall be deemed to have been issued on
the Effective Date.
In the event that any certificates representing shares of AmeriQuest Common
Stock are to be delivered to or issued in a name other than that in which the
certificates representing shares of Robec Common Stock surrendered in exchange
therefor are registered, there shall be as conditions of such exchange that the
person requesting such exchange pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
AmeriQuest Common Stock in a name other than that of the registered holder of
the certificate surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable, that the
certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise be in proper form for transfer and that
such transfer otherwise be proper.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF ROBEC COMMON STOCK FOR
CERTIFICATES REPRESENTING SHARES OF AMERIQUEST COMMON STOCK WILL BE MAILED TO
ROBEC SHAREHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE DATE. ROBEC SHAREHOLDERS
SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO ROBEC OR TO THE
EXCHANGE AGENT PRIOR TO RECEIPT OF SUCH INSTRUCTIONS AND THE TRANSMITTAL
LETTER.
SURVIVING PROVISIONS. The Articles of Incorporation and By-laws of AmeriQuest
Sub will be the Articles of Incorporation and By-laws of the Surviving
Corporation, except that the name of the Surviving Corporation shall be
"AmeriQuest/Robec, Inc." The initial directors and officers of the Surviving
Corporation shall be as follows:
Harold L. Clark Director, Chairman of the Board
Robert H. Beckett Director, President and Chief Executive Officer
Robert S. Beckett Director, Vice President and Chief Operating
Officer
Stephen G. Holmes Director, Executive Vice President,
Secretary/Treasurer and Chief Financial Officer
Alexander C. Kramer, Jr. Vice President--Operations
DISSENTING SHARES. The Plan of Merger provides that shares of Robec Common
Stock that are outstanding immediately prior to the Effective Date and that are
held by shareholders, if any, who are entitled to assert a right to dissent
from the Merger and who demand and validly perfect their rights to receive the
"fair value" of their shares with respect to the Merger under Section 1574 of
the BCL (the "Dissenting Shares") shall be entitled solely to the payment of
the "fair value" of such shares in accordance with the provisions of the BCL;
except that (i) if such demand to receive "fair value" shall be withdrawn upon
the
36
consent of the Surviving Corporation, (ii) if the Plan of Merger shall be
terminated, or the Merger shall not be consummated, (iii) if no demand or
petition for the determination of "fair value" by a court shall have been made
or filed within the time provided in the provisions of the BCL or (iv) if a
court of competent jurisdiction shall determine that such holder of Dissenting
Shares is not entitled to the relief provided by the provisions of the BCL,
then the right of such holder of Dissenting Shares to be paid the "fair value"
of his or her shares of Robec Common Stock shall cease and with respect to
clauses (i), (iii) and (iv) above, such Dissenting Shares shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Date, the right to receive the Merger Consideration with respect
thereto, without any interest thereon, and with respect to clause (ii) above,
the status of such shareholder shall be restored retroactively without
prejudice to any corporate proceeding which may have been taken during the
interim. See "Dissenters Appraisal Rights" and a copy of the text of Subchapter
15D of the BCL attached as Annex III to this Prospectus/Proxy Statement.
THE AMENDED AGREEMENT
THE EXCHANGE. The Amended Agreement provides for the acquisition of Robec by
AmeriQuest in a two-stage transaction: a share exchange between AmeriQuest and
the Principal Shareholders to be followed at a later date by the Merger. In
each stage, the holders of Robec Common Stock receive the same per share
consideration. Pursuant to the Amended Agreement, the first stage Exchange
occurred on September 22, 1994. AmeriQuest has agreed with respect to the
shares of Robec Common Stock obtained in the Exchange that prior to the
Effective Date it will (i) not sell, pledge, assign or otherwise dispose of, or
enter into any contract, option or other arrangement with respect to the sale,
transfer, pledge, assignment or other disposition of, any shares of Robec
Common Stock acquired in the Exchange except to a wholly-owned subsidiary of
AmeriQuest and (ii) vote all shares of Robec Common Stock owned by it on the
Record Date at any annual or special meeting of the shareholders of Robec (a)
in favor of the Plan of Merger, (b) against any action or agreement which would
result in a breach of a representation, warranty or covenant of Robec in this
Agreement or which would otherwise impede, interfere with or attempt to
discourage the Merger and (c) against the nomination or election of any
director other than the current directors of Robec or any successor nominated
by them. As a result of the Exchange, AmeriQuest now owns 50.1% of the
outstanding shares of Robec Common Stock.
ROBEC STOCK OPTIONS. The Amended Agreement provides that on the Effective
Date, AmeriQuest will offer to exchange for each of the then-outstanding
options to purchase Robec Common Stock (collectively, the "Robec Options"),
including, without limitation, all outstanding options granted under Robec's
1989 Stock Option Plan, as amended (the "Robec Plan"), as well as any then
outstanding Robec Options not granted under the Robec Plan, an option to
purchase that number of shares of AmeriQuest Common Stock (collectively, the
"AmeriQuest Options") determined by multiplying the number of shares of Robec
Common Stock subject to such Robec Option on the Effective Date by the Exchange
Ratio, at an exercise price per share of AmeriQuest Common Stock equal to the
exercise price per share of such Robec Option divided by the Exchange Ratio.
AmeriQuest will cause the AmeriQuest Common Stock issuable upon exercise of the
AmeriQuest Options to be registered within 20 days after the Effective Date and
will use its best efforts to maintain the effectiveness of such registration
statement or registration statements for so long as any such AmeriQuest Options
shall remain outstanding, and AmeriQuest will reserve a sufficient number of
shares of AmeriQuest Common Stock for issuance upon exercise of the AmeriQuest
Options.
REPRESENTATIONS AND WARRANTIES; CONDUCT OF BUSINESS PENDING THE MERGER. The
Amended Agreement contains various representations and warranties of AmeriQuest
and Robec relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due incorporation, power and standing of, and similar
corporate matters with respect to, each of Robec and AmeriQuest; (ii) the
absence of any conflict with each of Robec's and AmeriQuest's articles and
certificate of incorporation and bylaws, respectively, and compliance with
applicable laws; (iii) each of Robec's and AmeriQuest's capitalization; (iv)
the authorization, execution, delivery, performance and
37
enforceability of the Amended Agreement by each such party and of the
transactions contemplated thereby; (v) reports and other documents filed with
the SEC and other regulatory authorities and the accuracy of the information
contained therein; (vi) the absence of certain litigation or other proceedings;
(vii) the absence of any governmental or regulatory authorization, consent or
approval required to consummate the Merger; (viii) the absence of any material
default under agreements; (ix) the absence of any tax delinquencies; (x) the
compliance of financial statements with applicable accounting requirements and
their preparation in accordance with generally accepted accounting principles
applied on a consistent basis, fairly presenting the consolidated financial
position of such companies and each of their consolidated subsidiaries and the
consolidated results of their operations and cash flows for the applicable
periods; and (xi) the absence of undisclosed liabilities. The representations
and warranties of AmeriQuest shall be true as of the Effective Date and shall
survive the Effective Date. The representations and warranties of Robec did not
survive the closing of the Exchange and are therefore of no further force or
effect. In addition, pursuant to the Amended Agreement, AmeriQuest has agreed
to carry on its business, prior to the Effective Date, in the usual and
ordinary course, and has agreed that certain material transactions prior to the
Effective Date require the written consent of Robec.
CONDITIONS TO CONSUMMATION OF THE MERGER. The obligations of AmeriQuest and
Robec to consummate the Merger are subject to the satisfaction of two
conditions: (i) the approval and adoption of the Plan of Merger by the
shareholders of Robec and (ii) that no preliminary or permanent injunction or
other order shall have been issued by any federal or state court which remains
pending and prevents the consummation of the Merger. In addition, the
obligation of Robec to consummate the Merger is subject to the satisfaction of
certain other conditions, including: (i) the Registration Statement of which
this Prospectus/Proxy Statement is a part shall have been declared effective by
the SEC and not be the subject of any stop order or any other proceeding by the
SEC which would bring into question the accuracy and adequacy of the
disclosures contained herein; (ii) the AmeriQuest Common Stock to be issued in
connection with the Merger shall have been approved for listing on the NYSE
subject to official notice of issuance; and (iii) the representations and
warranties of AmeriQuest contained in the Amended Agreement shall be true on
and as of the Effective Date, as if made on that date, except for any variation
permitted by the Amended Agreement, and AmeriQuest shall have performed all
material covenants and obligations and complied with all material conditions
required by the Amended Agreement to be performed or complied with by it prior
to the Effective Date.
INDEMNIFICATION; INSURANCE. The Amended Agreement provides that the Articles
of Incorporation of the Surviving Corporation shall contain the provisions with
respect to indemnification that were included in the Articles of Incorporation
of Robec on the date of the Amended Agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Date in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Date were directors, officers, employees or
agents of Robec, unless such modifications are required by law. After the
Effective Date (and with respect to the Principal Shareholders, after the
Exchange), AmeriQuest and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under AmeriQuest's or the Surviving
Corporation's Certificate or Articles of Incorporation or By-Laws, indemnify
and hold harmless each present and former director and officer of Robec, and to
the fullest extent permitted under applicable law, each Principal Shareholder
(collectively, the "Indemnified Parties"), against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring prior to the Effective Date, or arising out of or pertaining
to the transactions contemplated by the Amended Agreement (collectively,
"Damages"), for a period of six years after the execution of the Amended
Agreement. Furthermore, after such six year period, AmeriQuest and the
Surviving Corporation shall, to the fullest extent permitted under applicable
law, indemnify and hold harmless the Principal Shareholder in their capacity as
shareholders against any Damages arising out of or pertaining to the
transactions contemplated by the Amended Agreement. For a period of two years
after the Effective Date, AmeriQuest shall cause the Surviving
38
Corporation to use its best efforts to maintain in effect, if available,
directors' and officers' liability insurance coverage for those persons who
were previously covered by Robec's directors' and officers' liability insurance
policy on terms comparable to those applicable to the directors and officers of
AmeriQuest as of the execution of the Amended Agreement.
TERMINATION. The Amended Agreement may only be terminated: (i) by mutual
agreement of Robec and AmeriQuest; (ii) by Robec, if there has been a breach by
AmeriQuest of any representation, warranty, covenant or agreement set forth in
the Amended Agreement on the part of AmeriQuest which has or can reasonably be
expected to have a material adverse effect on AmeriQuest and which AmeriQuest
fails to cure prior to the Effective Date (except that no cure period shall be
provided for a breach by AmeriQuest which by its nature cannot be cured); or
(iii) by Robec if the Merger shall not have occurred on or prior to December
31, 1994. Thus, the Amended Agreement may not be terminated by AmeriQuest
without the consent of Robec.
AMENDMENT; WAIVER. The Amended Agreement provides that it may be amended by
the parties thereto, by or pursuant to action taken by their respective Boards
of Directors, at any time before or after approval thereof by the shareholders
of Robec, but, after such approval, no amendment shall be made which changes
the Exchange Ratio or which in any way materially adversely affects the rights
of such shareholders, without such further approval of such shareholders. Any
failure by Robec to comply with any of its respective obligations, agreements
or covenants set forth in the Amended Agreement may be expressly waived in
writing by AmeriQuest. Any amendment to the Amended Agreement by Robec shall
require, in addition to any other approval required by applicable law or
Robec's charter documents, the approval of a majority of the Robec directors
who were directors of Robec prior to the Exchange.
REGISTRATION RIGHTS. Pursuant to the Amended Agreement and the terms of a
Registration Rights Agreement by and between AmeriQuest and each of the
Principal Shareholders, AmeriQuest shall, at its sole expense, prepare and file
a registration statement on Form S-3 under the Securities Act for use by the
Principal Shareholders with respect to the shares of AmeriQuest Common Stock
which they received in connection with the Exchange and which they will receive
in connection with the Merger, and shall have the S-3 Registration Statement
declared effective as soon as practicable. Further, AmeriQuest shall maintain
the effectiveness of the S-3 Registration Statement until such time as such
shares of AmeriQuest Common Stock are no longer deemed to be "restricted
securities" as defined in Rule 144(a)(3) promulgated under the Securities Act.
Should any Principal Shareholder thereafter still be deemed to be an
"affiliate" of AmeriQuest, AmeriQuest shall continue to maintain the
effectiveness of such S-3 Registration Statement for the benefit of such
"affiliate(s)" until such Principal Shareholder shall no longer be deemed an
"affiliate."
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PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements reflect the
acquisition of 49 percent of Robec's Common Stock not owned by AmeriQuest. The
unaudited pro forma condensed combined statement of income combines the results
of operations of AmeriQuest, Kenfil, Robec and NCD for the twelve months ended
June 30, 1994 and the six months ended December 30, 1994 giving effect to the
acquisitions as if they had occurred on July 1, 1993. The historical statement
of income for Robec and NCD includes their results prior to their acquisition
by AmeriQuest. The unaudited pro forma condensed combined balance sheet as of
December 30, 1994, gives effect to the acquisition of 49 percent of Robec's
common stock not owned by AmeriQuest as if it had occurred on that date. The
acquisitions are accounted for under the purchase method of accounting. The pro
forma information is not necessarily indicative of the operating results or
financial position that would have occurred had the merger been consummated at
the beginning of the periods presented, nor is it necessarily indicative of
future operations results or financial position.
Effective June 6, 1994, AmeriQuest acquired 51 percent of the outstanding
common stock of Kenfil. The remaining 49 percent of outstanding Kenfil common
stock was acquired on September 12, 1994. Effective September 22, 1994,
Ameriquest acquired 50.1 percent of the outstanding common stock of Robec, Inc.
Effective November 15, 1994, AmeriQuest acquired 100 percent of the outstanding
common stock of NCD. The historical operating results of AmeriQuest for the six
month period ended December 30, 1994 includes the historical operating results
of Kenfil for the complete period and that of Robec and NCD for the periods of
September 22, 1994 to December 30, 1994 and November 15, 1994 to December 30,
1994, respectively. The historical balance sheet of AmeriQuest includes the
historical balance sheets of Kenfil, Robec and NCD at December 30, 1994.
40
AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 30, 1994 (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
AMERIQUEST PRO FORMA
TECHNOLOGIES, INC. ADJUSTMENTS PRO FORMA
------------------ ----------- ----------
ASSETS
CURRENT ASSETS
Cash.................... $ 4,407 $ -- $ 4,407
Accounts receivable,
net.................... 66,781 -- 66,781
Inventories............. 79,944 -- 79,944
Prepaid expenses and
other.................. 2,774 -- 2,774
---------- ------ ----------
Total current assets.. 153,906 -- 153,906
PROPERTY AND EQUIPMENT,
NET..................... 5,326 -- 5,326
INTANGIBLE ASSETS, NET... 27,522 -- 27,522
OTHER ASSETS............. 972 -- 972
---------- ------ ----------
$ 187,726 $ -- $ 187,726
========== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........ $ 58,762 $ -- $ 58,762
Notes payable........... 72,706 -- 72,706
Other................... 3,254 -- 3,254
---------- ------ ----------
Total current
liabilities.......... 134,722 -- 134,722
---------- ------ ----------
LONG-TERM OBLIGATIONS.... 1,029 -- 1,029
SUBORDINATED NOTES
PAYABLE................. 18,000 -- 18,000
MINORITY INTEREST........ 2,800 (2,800)(C) --
STOCKHOLDERS' EQUITY
Preferred stock, $.01
par value; authorized
10,000,000 shares;
no shares issued and
outstanding............ -- -- --
Common stock, $.01 par
value.................. 210 14 (A) 224
Additional paid-in cap-
ital................... 52,828 2,786 (A) 55,614
Retained deficit........ (20,738) -- (20,738)
Receivables from affil-
iates.................. (1,125) -- (1,125)
---------- ------ ----------
Total stockholders'
equity............... 31,175 2,800 33,975(B)
---------- ------ ----------
$ 187,726 $ -- $ 187,726
========== ====== ==========
OUTSTANDING COMMON
SHARES.................. 20,974,736 22,371,931
========== ==========
- --------
41
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR YEAR ENDED JUNE 30, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AMERIQUEST KENFIL ROBEC PRO FORMA PRO FORMA
TECHNOLOGIES, INC.(G) INC. INC. NCD ADJUSTMENTS COMBINED
--------------------- -------- -------- -------- ----------- ----------
NET SALES(E)............ $ 87,593 $138,759 $168,446 $218,808 $ -- $613,606
COST OF SALES........... 75,023 128,843 155,836 202,114 -- 561,816
--------- -------- -------- -------- ------ ----------
Gross profit........... 12,570 9,916 12,610 16,694 -- 51,790
OPERATING EXPENSES
Selling, general and
administrative........ 14,144 24,653 22,985 13,259 1,798 (D) 76,839
Restructuring charge
and earthquake
loss(F)............... 5,700 3,430 -- -- -- 9,130
--------- -------- -------- -------- ------ ----------
Income (loss) from
operations............ (7,274) (18,167) (10,375) 3,435 (1,798) (34,179)
OTHER INCOME (EXPENSE)
Other income........... 31 40 -- -- 71
Interest expense....... (728) (2,626) (1,613) (1,908) 1,310 (E) (5,565)
--------- -------- -------- -------- ------ ----------
(697) (2,586) (1,613) (1,908) 1,310 (5,494)
--------- -------- -------- -------- ------ ----------
Income (loss) before
taxes................. (7,971) (20,753) (11,988) 1,527 (488) (39,673)
PROVISION FOR INCOME
TAXES.................. -- 17 (814) -- -- (797)
--------- -------- -------- -------- ------ ----------
Net income (loss)(F)... $ (7,971) $(20,770) $(11,174) $ 1,527 $ (488) $ (38,876)(F)
========= ======== ======== ======== ====== ==========
Net income (loss) per
common share and common
share equivalent....... $ (1.33) $ (2.04)
========= ==========
Common and common
equivalent shares...... 5,973,511 19,040,380
========= ==========
42
AMERIQUEST TECHNOLOGIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED DECEMBER 30, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AMERIQUEST ROBEC PRO FORMA PRO FORMA
TECHNOLOGIES, INC. INC. NCD ADJUSTMENTS COMBINED
------------------ ------- ------- ----------- ----------
NET SALES............... $ 173,005 $22,351 $81,212 $ -- $ 276,568
COST OF SALES........... 161,756 22,450 74,893 -- 259,099
---------- ------- ------- ----- ----------
Gross profit.......... 11,249 (99) 6,319 -- 17,469
OPERATING EXPENSES
Selling, general and
administrative....... 14,821 3,317 4,781 730 (D) 23,649
---------- ------- ------- ----- ----------
Income (loss) from
operations........... (3,572) (3,416) 1,538 (730) (6,180)
OTHER INCOME (EXPENSE)
Other income
(expense)............ (282) -- -- -- (282)
Interest expense...... (2,315) (201) (924) 515 (E) (2,925)
---------- ------- ------- ----- ----------
(2,597) (201) (924) 515 (3,207)
---------- ------- ------- ----- ----------
Income (loss) before
taxes................ (6,169) (3,617) 614 (215) (9,387)
PROVISION FOR INCOME
TAXES.................. -- -- -- -- --
---------- ------- ------- ----- ----------
Net income (loss)..... $ (6,169) $(3,617) $ 614 $(215) $ (9,387)
========== ======= ======= ===== ==========
Net income (loss) per
common share and common
share equivalent....... $ (0.40) $ (0.44)
========== ==========
Common and common
equivalent shares...... 15,458,468 21,364,963
========== ==========
43
FOOTNOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS OF AMERIQUEST TECHNOLOGIES, INC. AND ROBEC INC.
The following footnotes reflect the assumptions made in the preparation of
the Pro Forma Condensed Consolidated Financial Statements.
(A) To effect the purchase of 49 percent of Robec common stock not owned by
AmeriQuest, AmeriQuest will issue approximately 1,400,000 shares of
AmeriQuest common stock in exchange for 2,235,000 shares of Robec common
stock. The AmeriQuest common stock is valued at a discounted quoted market
price, based upon weighted average discounts received on recently completed
private equity transactions. This valuation represents management's
estimate of its fair market value. For purposes of these pro forma
financial statements, the discount market price of AmeriQuest common stock
is assumed to be $2.00 per share. No assurance can be given that the number
of shares to be issued to the Robec shareholders will not be a greater
number than that reflected herein, as the exact number of shares is subject
to adjustment based on the quoted market value of AmeriQuest Common Stock
on the business day prior to the closing. See "Information Regarding the
Merger--The Merger."
(B) The Company valued its common stock issued in connection with its Kenfil,
Robec and NCD acquisitions at a discounted quoted market price, based upon
weighted average discounts received on recently completed private equity
cash transactions. This valuation represents management's best estimate of
the fair value of the Company's common stock. This valuation represents a
significant discount from quoted market prices due to the thin public
trading volume and small public float of AmeriQuest common stock.
(C) To eliminate the historical minority interest in Robec.
(D) To record goodwill amortization over the estimated economic life of 10
years.
Management believes that the most significant intangible acquired is that
of the distribution channels. Management has assigned a 10 year economic
life to this intangible asset as that is the period of time that management
expects to derive benefit from existing vendor relationships and market
position. Management determined that 10 years is an appropriate economic
life based upon the historical length of the acquiree's vendor
relationships and the overall size and quality of the vendors and their
product offering.
Management is currently in the process of completing its detailed analysis
of the fair value of Kenfil, Robec and NCD net assets acquired and
therefore the allocation of the purchase price to the various assets and
liabilities acquired, including the amount of goodwill presented herein,
may change as a result of the completed analysis. Management however, does
not expect future purchase price allocation adjustments to have a material
effect of the Company's future results of operations and financial
position.
(E) To reduce interest expense associated with the redemptions of the following
debt instruments related to the Kenfil and NCD acquisition and the Computer
2000 investment.
DEBT INSTRUMENT REDEMPTION INTEREST EXPENSE ELIMINATED
-------------------------- -------------------------------
FISCAL YEAR SIX MONTHS ENDED
JUNE 30, 1994 DECEMBER 30, 1994
------------- -----------------
Kenfil subordinated debt of $3,175,000... $ 380,000 $ --
NCD subordinated debt of $2,737,000...... 360,000 164,000
AQS notes payable of $11,287,000......... 570,000 351,000
---------- --------
$1,310,000 $515,000
========== ========
As the funds used to finance the NCD acquisition and the redemption of the
above debt instruments were provided by the October 1994 private placement
and the Computer 2000 investment, no forfeited investment earnings are
included in these pro forma financial statements.
(F) The restructuring charge of $5,700,000 included in AmeriQuest's historical
statement of operations relates principally to the write-off of certain
former personal computer joint venture operations. The earthquake loss of
$3,430,000 included in Kenfil's historical financials is for losses
sustained in the Southern California earthquake.
(G) Effective December 1993, AQS acquired certain assets and assumed certain
liabilities of Management Systems Group and acquired the outstanding stock
of Rhino Sales Company. The impact of these acquisitions to the Pro Forma
Statement of Operations for the year ended June 30, 1994 would be to
increase revenues approximately $20 million, with no effect on net income.
44
CAPITALIZATION
The following table sets forth the capitalization of AmeriQuest, as of
December 30, 1994, and as adjusted to give effect to the acquisition of 49
percent of Robec's common stock not owned by AmeriQuest. See "Information
Regarding the Merger--The Plan of Reorganization--The Merger--Terms of the
Merger."
HISTORICAL PRO FORMA
---------- -----------------------
AMERIQUEST ADJUSTMENTS(A) COMBINED
(AMOUNTS IN MILLIONS) ---------- -------------- --------
Short-term debt, including current
maturities................................. $ 72.7 $ -- $ 72.7
Long-term debt, net of current maturities... 18.0 -- 18.0
------ ---- ------
Total debt.............................. 90.7 -- 90.7
Minority interest........................... 2.8 (2.8) --
Shareholders' equity:
Common Stock.............................. 0.2 -- .2
Additional paid-in capital................ 52.8 2.8 55.6
Retained earnings (deficit)............... (20.7) -- (20.7)
Receivable from affiliates................ (1.1) -- (1.1)
------ ---- ------
Total shareholders' equity............... 31.2 2.8 34.0
------ ---- ------
Total capitalization........................ $124.7 $ -- $124.7
====== ==== ======
- --------
(A) To give effect to the issuance of 1,400,000 shares of AmeriQuest common
stock for the remaining 49 percent of Robec common stock.
COMPARATIVE MARKET PRICES OF COMMON STOCK
The following table sets forth the comparative market prices for the shares
of Common Stock of AmeriQuest and Robec. The prices for AmeriQuest Common Stock
reflect the high and low closing prices reported on the New York Stock Exchange
for each calendar quarter since December 31, 1991, while the prices for Robec
Common Stock reflect the high and low last sale prices as reported by the
Nasdaq National Market System for each calendar quarter since December 31,
1991.
AMERIQUEST ROBEC
------------- -------------
1992 HIGH LOW HIGH LOW
---- ------ ------ ------ ------
First Quarter................................. $3 3/4 $2 3/8 $5 3/4 $3 3/4
Second Quarter................................ 3 1 1/2 5 1/4 2 1/2
Third Quarter................................. 2 1/4 1 1/4 3 1/4 2 1/4
Fourth Quarter................................ 3 3/4 1 1/2 3 1/4 2 1/4
1993
----
First Quarter................................. 3 3/8 2 3 1/4 2 3/8
Second Quarter................................ 3 5/8 2 3 1/4 2 3/8
Third Quarter................................. 3 1/4 2 3 1/4 2 1/4
Fourth Quarter................................ 5 7/8 2 1/2 3 1/4 2 3/8
1994
----
First Quarter................................. 6 4 1/8 2 7/8 1 1/2
Second Quarter................................ 4 1/8 3 1 7/8 1/2
Third Quarter................................. 4 1/4 3 1/8 2 1/8 1 1/4
Fourth Quarter................................ 3 3/4 2 7/8 1 7/8 1 9/16
45
On May , 1995, the share price of AmeriQuest Common Stock closed at
per share on the New York Stock Exchange and the last sale price of Robec
Common Stock was per share on the Nasdaq National Market System. On June
29, 1994, the day before the business combination of AmeriQuest and Robec was
publicly announced, the share price of AmeriQuest Common Stock closed at $3.25
per share on the New York Stock Exchange and the last sale price of Robec
Common Stock was $0.88 per share on the Nasdaq National Market System.
As of April 3, 1995 Robec had approximately 100 shareholders of record.
DIVIDEND POLICY
Neither AmeriQuest nor Robec has paid a dividend of any kind in the past 5
years. Any declaration of cash or stock dividends will depend upon AmeriQuest's
earnings, financial position, dividend restrictions in any credit facility and
other relevant factors existing at the time. It is not anticipated that
AmeriQuest will pay dividends in the foreseeable future.
DESCRIPTION OF CAPITAL STOCK OF AMERIQUEST
GENERAL
As of December 16, 1994, the authorized capital stock of AmeriQuest consisted
of 30,000,000 shares of common stock, par value $.01 per share, of which
19,562,620 shares were outstanding (none of which were held as treasury stock)
and 10,000,000 shares of preferred stock, par value $.01 per share, of which no
shares were issued and outstanding. Upon consummation of the Merger and after
the issuance of 1,397,208 shares to Robec shareholders in connection therewith,
approximately 9,040,172 shares of AmeriQuest Common Stock will be available for
issuance by AmeriQuest at the discretion of its Board of Directors. All
outstanding shares of AmeriQuest Common Stock are, and all shares of AmeriQuest
Common Stock issued in connection with the Merger when issued as described
herein will be, fully paid, validly issued and non-assessable. Each share of
AmeriQuest Common Stock has the same relative right as, and is identical in all
respects with, each other share of AmeriQuest Common Stock. The Investment
Agreement between AmeriQuest and Computer 2000 provides that Computer 2000 has
the right to acquire newly issued shares of AmeriQuest to give Computer 2000 a
51% ownership interest in AmeriQuest, including shares of AmeriQuest Common
Stock already owned by Computer 2000, for $50 million, regardless of the total
number of shares of AmeriQuest Common Stock outstanding. Accordingly,
AmeriQuest is seeking stockholder approval to increase the number of shares of
AmeriQuest Common Stock authorized for issuance by AmeriQuest from 30,000,000
shares to 65,000,000 shares.
DIVIDENDS
AmeriQuest may pay cash dividends if, as and when declared by its Board of
Directors, subject to applicable provisions of Delaware law. The holders of
AmeriQuest Common Stock will be entitled to receive and to share equally in
such dividends as may be declared by the Board of Directors of AmeriQuest out
of funds legally available therefor. See "Dividend Policy."
VOTING RIGHTS
Holders of AmeriQuest Common Stock are entitled to one vote for each share
held by them in all matters submitted to the shareholders of AmeriQuest.
Holders of AmeriQuest Common Stock do not have cumulative voting rights in the
election of directors.
LIQUIDATION
In the event of a liquidation, dissolution or winding up of AmeriQuest, the
holders of AmeriQuest Common Stock would be entitled to receive, after payment
of all its debts and liabilities and other payments to holders of preferred
stock, if any, having priority rights, all other assets of AmeriQuest
available. Such stockholders would be entitled to participate ratably in the
net assets available for distribution.
46
PRE-EMPTIVE RIGHTS
The Certificate of Incorporation of AmeriQuest does not grant holders of
AmeriQuest Common Stock pre-emptive rights.
ANTI-TAKEOVER PROVISIONS
See "Comparison of Shareholder Rights--Business Combinations with Interested
Shareholders."
COMPARISON OF SHAREHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of Robec Common Stock and the rights of holders of AmeriQuest Common
Stock.
The rights of the shareholders of Robec, a Pennsylvania corporation, are
governed primarily by Pennsylvania law and the Articles of Incorporation and
By-Laws of Robec. Upon consummation of the Merger, Robec shareholders who have
not exercised their statutory dissenters rights will become holders of
AmeriQuest Common Stock. Because AmeriQuest is a Delaware corporation, the
rights of the former Robec shareholders will be governed primarily by Delaware
law and AmeriQuest's Certificate of Incorporation and By-Laws. Except as set
forth below, Robec and AmeriQuest do not believe that there are any material
differences in shareholders' rights under Pennsylvania and Delaware law and the
Articles and Certificate of Incorporation and By-Laws of Robec and AmeriQuest,
respectively. This discussion, however, is not and does not purport to be
complete or to identify all differences that may, under any given fact
situation, be material to shareholders.
BY-LAWS
Under Pennsylvania law the power to adopt, amend or repeal by-laws may be
vested by the by-laws in the directors, with statutory exceptions for certain
actions and subject to the power of shareholders to change such actions.
Pennsylvania law provides that unless the articles of incorporation otherwise
provide, shareholders may change the by-laws without the consent of the
directors. Robec's By-Laws provide its shareholders with the power to alter,
amend or repeal the By-Laws by the majority vote of shareholders at any meeting
at which a quorum is present except that a vote of 66 2/3% of the votes which
shareholders are entitled to cast shall be necessary to alter, amend or repeal
Section 3.2 (dealing with the nomination of directors) and Article IX (dealing
with amendments thereto) thereof. The Board of Directors of Robec may also
alter, amend or repeal the By-Laws subject to the power of the shareholders to
change such action. Under Delaware law a corporation's certificate of
incorporation may confer the power to adopt, amend or repeal by-laws upon the
directors (although it may not divest the stockholders of such power).
AmeriQuest's Certificate of Incorporation expressly authorizes its board of
directors to alter or repeal AmeriQuest's By-Laws subject to the shareholders'
power to change such action.
DIVIDEND DECLARATIONS
Under Pennsylvania law a corporation has the power, subject to restrictions
in its bylaws, to make distributions to its shareholders unless after giving
effect thereto (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's assets
would be less than the sum of its total liabilities plus the amount that would
be needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of shareholders having superior preferential rights to those
shareholders receiving the distribution. Under Delaware law the directors may,
subject to any restrictions in a company's certificate of incorporation,
declare and pay dividends, either (i) out of its surplus, defined as the excess
of the net assets of the corporation over the amount determined to be the
capital of the corporation by the board of directors (which amount cannot be
less than the aggregate per value of all issued shares of capital stock), or
(ii) in case there shall be no surplus, out of the net profits for the fiscal
year in which the dividend is declared and the preceding year. The directors of
a Delaware corporation may not declare a dividend out of net profits, however,
if the capital of the corporation is less than the aggregate amount of capital
47
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Neither Robec's By-Laws nor
AmeriQuest's Certificate of Incorporation and By-Laws contain limitations on
such powers.
TERMS OF DIRECTORS
Under Pennsylvania law the articles of incorporation may provide that
directors be elected in two or more classes whose terms expire at different
times provided that no single term shall exceed four years. Robec's Articles of
Incorporation provide for three classes of directors, each of which is elected
for three-year terms. Under Delaware law the certificate of incorporation or
by-laws of a company may provide that directors be elected in one, two or three
classes whose terms expire at different times provided that no single term
shall exceed three years. AmeriQuest's Certificate of Incorporation and By-Laws
provide for one class of directors.
REMOVAL OF DIRECTORS
Under Pennsylvania law unless the articles of incorporation or bylaws provide
otherwise, directors may be removed by the shareholders of a corporation for or
without cause, and by the board of directors for any proper cause specified in
the bylaws. Robec's By-Laws provide for such removal by shareholders entitled
to cast a majority of the votes which all shareholders would be entitled to
cast in the election of directors. Under Delaware law directors may be removed,
with or without cause, by the holders of a majority of the stock then entitled
to vote at an election of directors.
MEETINGS OF SHAREHOLDERS
Under Pennsylvania law special meetings of shareholders may be called by the
board of directors, shareholders entitled to cast at least 20% of the votes
which all shareholders are entitled to cast at the particular meeting unless
otherwise provided in the articles of incorporation and by such officers or
other persons as may be provided in the by-laws. Robec's Articles of
Incorporation and By-Laws permit the President, the Board and shareholders
entitled to cast 10% of the vote which all shareholders are entitled to cast to
call a special meeting. Under Delaware law special meetings of stockholders may
be called by the board of directors or by such persons as may be authorized by
the certificate of incorporation or the by-laws. Under AmeriQuest's Certificate
of Incorporation and By-Laws, only the board of directors and designated
committees thereof may call a special meeting.
ACTION BY SHAREHOLDERS WITHOUT MEETING
Under Pennsylvania law the bylaws may provide that any action which may be
taken at a meeting of the shareholders may be taken without a meeting if there
is written consent of shareholders who would have been entitled to cast the
minimum number of votes that would be necessary to authorize the action at a
meeting at which all the shareholders were present and voting. Robec's By-Laws
permit all actions to be taken by unanimous consent and any individual action
to be taken by the larger of two-thirds consent or the minimum percentage
necessary to authorize the action at a duly called meeting. Under Delaware law
unless otherwise provided in the certificate of incorporation, any action
required or which may be taken at any annual or special meeting of stockholders
may be taken without a meeting if written consents shall be obtained from the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereat were present and voted. AmeriQuest's By-
Laws permit actions to be taken by the written consent of the minimum votes
required to authorize the actions at a meeting.
DISSENTERS RIGHTS
Under Pennsylvania law shareholders may perfect dissenters rights with regard
to corporate actions involving certain mergers, consolidations, the sale, lease
or exchange of substantially all the assets of another corporation (under
limited circumstances) or the elimination of cumulative voting. However, under
the corporate laws of both states, dissenters rights are generally denied when
a corporation's shares are listed on a national securities exchange or held of
record by more than 2,000 persons. Under Delaware law
48
stockholders may only perfect appraisal rights with respect to corporate
actions involving mergers or consolidations. Stockholders of AmeriQuest do not
have appraisal rights in connection with the Merger while shareholders of Robec
do have appraisal rights in connection with the Merger.
SUPERMAJORITY PROVISIONS
Under both Pennsylvania and Delaware law the articles of incorporation or
certificate of incorporation, as the case may be, may provide for a higher
shareholder vote requirement than that required by law in order to approve
certain proposed actions or transactions of the corporation. Robec's Articles
of Incorporation and By-Laws require the vote of 66 2/3% of the votes which
shareholders are entitled to cast to (i) alter, amend or repeal Section 3.2
(nomination of directors) and Article IX (amendment of the By-Laws) of Robec's
By-Laws, (ii) repeal or amend Article III (limitation of directors' liability
and indemnification) of the By-Laws and (iii) to amend Article VIII (election
of directors) of the Company's Articles of Incorporation. The AmeriQuest
Certificate of Incorporation and By-Laws contain no supermajority voting
provisions.
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
Under Pennsylvania law no business combination (defined to include certain
mergers, sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalizations or liquidations or dissolutions) involving a Pennsylvania
corporation and an interested shareholder (defined to be any holder of 20% or
more of the corporation's voting stock) may be entered into unless (i) approved
by the board of directors of the corporation prior to the interested
shareholder's share acquisition date, (ii) (a) five years have expired since
the acquisition of shares of the corporation by the interested shareholder, and
(b) either (1) a majority of shareholders of the corporation (excluding the
interested shareholder) approves the business combination, or (2) the business
combination is approved by an affirmative vote of all of the holders of all of
the outstanding common shares and satisfies certain minimum statutory
requirements, or (iii) approved (a) by a majority of votes that all
shareholders would be entitled to cast in an election of directors, not
including shares beneficially held by the interested shareholder provided that
(1) the meeting is called no earlier than three months after the interested
shareholder became, and if at the time of the meeting the interested
shareholder is, the beneficial owner of shares entitling the interested
shareholder to cast at least 80% of the votes that all shareholders would be
entitled to cast in an election of directors and (2) the business combination
satisfies certain other minimum statutory conditions, or (b) approved by the
affirmative vote of all of the holders of all of the outstanding common shares.
However, such law does not restrict any offer to purchase all of a
corporation's shares. Robec has opted out of the business combination rule and
therefore such rule does not apply to Robec.
Delaware has a similar law which defines an interested stockholder as a
holder of 5% or more of the corporation's voting stock. The Delaware law is
further distinguished in that it is inapplicable to business combinations
occurring more than three years after the interested stockholder acquired such
status. Exceptions to the rule against such business combinations include: (a)
prior approval by the board of directors of the business combination or the
transaction which resulted in the stockholder becoming an interested
shareholder and (b) subsequent approval of the business combination by the
board of directors and by a vote of at least two-thirds of the outstanding
voting stock of the corporation. The statute contains exceptions for cases in
which, upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such interested stockholder holds 85% of
the voting stock of the company. The Delaware statute is applicable to
AmeriQuest as AmeriQuest has not opted out of its provisions.
FIDUCIARY DUTY
Under Pennsylvania law a director may, in considering the best interests of a
corporation, consider (i) the effects of any action on shareholders, employees,
suppliers, customers and creditors of the corporation, and upon communities in
which offices or other facilities of the corporation are located, (ii) the
short-term and long-term interests of the corporation, including the
possibility that the best interests of the corporation
49
may be served by the continued independence of the corporation, (iii) the
resources, intent and conduct of any person seeking to take control of the
corporation and (iv) all other pertinent factors. Delaware law contains no
similar provision.
DERIVATIVE ACTIONS
Under Pennsylvania law a shareholder may maintain a derivative action, even
if the shareholder was not a shareholder at the time of the alleged wrongdoing,
if there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice will result without
such action. Under Delaware law a shareholder may bring a derivative action
only if he or she was a shareholder at the time of the alleged wrongdoing and
has made a demand on the board of directors for relief.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
AmeriQuest Common Stock offered hereby will be passed upon for AmeriQuest by
Raymond L. Ridge, Esq., 3901 MacArthur Blvd., Ste. 200, Newport Beach, CA
92660.
EXPERTS
The financial statements and schedules of the Company incorporated by
reference in this Prospectus and elsewhere in the Registration Statement to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from Kenfil Inc.'s Annual Report
on Form 10-K for the year ended June 30, 1993 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated balance sheets of Robec as of December 31, 1993 and 1994 and
the consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, with respect thereto, given on the authority of that
firm as experts in accounting and auditing.
The financial statements and schedule of Ross White Enterprises, Inc. (d/b/a
National Computer Distributors) as of March 31, 1994 and 1993, and for the two
years then ended have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants related to such periods incorporated
by reference, and upon the authority of said firm as experts in accounting and
auditing.
The statements of operations, shareholders' equity, and cash flows of NCD for
the three-months ended March 31, 1992, included in this Prospectus/Registration
Statement, have been incorporated herein in reliance on the report of Hansen,
Barnett & Maxwell, independent accountants, with respect thereto, given on the
authority of that firm as experts in accounting and auditing.
The statements of operations, shareholders' equity, and cash flows for the
year in the period ended December 31, 1991, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
with respect thereto, given on the authority of that firm as experts in
accounting and auditing.
50
SHAREHOLDER PROPOSALS
Any proposal which an eligible shareholder of Robec desires to have presented
at Robec's next Annual Meeting of Shareholders (if the Merger has not been
consummated prior to the date the meeting is to be held) concerning a proper
subject for inclusion in the proxy statement and for consideration at an annual
meeting will be included in Robec's proxy statement and related proxy card if
it is received by Robec at 425 Privet Road, Horsham, PA 19044, Attention:
Secretary. The deadline for proposals of shareholders to be presented at the
1995 Annual Meeting of Shareholders has passed. Proposals of shareholders
intended to be presented at the 1996 Annual Meeting of Shareholders must be
received not less than 120 days in advance of the date of Robec's proxy
statement released to shareholders in connection with the 1995 Annual Meeting
of Shareholders.
OTHER MATTERS
The accompanying forms of Proxy are solicited by and on behalf of the
management of Robec whose Notice of Special Meeting is attached to this
Prospectus/Proxy Statement. Robec will bear the expenses of this solicitation
of Proxies. In addition to the use of the mails, Proxies may be solicited by
personal interview, telephone and by directors and officers and employees of
Robec. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
Robec may reimburse them for reasonable out-of-pocket expenses incurred by them
in connection therewith.
Robec's board of directors does not intend to bring any other matters before
the Special Meeting and has no reason to believe any other matters will be
presented. If, however, other matters properly presented do come before the
meeting, it is the intention of the persons named as proxy agents in the
enclosed proxy card to vote upon such matters in accordance with their
judgment.
By Order of the Board of Directors,
Robert S. Beckett
Secretary
May , 1995
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APPENDIX I
PLAN OF MERGER
MERGING
RI ACQUISITION, INC.
(A PENNSYLVANIA CORPORATION)
AND
WITH AND INTO
ROBEC, INC.
(A PENNSYLVANIA CORPORATION)
RECITALS
A. RI ACQUISITION, INC. (the "Merging Corporation") is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, which is authorized to issue 10,000,000 shares of
Common Stock, par value $.01 per share ("Newco Common Stock"), of which
4,439,180 shares are issued and outstanding, all of which are owned of record
and beneficially by AmeriQuest Technologies, Inc., a Delaware corporation
("AmeriQuest").
B. ROBEC, INC. (the "Surviving Corporation") is a corporation duly organized
and validly existing under the laws of the Commonwealth of Pennsylvania, which
is authorized to issue 10,000,000 shares of Common Stock, par value $.01 per
share, ("Robec Common Stock"), of which 4,439,180 shares are issued and
outstanding and 5,000,000 shares of Preferred Stock, par value $.01 per share,
of which no shares are issued and outstanding.
C. The Board of Directors of the Merging Corporation has adopted resolutions
approving this Plan of Merger in accordance with the Pennsylvania Business
Corporation Law ("BCL"), and directing that it be submitted to the sole
shareholder of the Merging Corporation for adoption.
D. The Board of Directors of the Surviving Corporation has adopted
resolutions approving this Plan of Merger in accordance with the BCL and
directing that it be submitted to the shareholders of the Surviving Corporation
for adoption.
ARTICLE I
THE MERGER
1.1 The Merger. The Merging Corporation and the Surviving Corporation shall
effect a merger (the "Merger") in accordance with and subject to the terms and
conditions of this Plan of Merger (the "Plan"). On the Effective Date (as such
term is defined in Section 1.2 hereof), the Merging Corporation shall be merged
with and into the Surviving Corporation, and the separate existence of the
Merging Corporation, except insofar as it may be continued by law, shall cease,
all with the effect provided in Section 1929 of the BCL.
1.2 Effective Date. Articles of Merger, and such other documents and
instruments as are required by, and complying in all respects with, the BCL
shall be delivered to the Department of State of the Commonwealth of
Pennsylvania. The Merger shall become effective upon the filing of the Articles
of Merger with the Department of State of the Commonwealth of Pennsylvania (the
"Effective Date").
1.3 Further Assurances. If at any time the Surviving Corporation, or its
successors or assigns, shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
to (a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its rights, title or interest in, to or under any of the rights,
properties or assets of the Merging Corporation acquired or to be
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acquired by the Surviving Corporation as a result of, or in connection with,
the Merger, or (b) otherwise carry out the purposes of this Plan, the Merging
Corporation and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such proper deeds, assignments and assurances in law
and to do all acts necessary or proper to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation
and otherwise to carry out the purposes of this Plan; and the proper officers
and directors of the Surviving Corporation are fully authorized in the name of
the Merging Corporation or otherwise to take any and all such action.
1.4 Amendment or Termination. Notwithstanding shareholder approval of this
Plan, this Plan may be amended or terminated at any time on or before the
Effective Date by agreement of the Boards of Directors of the Merging
Corporation and the Surviving Corporation or terminated by the Surviving
Corporation if the Merger does not occur prior to December 31, 1994, provided
that no amendment may be made which decreases the amount of Merger
Consideration (as such term is defined in Section 3.1 hereof) payable to
holders of Robec Common Stock.
ARTICLE II
CAPITAL STOCK
2.1 Newco Common Stock. At the Effective Date, the number of outstanding
shares of Newco Common Stock shall be identical to the number of outstanding
shares of Robec Common Stock, and each share of Newco Common Stock then issued
and outstanding shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into one share of the Common Stock of
the Surviving Corporation.
2.2 Robec Common Stock. At the Effective Date, except for shares of Robec
Common Stock owned by AmeriQuest and for shares of Robec Common Stock held by
holders of Dissenting Shares (as such term is defined in Section 2.5), each
share of Robec Common Stock then issued and outstanding shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into .63075 (the "Applicable Fraction") of a validly issued, fully paid and
nonassessable share of AmeriQuest Common Stock; provided, however, that in the
event the closing price of AmeriQuest Common Stock on the New York Stock
Exchange on the business day prior to the Effective Date, as reported in the
Wall Street Journal (the "Closing Date Market Price") is less than $3.00 per
share, the Applicable Fraction shall be equal to the product of (i) .63075
multiplied by (ii) a quotient the numerator of which is $3.00 and the
denominator of which is the Closing Date Market Price. Shares of Robec Common
Stock held by AmeriQuest on the Effective Date shall be canceled in the Merger.
2.3 Fractional Shares. No fractional shares of AmeriQuest Common Stock will
be issued in connection with the Merger, but in lieu thereof each holder of
Robec Common Stock who would otherwise be entitled to receive a fraction of a
share of AmeriQuest Common Stock will receive an amount of cash equal to the
Closing Date Market Price of AmeriQuest Common Stock multiplied by the fraction
of a share of AmeriQuest Common Stock to which such holder would otherwise be
entitled, without any interest thereon.
2.4 No Further Rights or Transfers. On and after the Effective Date, the
holder of a Certificate (as such term is defined in Section 3.3 hereof)
representing Robec Common Stock shall cease to have any rights as a shareholder
of Robec, except for the right to surrender his or her Certificate in exchange
for payment of the Merger Consideration.
2.5 Dissenting Shares. Notwithstanding anything herein to the contrary,
shares of Robec Common Stock that are outstanding immediately prior to the
Effective Date and that are held by shareholders, if any, who are entitled to
assert a right to dissent from the Merger and who demand and validly perfect
their rights to receive the "fair value" of their shares with respect to the
Merger under Section 1574 of the BCL (the "Dissenting Shares") shall be
entitled solely to the payment of the "fair value" of such shares in accordance
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with the provisions of the BCL; except that (i) if such demand to receive "fair
value" shall be withdrawn upon the consent of the Surviving Corporation, (ii)
if this Plan of Merger shall be terminated, or the Merger shall not be
consummated, (iii) if no demand or petition for the determination of "fair
value" by a court shall have been made or filed within the time provided in the
provisions of the BCL or (iv) if a court of competent jurisdiction shall
determine that such holder of Dissenting Shares is not entitled to the relief
provided by the provisions of the BCL, then the right of such holder of
Dissenting Shares to be paid the "fair value" of his shares of Robec Common
Stock shall cease and with respect to clauses (i), (iii) and (iv) above, such
Dissenting Shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Date, the right to receive
the Merger Consideration with respect thereto, without any interest thereon,
and with respect to clause (ii) above, the status of such shareholder shall be
restored retroactively without prejudice to any corporate proceeding which may
have been taken during the interim.
ARTICLE III
MERGER PAYMENT PROCEDURE
3.1 Merger Consideration. The certificates which represent shares of
AmeriQuest Common Stock to be issued in accordance with this Agreement to
holders of Robec Common Stock, excluding the holders of Dissenting Shares,
together with any dividends or distributions with respect thereto, and any cash
required in payment of fractional shares pursuant to Section 2.3 hereof, hereby
collectively constitute the "Merger Consideration."
3.2 Exchange Agent. AmeriQuest shall deposit the Merger Consideration with
American Stock Transfer and Trust Company or such other transfer agent as may
be mutually acceptable to both AmeriQuest and Robec (the "Exchange Agent") for
the benefit of holders of Robec Common Stock, promptly after the Effective
Date.
3.3 Transmittal Letter. As soon as practicable after the Effective Date, the
Exchange Agent shall send a notice and transmittal form to each holder of
record of a certificate or certificates theretofore evidencing shares of Robec
Common Stock (such certificates are collectively referred to herein as the
"Certificates"), advising such holder of the effectiveness of the Merger and
the procedure for surrendering to the Exchange Agent such Certificates for
exchange into the Merger Consideration. Upon the surrender of a Certificate to
the Exchange Agent together with and in accordance with such transmittal form,
the holder thereof shall be entitled to receive in exchange therefor the Merger
Consideration payable in respect of each share of Robec Common Stock
represented thereby. Upon such surrender, the Exchange Agent will promptly pay
the Merger Consideration. Each such Certificate shall be deemed for all
purposes to evidence only the right to receive the Merger Consideration.
3.4 Delivery To Person Other Than Registered Holder. If the Merger
Consideration (or any portion thereof) is to be delivered to a person other
than the person in whose name the Certificates surrendered in exchange therefor
are registered, it shall be a condition to the delivery of the Merger
Consideration that the Certificates so surrendered shall be properly endorsed
or accompanied by appropriate stock powers and otherwise be in proper form for
transfer, that such transfer otherwise be proper and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid.
3.5 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, the owner of such lost, stolen or destroyed Certificate shall
deliver to the Surviving Corporation a bond in such sum as the Surviving
Corporation may direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to the Certificate alleged to have been
lost, stolen or destroyed.
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ARTICLE IV
SURVIVING PROVISIONS
4.1 Articles of Incorporation and Bylaws. The Articles of Incorporation of
the Merging Corporation shall survive and be the Articles of Incorporation of
the Surviving Corporation, except that Article I shall be amended to provide
that the name of the Surviving Corporation shall be "AmeriQuest/Robec, Inc."
until thereafter amended in accordance with the provisions therein and as
provided by the BCL. The bylaws of the Merging Corporation shall survive and be
the bylaws of the Surviving Corporation until thereafter amended in accordance
with the provisions therein and as provided in the BCL.
4.2 Directors and Officers. The directors and officers of the Surviving
Corporation shall be as follows:
Name Position
---- --------
Harold L. Clark Director, Chairman of the Board
Robert H. Beckett Director, President and Chief Executive
Officer
Robert S. Beckett Director, Vice President and Chief
Operating Officer
Stephen G. Holmes Director, Executive Vice President,
Secretary/Treasurer and Chief Financial
Officer
Alexander C. Kramer, Jr. Vice President--Operations
Each director and officer listed above shall hold office until the expiration
of his or her term of office or earlier death, resignation or removal in
accordance with the Articles of Incorporation and Bylaws of the Merging
Corporation and applicable law.
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APPENDIX II
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is made and
entered into as of the 11th day of August, 1994 by and among AmeriQuest
Technologies, Inc., a Delaware corporation ("AmeriQuest"), Robec, Inc., a
Pennsylvania corporation ("Robec") and Robert H. Beckett, Robert S. Beckett,
Alexander C. Kramer, Jr. and G. Wesley McKinney, who are certain principal
shareholders of Robec (the "Principal Shareholders"), for the acquisition of
Robec by AmeriQuest pursuant to an exchange (the "Exchange") of stock between
AmeriQuest and the Principal Shareholders followed by a merger (the "Merger")
of a wholly-owned subsidiary of AmeriQuest to be formed under the laws of the
Commonwealth of Pennsylvania ("Newco") with and into Robec. The Principal
Shareholders are joining in this Agreement solely for the purposes of agreeing
to be bound by Sections 1.01, 8.06, 8.08 and 8.16 hereof but are intended by
AmeriQuest also to be the beneficiaries of all of the other provisions hereof
which are for their benefit.
WITNESSETH:
WHEREAS, AmeriQuest desires to acquire Robec in a transaction which qualifies
as a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended;
WHEREAS, management of Robec deems it to be in the best interests of the
shareholders of Robec to receive shares of the Common Stock of AmeriQuest, par
value $.01 per share, ("AmeriQuest Common Stock") upon the merger of Newco with
and into Robec pursuant to the terms hereof and in the plan of merger attached
hereto as Exhibit A (the "Plan of Merger");
WHEREAS, the Principal Shareholders are prepared and willing to assist Robec
in achieving the Merger by exchanging their shares of the Common Stock of
Robec, par value $.01 per share ("Robec Common Stock") for shares of AmeriQuest
Common Stock;
WHEREAS, it is intended that in connection with the Exchange and the Merger
all holders of Robec Common Stock will receive the same consideration per share
for their shares of Robec Common Stock; and
WHEREAS, the parties hereto are parties to an Agreement and Plan of
Reorganization dated as of August 11, 1994 which is amended and restated in its
entirety and superseded hereby.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereby agree as follows:
ARTICLE I.
THE EXCHANGE, MERGER AND RELATED MATTERS
1.01 Exchange of Shares by Principal Shareholders. At the request of Robec
management and in order to assist Robec in effecting the Merger, and subject to
the terms and conditions contained in this Agreement, each of the Principal
Shareholders agrees with AmeriQuest to exchange pro rata a portion of the
number of shares of Robec Common Stock held by such Principal Shareholder (the
"Exchange Shares") for AmeriQuest Common Stock (previously defined as the
"Exchange") such that following the Exchange, AmeriQuest will own at least
50.1% of the outstanding shares of Robec's Common Stock. The closing of the
Exchange is referred to herein as the "Exchange Closing" and shall occur upon
the satisfaction of the applicable conditions and pursuant to the terms as
provided herein at such time and place as the parties shall agree. Upon the
Exchange Closing, each Exchange Share shall be exchanged into .63075 of a
validly issued, fully paid and
II-1
nonassessable share of AmeriQuest Common Stock; provided, however, that in the
event the closing price of AmeriQuest Common Stock on the New York Stock
Exchange on the business day prior to the Effective Date (as that term is
defined in Section 1.07 hereof) as reported in the Wall Street Journal (the
"Closing Date Market Price") is less than $3.00 per share, on the Effective
Date, the Principal Shareholders shall be entitled to receive additional
validly issued, fully paid and nonassessable shares of AmeriQuest Common Stock
equal to the difference between (a) the product of (i) the number of Robec
Common Shares exchanged in the Exchange multiplied by (ii) .63075 multiplied by
(iii) a quotient the numerator of which is $3.00 and the denominator of which
is the Closing Date Market Price and (b) the number of shares of AmeriQuest
Common Stock received by such Principal Shareholder in the Exchange. No
fractional shares of AmeriQuest Common Stock will be issued in connection with
the Exchange or any adjustment pursuant to this Section 1.01, but in lieu
thereof each Principal Shareholder who would otherwise be entitled to receive a
fraction of a share of AmeriQuest Common Stock will receive an amount in cash
equal to the market value of one share of AmeriQuest Common Stock (based on the
closing price of AmeriQuest Common Stock on the New York Stock Exchange on the
previous business day, as reported in the Wall Street Journal) multiplied by
the fraction of a share of AmeriQuest Common Stock to which such holder would
otherwise be entitled without any interest thereon.
1.02 Registration of Exchange Shares. Pursuant to the terms of a Registration
Rights Agreement in the form attached hereto as Exhibit B (the "Registration
Rights Agreement") by and between AmeriQuest and each of the Principal
Shareholders, AmeriQuest shall, at its expense, prepare and file a registration
statement on Form S-3 or if Form S-3 is not available on another appropriate
registration form (the "S-3 Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") for use by the Principal
Shareholders receiving restricted securities in connection with the Exchange or
pursuant to the Merger, and shall cause the S-3 Registration Statement to be
declared effective not later than the Effective Date (as such term is defined
in Section 1.07 hereof), provided, however, that if the Merger is not
consummated on or prior to December 31, 1994, or if this Agreement is otherwise
terminated, AmeriQuest shall cause the S-3 Registration Statement to become
effective on the earlier of December 31, 1994 or such termination date, as the
case may be. Further, AmeriQuest shall maintain the effectiveness of the S-3
Registration Statement until such time as the shares covered thereby are no
longer deemed to be "restricted securities" as defined in Rule 144(a)(3) or to
be subject to Rule 145, each as promulgated under the Securities Act. Should
any "selling shareholder" identified in the S-3 Registration Statement
thereafter still be deemed to be an "affiliate" of AmeriQuest, AmeriQuest shall
continue to maintain the effectiveness of such S-3 Registration Statement for
the benefit of such "affiliate(s)" until such selling shareholder shall no
longer be deemed an "affiliate."
1.03 The Merger. On the Effective Date, Newco shall be merged with and into
Robec (previously defined as the "Merger") pursuant to this Agreement and the
Plan of Merger, and the separate corporate existence of Newco shall cease, and
Robec shall continue as the surviving corporation under the laws of the
Commonwealth of Pennsylvania under the name "AmeriQuest/Robec, Inc." (the
"Surviving Corporation"). Newco and Robec are referred to herein as the
"Constituent Corporations" to the Merger.
1.04 Conversion of Shares. On the Effective Date, by virtue of the Merger and
without any action on the part of AmeriQuest, Robec, Newco, the Surviving
Corporation, or any holder of any shares of capital stock of either of the
Constituent Corporations, the shares of capital stock of each of the
Constituent Corporations shall be converted as set forth in the Plan of Merger.
1.05 Treatment of Options. (a) On the Effective Date, AmeriQuest will offer
to exchange each of the then outstanding options to purchase Robec Common Stock
(collectively, the "Robec Options"), including, without limitation, all
outstanding options granted under Robec's 1989 Stock Option Plan, as amended
(the "Robec Plan"), as well as any then outstanding Robec options not granted
under the Robec Plan, for an option to purchase that number of shares of
AmeriQuest Common Stock (collectively, the "AmeriQuest Options") determined by
multiplying the number of shares of Robec Common Stock subject to such Robec
Option on the Effective Date by the Applicable Fraction (as such term is
defined in the Plan of Merger), at an exercise price per share of AmeriQuest
Common Stock equal to the exercise price per share of such Robec
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Option divided by the Applicable Fraction. If the foregoing calculation results
in an assumed Robec Option being exercisable for a fraction of a share of
AmeriQuest Common Stock, then the number of shares of AmeriQuest Common Stock
subject to such option will be rounded up to the nearest whole number of
shares. The term, exercisability, vesting schedule, status as an "incentive
stock option" under Section 422 of the Code, if applicable, and all other terms
and conditions of the Robec Options will otherwise be unchanged. Continuous
employment with Robec or any subsidiary of Robec prior to the Merger will be
credited to an optionee of Robec for purposes of determining the vesting of the
AmeriQuest Options.
(b) AmeriQuest will cause the AmeriQuest Common Stock issuable upon exercise
of the AmeriQuest Options to be registered on Form S-8 promulgated by the
Securities and Exchange Commission ("SEC") within 20 days after the Effective
Date and will use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as any such
AmeriQuest Options shall remain outstanding. With respect to those individuals
who subsequent to the Merger will be subject to the reporting requirements
under Section 16(a) of the Exchange Act (as such term is defined in Section
1.08(c)), AmeriQuest shall administer the Robec Plan assumed pursuant to this
Section 1.05 in a manner that complies with Rule 16b-3 promulgated by the SEC
under the Exchange Act. AmeriQuest will reserve a sufficient number of shares
of AmeriQuest Common Stock for issuance upon exercise of the AmeriQuest
Options.
(c) Promptly after the Effective Date, AmeriQuest will notify in writing each
holder of a Robec Option of the offer to exchange such Robec Option for an
AmeriQuest Option, the number of shares of AmeriQuest Common Stock that are
then subject to such option, and the exercise price of such option, as
determined pursuant to this Section 1.05.
1.06 Board Representation for Robec. The Board of Directors of AmeriQuest
shall cause Robert H. Beckett to be appointed, effective as of the Exchange
Closing, to the Board of Directors of AmeriQuest, to serve until such time as
his successor, if any, is duly elected and qualified to serve, and shall
nominate him for reelection at each of the next two annual meetings of
shareholders.
1.07 Merger Closing. The closing of the Merger contemplated by this Agreement
(the "Merger Closing") shall take place at the offices of Morgan, Lewis &
Bockius, 2000 One Logan Square, Philadelphia, PA 19103 commencing at 10:00
a.m., local time, on the later of (a) the day of the special meeting of Robec
shareholders provided for in Section 1.08(b) hereof or (b) the day on which the
last of the applicable conditions precedent to the Merger set forth in Articles
VIB and VIIB hereof is fulfilled or waived (subject to applicable law), or (c)
at such other time or place or on such other date as AmeriQuest, Robec and
Newco shall agree (the "Merger Closing Date"). On the Merger Closing Date,
Articles of Merger including the Plan of Merger shall be filed with the
Department of State of the Commonwealth of Pennsylvania in accordance with the
provisions of the Pennsylvania Business Corporation Law of 1988 (the "BCL"),
and the Merger shall become effective upon such filing or at such later time on
the Merger Closing Date as may be specified in the filing with the Department
of State of the Commonwealth of Pennsylvania (the "Effective Date").
1.08 Shareholder Approvals and Registration on Form S-4. (a) As soon as
practicable following the execution of this Agreement, AmeriQuest will convene
a special meeting of its stockholders to secure approval of an increase in the
number of authorized shares of AmeriQuest Common Stock necessary to consummate
the Merger and the Kenfil Merger (as such term is defined below). Pursuant to
an Agreement and Plan of Reorganization dated March 31, 1994, as amended, by
and among AmeriQuest, Kenfil Inc. ("Kenfil") and certain shareholders of Kenfil
(the "Kenfil Agreement"), AmeriQuest has acquired 51% of Kenfil in a stock
exchange and agreed to acquire the remaining shares of common stock of Kenfil
in a merger transaction (the "Kenfil Merger") and to issue simultaneously with
the consummation of the Kenfil Merger approximately 1,700,000 shares of
AmeriQuest Common Stock in exchange for approximately $7,300,000 of Kenfil
subordinated debt and approximately 2,000,000 shares of AmeriQuest Common Stock
to certain vendors of Kenfil in satisfaction of approximately $16,500,000 of
trade debt of Kenfil.
(b) As soon as practicable following the execution of this Agreement, Robec
will convene a special meeting of its shareholders to secure the necessary
shareholder authorizations and approvals of this Agreement and the transactions
contemplated herein.
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(c) The AmeriQuest Common Stock to be issued in the Merger shall be
registered under the Securities Act on a Registration Statement on Form S-4
(the "Form S-4"), and AmeriQuest will pay the filing fee required for any such
filing. In this regard, it will be necessary to file the Form S-4 to serve as a
Prospectus under the Securities Act for the shares so registered and as a
proxy/consent statement ("Prospectus/Proxy-Statement"). As promptly as
practicable after the date of this Agreement, AmeriQuest and Robec shall
prepare and file with the SEC the Form S-4, together with the Prospectus/Proxy
Statement to be included therein and any other documents required by the
Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in connection with the Merger, and AmeriQuest will pay the
filing fees required for any such filings. Each of AmeriQuest and Robec shall
use its best efforts to respond promptly to any comments of the SEC and to have
the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. AmeriQuest shall also take any action required
to be taken under any applicable state securities or "blue-sky" laws and
regulations of the NYSE in connection with the issuance of the AmeriQuest
Common Stock in connection with the Merger and the listing of such shares on
the NYSE. Robec shall promptly furnish to AmeriQuest all information concerning
Robec and the shareholders of Robec as may be reasonably required in connection
with any action contemplated by this Section 1.08. Each of AmeriQuest and Robec
will notify the other promptly of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Form S-4 or the Prospectus/Proxy Statement or for additional
information and will supply the other with copies of all correspondence with
the SEC or its staff with respect to the Form S-4 or the Prospectus/Proxy
Statement. Whenever any event occurs which should be set forth in an amendment
or supplement to the Form S-4 or the Prospectus/Proxy Statement, AmeriQuest or
Robec, as the case may be, shall promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff, and/or mailing to
shareholders of AmeriQuest and Robec, such amendment or supplement. The parties
will enter into customary indemnification and other agreements and seek
customary "comfort letters" in connection with the Form S-4.
1.09 Tax-Free Exchange. The Exchange and the Merger provided for herein are
intended to constitute one integrated transaction that qualifies as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the AmeriQuest Common Stock is to be received by
holders of Robec Common Stock on a tax-free basis. Except as specifically
provided in Section 1.01 hereof, the number of shares of AmeriQuest Common
Stock to be issued in the Exchange and the Merger will not be subject to
adjustment for fluctuations in the price of the shares for either AmeriQuest or
Robec. Except for cash paid in lieu of fractional shares, no consideration that
could constitute "other property" within the meaning of Section 356(b) of the
Code is being transferred by AmeriQuest for the Robec Common Stock either in
the Exchange or in the Merger. The parties agree not to take a position on any
tax return inconsistent with this Section 1.09. The parties further agree that
each of Robec and AmeriQuest shall pay their own expenses in connection with
the transactions contemplated hereunder. AmeriQuest represents that it has no
plan or intention to reacquire any of its Common Stock issued either in the
Exchange or in the Merger, that it has no plan or intention to sell or
otherwise dispose of any of the assets of Robec except in the ordinary course
of business, and that it will continue the historic business of Robec or use a
significant portion of Robec's historic business assets in a business.
ARTICLE II.
REPRESENTATION AND WARRANTIES OF AMERIQUEST
AmeriQuest hereby represents and warrants to and agrees with Robec and the
Principal Shareholders that:
2.01 Organization and Good Standing. AmeriQuest is, and on the Effective Date
will be, a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, with full power and authority to own
its property and to carry on its business as it is now being conducted, and is
not required to be qualified to do business in any jurisdictions other than
California, Massachusetts and Delaware. Newco will on the Effective Date be a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania.
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2.02 Authorization and Validity of Agreement. AmeriQuest has full corporate
power and authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby. Except for (a) obtaining the approval of its
Board of Directors as contemplated by Section 6.01 hereof and (b) obtaining the
approval of its shareholders as contemplated by Section 1.08(a) hereof, no
other corporate action on the part of AmeriQuest is necessary to the execution
and delivery by AmeriQuest of this Agreement. Upon receipt of the approvals
referred to in the immediately preceding sentence, this Agreement will have
been duly executed and delivered by AmeriQuest and will be a valid and binding
obligation of AmeriQuest enforceable against AmeriQuest in accordance with its
terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought. The performance by Newco on the Effective Date of the
transactions contemplated by the Plan of Merger will have been duly authorized
by AmeriQuest, its sole shareholder, and its Board of Directors and no further
corporate action on the part of Newco is or will be necessary to consummate the
transactions contemplated by this Agreement.
2.03 Capitalization of AmeriQuest. All of AmeriQuest's authorized capital
stock consists of 10,000,000 shares of Common Stock, $.01 par value (previously
referred to as "AmeriQuest Common Stock"), of which 9,862,079 shares are
validly issued and outstanding; and 5,000,000 shares of Preferred Stock, $.01
par value ("AmeriQuest Preferred Stock"), of which 1,099,628 shares of
AmeriQuest Series C Convertible Preferred Stock are issued or outstanding. Upon
approval of the amendment to the AmeriQuest Certificate of Incorporation
contemplated by Section 1.08(a) hereof, AmeriQuest's authorized capital stock
shall consist of 30,000,000 shares of AmeriQuest Common Stock and 5,000,000
shares of AmeriQuest Preferred Stock. All issued and outstanding shares of
AmeriQuest Common Stock are duly authorized, validly issued, fully paid and
nonassessable. There are no options, warrants, contracts or commitments
entitling any person to purchase or otherwise acquire from AmeriQuest any
issued or unissued shares of its capital stock except for (a) 1,500,000 shares
which are the subject of stock options and warrants as described on Appendix I
to this Agreement and (b) an agreement to issue approximately 5,200,000 shares
of AmeriQuest Common Stock upon the closing of the Kenfil Merger. There is no
stock held in the treasury of AmeriQuest.
2.04 Resulting Ownership of AmeriQuest by Robec Shareholders. After the
Effective Date, assuming prior or contemporaneous consummation of the Kenfil
Merger, there will be outstanding approximately 18,961,707 shares of AmeriQuest
Common Stock and no shares of AmeriQuest Preferred Stock, and the current
shareholders of Robec will own approximately 14.76% of the outstanding shares
of AmeriQuest Common Stock. After the Merger, Robec will be a wholly-owned
subsidiary of AmeriQuest.
2.05 SEC Reports. AmeriQuest has delivered or made available to Robec correct
and complete copies of each report, schedule, registration statement and
definitive proxy statement filed by AmeriQuest with the SEC on or after January
1, 1991 (the "AmeriQuest SEC Documents"), which are all of the documents (other
than preliminary material) that AmeriQuest has been required to file with the
SEC on or after January 1, 1991. As of their respective dates or, in the case
of registrations statements, their effective dates, none of the AmeriQuest SEC
Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the AmeriQuest
SEC Documents complied when filed in all material respects with the then
applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder promulgated by the SEC. AmeriQuest has filed
all documents and agreements which were required to be filed as exhibits to the
AmeriQuest SEC Documents.
2.06 Financial Statements. The financial statements of AmeriQuest included in
the AmeriQuest SEC Documents complied as to form in all material respects with
the then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as
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may have been indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q promulgated by the SEC) and fairly
present (subject, in the case of unaudited statements, to normal, year-end
audit adjustments) the consolidated financial position of AmeriQuest and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows (or changes in
financial position prior to the approval of Statement of Financial Accounting
Standards Number 95) for the respective periods then ended.
2.07 Absence of Undisclosed Liabilities. AmeriQuest has no liabilities or
obligations as of the date hereof, secured or unsecured (whether accrued,
absolute, contingent or otherwise), including without limitation tax
liabilities due or to become due, except current liabilities incurred in the
ordinary course of business or in connection with the transaction contemplated
thereby.
2.08 Subsidiaries. The subsidiaries of AmeriQuest (the "AmeriQuest
Subsidiaries") are identified on Appendix II to this Agreement. Each AmeriQuest
Subsidiary is, and on the Effective Date will be, a corporation duly organized,
validly existing and in good standing under its respective jurisdiction of
incorporation, with full power and authority to own its property and to carry
on its business as it is now being conducted. Unless the context requires
otherwise, as used in Sections 2.07-2.22 and 4.01-4.21 of this Agreement, the
term AmeriQuest includes the AmeriQuest Subsidiaries.
2.09 No Violation of Governing Instruments. Except as disclosed on Appendix
III, no provision of the Certificate of Incorporation or By-laws of AmeriQuest
or of any material agreement or instrument to which AmeriQuest is a party or by
which it is bound is or will be violated by the execution and delivery of this
Agreement or by the performance or satisfaction of any agreement or condition
herein contained to be performed or satisfied by AmeriQuest.
2.10 Permits. AmeriQuest possesses all the licenses, franchises, permits,
registrations and other governmental authorizations necessary for the continued
conduct of its business without material interference or interruption.
2.11 Defaults. Except as disclosed on Appendix IV, AmeriQuest is not in
material default under any lease, purchase or sale contract, note, indenture or
loan agreement, or under any other agreement or arrangements which are
material, alone or in the aggregate, to which it is a party or by which it is
bound or, to the knowledge of the officers and directors of AmeriQuest,
affected. AmeriQuest further agrees to obtain all consents or waivers from (i)
those third parties to whom it is indebted and in default (except for amounts
owed to its vendors) and (ii) all third parties to whom it is indebted whose
indebtedness is scheduled for payment prior to the Effective Date, which may be
necessary to prevent the Merger provided for herein from resulting in any
breach, acceleration, default or collection under any such agreements or
arrangements.
2.12 Agreements. Except as set forth on Appendix V, AmeriQuest is not a party
to and is not bound by:
(a) any employment contracts or agreements or any collective bargaining
or labor agreements;
(b) any pension, retirement, stock option, stock purchase, savings,
profit-sharing, deferred compensation, retainer, consultant, bonus, group
insurance, or any vacation pay or severance pay or other incentive or
welfare, contract, plan or so-called fringe benefit agreement;
(c) any contract for the purchase of any materials, supplies, equipment
or inventory, or for the sale of any inventory, except contracts entered
into in the ordinary course of business (i) which do not (as to each)
involve either an unperformed commitment in excess of $300,000 or the
payment of more than $200,000; or (ii) which may not be terminated without
penalty by AmeriQuest within one year from the date hereof; or
(d) any note or agreement relating to any indebtedness except as shown on
AmeriQuest's March 31, 1994 financial statements included in the AmeriQuest
SEC Documents.
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2.13 Taxes. AmeriQuest has, and on the Effective Date will have, timely filed
all Federal and State and/or local tax returns required to be filed, and have
paid, or made adequate provisions for the payment of, all taxes (whether or not
reflected in its tax returns as filed and whether or not disputed) which may be
or hereafter become due and payable (and/or accruable) in respect of its
operations for all periods prior to the Effective Date, including that portion
of its current fiscal year to and including the Effective Date, to any city,
district, state, the United States, any foreign country or any other taxing
authority, and is not now and on the Effective Date will not be delinquent in
the payment of any tax assessment or government charge. No unpaid tax
deficiencies or additional liabilities of any sort have been proposed by any
governmental representative. No agreements for the extension of time for the
assessment of any amounts of tax have been entered into by or on behalf of
AmeriQuest. AmeriQuest has withheld proper and accurate amounts from its
respective employees for all periods in full and complete compliance with all
tax withholding provisions (including without limitation income tax
withholding, social security and unemployment taxes) of applicable federal,
foreign, state and local laws. The hours worked by and payment made to
employees of AmeriQuest have not been in violation of any applicable federal,
state, foreign or local laws dealing with such matters. All payments due from
AmeriQuest (on account of union employment contracts or otherwise) for employee
profit-sharing, pension benefits and employee health and welfare insurance have
been paid or accrued as a liability on its books. The reserves for taxes
reflected on the financial statements included in the AmeriQuest SEC Documents
are adequate to cover all taxes with respect to the income of AmeriQuest for
the period then ended.
AmeriQuest, on or prior to the Effective Date, agrees to pay all required
federal and state taxes in the time and manner required under applicable
federal and state tax laws with respect to AmeriQuest's operations through the
fiscal year ended June 30, 1994. AmeriQuest is not now and on the Effective
Date will not be delinquent in the payment of any tax assessment or government
charge in respect of AmeriQuest's operations through the Effective Date.
2.14 Accuracy of Corporate Records. The copies of the Certificate of
Incorporation, By-laws, minute books and stock transfer records of AmeriQuest
heretofore or hereafter delivered to Robec or made available to Robec for
examination are complete and correct. The minute books of AmeriQuest contain
complete and accurate records of all meetings and other corporate actions of
its shareholders, directors and committees of its Board of Directors.
2.15 Absence of Litigation. Except as set forth on Appendix VI, AmeriQuest is
not now engaged in or threatened with any litigation or other proceeding in
connection with its affairs involving amounts in excess of $50,000, and has not
been subject to any such litigation or proceeding during the past two (2)
years, and it is not now subject to any decree, order or other governmental
restriction which has a material adverse effect on its business or assets or
which would prevent or hamper the consummation of the Exchange or the Merger
contemplated by this Agreement.
2.16 Insurance. AmeriQuest's insurance coverage is adequate based on its
experience and the experience of similar businesses. AmeriQuest is not now and
on the Effective Date will not be in default in any material respect under any
such policy and such policies will be continued in force and effect up to and
including the Effective Date.
2.17 Employee Benefit Plans and Salaries. There has not been since June 30,
1993 any bonus, profit-sharing, pension, retirement or other similar
arrangement or plan instituted, amended or agreed to by AmeriQuest, or any
increase in the compensation payable or to become payable by it to any of its
officers, employees or agents whose total compensation for services rendered
after any such increase is at an annual rate of more than $100,000 (except for
those persons identified on Appendix VII in the amounts indicated thereon), nor
has any bonus, percentage of compensation or other like benefit accrued to or
for the credit of any of the officers, employees or agents of AmeriQuest
(except for those persons identified on Appendix VII in the amounts indicated
thereon).
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2.18 Salaries and Pensions. AmeriQuest has no unfunded obligation under any
pension or profit-sharing arrangements for the employees of AmeriQuest,
salaried, non-salaried, union or non-union, including any formal or informal
plans, and all funding arrangements with respect thereto have been made in
accordance with the terms of such plans or arrangements.
2.19 Labor Relations, Financial Condition and Assets. Since June 30, 1993,
there has not been any significant labor trouble or any adverse change in the
financial condition, assets, liabilities, properties, business or results of
operations of AmeriQuest, including but not limited to any cancellation of or
threatened cancellation of any contract, any damage or destruction of property
by fire or casualty, whether or not covered by insurance, or the taking of any
property by condemnation or eminent domain, except as disclosed on Appendix
VIII.
2.20 Regulatory Consents. Except for (a) filings required to be made with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "Antitrust
Improvements Act"), (b) the filing of a Prospectus/Proxy Statement with the
Securities and Exchange Commission as a Registration Statement on Form S-4, (c)
any consents or filings made necessary by the financing arrangements of the
Constituent Corporations and AmeriQuest and (d) the filing of the Plan of
Merger with the Department of State of the Commonwealth of Pennsylvania, no
material consent, authorization, order or approval of or filing of a
registration with any governmental commission, board or other regulatory body
is required by AmeriQuest for or in connection with the consummation of the
Merger.
2.21 AmeriQuest Shares. The shares of AmeriQuest Common Stock to be issued in
the transactions contemplated by this Agreement will be, upon issuance, duly
authorized, validly issued, fully paid and nonassessable.
2.22 Full Disclosure. No representation, warranty or other statement relating
to AmeriQuest or Newco contained in this Agreement or information contained in
any certificate, exhibit, appendix or document delivered by AmeriQuest or Newco
pursuant to this Agreement contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements made
herein or therein not misleading in light of the circumstances under which they
were made.
2.23 Survival. The representations and warranties of AmeriQuest contained
herein are true on the date hereof and shall continue to be true as of the
Effective Date, except for changes permitted or contemplated by the terms of
this Agreement, and shall survive the Effective Date.
ARTICLE III.
REPRESENTATION AND WARRANTIES OF ROBEC
Robec hereby represents and warrants to and agrees with AmeriQuest that:
3.01 Organization and Good Standing. Robec is, and on the Effective Date will
be, a corporation duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania, with full power and authority to
own its property and to carry on its business as it is now being conducted, and
is not required to be qualified to do business in any jurisdictions other than
those states in which it is now so qualified.
3.02 Authorization and Validity of Agreement. Robec has full corporate power
and authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby. Except for (a) obtaining the approval of its
Board of Directors as contemplated by Section 6.01 hereof and (b) obtaining the
approval of its shareholders as contemplated by Section 1.08 hereof, no other
corporate action on the part of Robec is necessary to the execution and
delivery by Robec of this Agreement. Upon receipt of the approvals referred
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to in the immediately preceding sentence, this Agreement will have been duly
executed and delivered by Robec and will be a valid and binding obligation of
Robec enforceable against Robec in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
3.03 Capitalization of Robec. All of Robec's authorized capital stock
consists of 10,000,000 shares of Common Stock, par value $.01 per share
(previously referred to as "Robec Common Stock"), of which 4,439,180 shares are
validly issued and outstanding; and 5,000,000 shares of Preferred Stock, par
value $.01 per share, of which no shares are outstanding. All of the issued and
outstanding shares of Robec Common Stock are duly authorized, validly issued,
fully paid and nonassessable. There are no options, warrants, contracts or
commitments entitling any person to purchase or otherwise acquire from Robec
any issued or unissued shares of its capital stock except shares subject to
stock options as outlined on Appendix IX to this Agreement; and 160,000 shares
of Robec Common Stock are held in the treasury of Robec.
3.04 SEC Reports. Robec has delivered or made available to AmeriQuest correct
and complete copies of each report, schedule, registration statement and
definitive proxy statement filed by Robec with the SEC on or after January 1,
1993 (the "Robec SEC Documents"), which are all the documents (other than
preliminary material) that Robec was required to file with the SEC on or after
January 1, 1993. As of their respective dates or, in the case of registrations
statements, their effective dates, none of the Robec SEC Documents (including
all exhibits and schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Robec SEC Documents complied when filed in all material
respects with the then applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder promulgated by the SEC.
Robec has filed all documents and agreements which were required to be filed as
exhibits to the Robec SEC Documents.
3.05 Financial Statements. The financial statements of Robec included in the
Robec SEC Documents complied as to form in all material respects with the then
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may have been indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q promulgated by the
SEC) and fairly present (subject, in the case of unaudited statements, to
normal, year-end audit adjustments) the consolidated financial position of
Robec and its consolidated subsidiaries as at the respective dates thereof and
the consolidated results of their operations and cash flows (or changes in
financial position prior to the approval of Statement of Financial Accounting
Standards Number 95) for the respective periods then ended.
3.06 Absence of Undisclosed Liabilities. Other than as set forth on the
balance sheet dated December 31, 1993, Robec has no material liabilities or
obligations as of the date hereof, secured or unsecured (whether accrued,
absolute, contingent or otherwise), including without limitation tax
liabilities due or to become due, except current liabilities incurred in the
ordinary course of business since such date or as set forth on any Appendix to
this Agreement.
3.07 Subsidiaries. The subsidiaries of Robec (the "Robec Subsidiaries") are
identified on Appendix X to this Agreement. Each Robec Subsidiary is, and on
the Effective Date will be, a corporation duly organized, validly existing and
in good standing under its respective jurisdiction of incorporation, with full
power and authority to own its property and to carry on its business as it is
now being conducted. Unless the context requires otherwise, as used in Sections
3.06-3.20 and 5.01-5.21 of this Agreement, the term Robec includes the Robec
Subsidiaries.
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3.08 No Violation of Governing Instruments. Except as disclosed on Appendix
XI, no provision of the Articles of Incorporation or By-laws of Robec or of any
material agreement or instrument to which Robec is a party or by which it is
bound is or will be violated by the execution and delivery of this Agreement or
by the performance or satisfaction of any agreement or condition herein
contained to be performed or satisfied by Robec.
3.09 Permits. Robec possesses all the licenses, franchises, permits,
registrations and other governmental authorizations necessary for the continued
conduct of its business without material interference or interruption.
3.10 Defaults. Except as disclosed on Appendix XII, Robec is not in material
default under any lease, purchase or sale contract, note, indenture or loan
agreement, or under any other agreement or arrangements which are material,
alone or in the aggregate, to which it is a party or by which it is bound.
Robec further agrees to use reasonable efforts to obtain all consents or
waivers from (i) those third parties to whom it is indebted and in default
(except for amounts owed to its vendors) and (ii) all third parties to whom it
is indebted (except for amounts owed to vendors) whose indebtedness is
scheduled for payment prior to the Exchange Closing, which may be necessary to
prevent the Merger provided for herein from resulting in any breach,
acceleration, default or collection under any such agreements or arrangements.
3.11 Agreements. Except as set forth on Appendix XIII, Robec is not a party
to and is not bound by:
(a) any employment contracts or agreements or any collective bargaining
or labor agreements;
(b) any pension, retirement, stock option, stock purchase, savings,
profit-sharing, deferred compensation, retainer, consultant, bonus, group
insurance, or any vacation pay or severance pay or other incentive or
welfare, contract, plan or so-called fringe benefit agreement;
(c) any contract for the purchase of any materials, supplies, equipment
or inventory, or for the sale of any inventory, except contracts entered
into in the ordinary course of business (i) which do not (as to each)
involve either an unperformed commitment in excess of $300,000 or the
payment of more than $200,000; or (ii) which may not be terminated without
penalty by Robec within one year from the date hereof; or
(d) any note or agreement relating to any indebtedness except as shown on
Robec's March 31, 1994 financial statements included in the Robec SEC
Documents.
3.12 Taxes. Robec has, and on the date of the Exchange Closing will have,
timely filed all Federal and State and/or local tax returns required to be
filed, and have paid, or made adequate provisions for the payment of, all taxes
(whether or not reflected in its tax returns as filed and whether or not
disputed) which may be or hereafter become due and payable (and/or accruable)
in respect of its operations for all periods prior to the Exchange Closing,
including that portion of its current fiscal year to and including the Exchange
Closing, to any city, district, state, the United States, any foreign country
or any other taxing authority, and is not now and on the date of the Exchange
Closing will not be delinquent in the payment of any tax assessment or
government charge. No unpaid tax deficiencies or additional liabilities of any
sort have been proposed by any governmental representative. No agreements for
the extension of time for the assessment of any amounts of tax have been
entered into by or on behalf of Robec. Robec has withheld proper and accurate
amounts from its respective employees for all periods in full and complete
compliance with all tax withholding provisions (including without limitation
income tax withholding, social security and unemployment taxes) of applicable
federal, foreign, state and local laws. The hours worked by and payment made to
employees of Robec have not been in violation of any applicable federal, state,
foreign or local laws dealing with such matters. All payments due from Robec
(on account of union employment contract or otherwise) for employee profit-
sharing, pension benefits and employee health and welfare insurance have been
paid or accrued as a liability on its books. The reserves for taxes reflected
on the December 31, 1993 audited financial statements of Robec are adequate to
cover all taxes with respect to the income of Robec for the period then ended.
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Robec, on or prior to the Exchange Closing, agrees to pay all required
federal and state taxes in the time and manner required under applicable
federal and state tax laws with respect to Robec's operations through the
fiscal year ended December 31, 1993. Robec is not now and on the date of the
Exchange Closing will not be delinquent in the payment of any tax assessment or
government charge in respect of Robec's operations through the date of the
Exchange Closing.
3.13 Accuracy of Corporate Records. The copies of the Articles of
Incorporation, By-laws, minute books and stock transfer records of Robec
heretofore or hereafter delivered or made available to AmeriQuest for
examination are complete and correct. The minute books of Robec contain
complete and accurate records of all meetings and other corporate actions of
its shareholders, directors and the committees of its Board of Directors.
3.14 Absence of Litigation. Except as set forth on Appendix XIV, Robec is not
now engaged in or threatened in writing with any litigation or other proceeding
in connection with its affairs involving amounts in excess of $50,000, and has
not been subject to any such litigation or proceeding during the past two (2)
years and it is not now subject to any decree, order or other governmental
restriction which has a material adverse effect on its business or assets or
which would prevent or hamper the consummation of the Exchange or the Merger
contemplated by this Agreement.
3.15 Insurance. Robec's insurance coverage is adequate based on its
experience and the experience of similar businesses. Robec is not now and on
the Effective Date will not be in default in any material respect under any
such policy and such policies will be continued in force and effect up to and
including the Effective Date.
3.16 Employee Benefit Plans and Salaries. There has not been since December
31, 1993 any bonus, profit-sharing, pension, retirement or other similar
arrangement or plan instituted, amended or agreed to by Robec, or any increase
in the compensation payable or to become payable by it to any of its officers,
employees or agents whose total compensation for services rendered after any
such increase is at an annual rate of more than $100,000 (except as set forth
on Appendix XV), nor has any bonus, percentage of compensation or other like
benefit accrued to or for the credit of any of the officers, employees or
agents of Robec (except as set forth on Appendix XV).
3.17 Salaries and Pensions. Robec has no unfunded obligation under any
pension or profit-sharing arrangements for the employees of Robec, salaried,
non-salaried, union or non-union, including any formal or informal plans, and
the funding arrangements with respect thereto have been made in accordance with
the terms of such plans or arrangements.
3.18 Labor Relations, Financial Condition and Assets. Since December 31,
1993, except as set forth in the Robec SEC Documents, there has not been any
significant labor trouble or any adverse change in the financial condition,
assets, liabilities, properties, business or results of operations of Robec,
any damage or destruction of property by fire or casualty, whether or not
covered by insurance, or the taking of any property by condemnation or eminent
domain, except as disclosed on Appendix XVI or on other Appendices attached
hereto.
3.19 Regulatory Consents. Except for (a) filings required to be made with the
FTC and the Antitrust Division under the Antitrust Improvements Act, (b) the
filing of a Prospectus/Proxy Statement with the Securities and Exchange
Commission as a Registration Statement on Form S-4, (c) any consents or filings
made necessary by the financing arrangements of the Constituent Corporations
and AmeriQuest and (d) the filing of the Plan of Merger with the Department of
State of the Commonwealth of Pennsylvania and appropriate documents, if any,
with the relevant authorities in states in which Robec is qualified to do
business, no material consent, authorization, order or approval of or filing of
a registration with any governmental commission, board or other regulatory body
is required by Robec for or in connection with the consummation of the Exchange
and Merger.
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3.20 Full Disclosure. No representation, warranty or other statement relating
to Robec contained in this Agreement or information contained in any
certificate, exhibit, appendix or document delivered by Robec pursuant to this
Agreement contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements made herein or therein
not misleading in light of the circumstances under which they were made.
3.21 Survival. The representations and warranties of Robec contained herein
are true on the date hereof and shall continue to be true as of the Exchange
Closing; except for charges permitted or contemplated by the terms of this
Agreement, but shall not survive the Exchange Closing and shall thereafter be
null and void and of no further force or effect.
ARTICLE IV.
CONDUCT OF AMERIQUEST PRIOR TO THE EFFECTIVE DATE
AmeriQuest covenants, warrants and agrees that, from the date hereof to the
Effective Date, except for transactions provided for or herein permitted or
disclosed in an exhibit or appendix hereto or expressly approved of in writing
by Robec, AmeriQuest shall:
4.01 Compensation. Except as disclosed on Appendix VII not increase the rate
of compensation payable or to become payable by it or make, accrue or become
liable for any bonus, profit-sharing, termination or incentive payment (in
excess of the applicable amounts or percentages prevailing at June 30, 1994 to
(a) any of its officers, directors or employees whose compensation is in excess
of $50,000 per annum, or (b) any other of its employees except in the ordinary
and usual course of business.
4.02 Dividends. Not declare or pay any dividend or distribution (in cash or
other property) in respect of any shares of its capital stock.
4.03 Capital Changes. Not purchase, otherwise acquire, sell or issue any
shares of its capital stock, for cash or other consideration, except to honor
outstanding stock option and warrant obligations; nor declare or effect any
stock dividend, stock split or other action that would result in a change in
its authorized and outstanding capitalization.
4.04 Encumbrance of Assets. Not further mortgage, pledge, or subject to any
lien, charge or encumbrance of any kind, any of its assets, tangible or
intangible, exclusive of liens arising as a matter of law in the ordinary
course of business as to which there is no known default.
4.05 Incur Liabilities. Not take any action which would cause it to incur any
material obligation or liability (absolute or contingent) except liabilities
and obligations incurred in the ordinary course of business.
4.06 Debt Retirement. Not discharge or satisfy any lien or encumbrance, or
pay any obligation or liability (absolute or contingent) other than (a) current
liabilities disclosed in the balance sheet dated March 31, 1994 which was
included in the AmeriQuest SEC Documents, and (b) liabilities incurred since
March 31, 1994 in the ordinary course of business.
4.07 Disposition of Assets. Not sell or transfer any of its tangible assets
or cancel any debts or claims, except in each case in the ordinary and usual
course of business, except for the pending sale of CMS Singapore and Any Bus.
4.08 Disposition of Intangibles. Not sell, assign, transfer or otherwise
dispose of patents, trademarks, trade names, copyrights, licenses, customer
lists, trade secrets, product registrations or other intangible assets.
4.09 Waivers. Not knowingly waive any rights of substantial value.
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4.10 Executory Agreements. Not, except in the ordinary course of business,
modify, amend, alter or terminate (by written or oral agreement, or any manner
of action or inaction) any of its executory agreements of a material nature or
which are material in amount.
4.11 Material Transactions. Except as otherwise contemplated herein, not
enter into any transaction material in nature or amount other than in the
ordinary and usual course of business.
4.12 Long-Term Commitments. Not undertake any major long-term (long-term
being defined as extending over a twelve (12) month period) purchase
commitments or sale commitments, even though within the ordinary course of its
business.
4.13 Insurance. Keep its property and assets insured in amounts and with
coverage at least as great as the amounts and coverage in effect on the date of
this Agreement.
4.14 Preservation of Business. Use its best efforts to preserve the
possession and control of all of its assets, to keep in faithful service its
present officers and key employees, to preserve the goodwill of its suppliers,
customers and others having business relations with it, and to do nothing to
impair its ability to keep and preserve its business existing on the date
hereof.
4.15 Amend Certificate. Not amend its Certificate of Incorporation or By-
laws, or change or agree to change in any manner the rights of its outstanding
capital stock or the character of its principal business, except as
contemplated by Section 1.08(a) hereof.
4.16 Preservation of Assets. Maintain its properties and assets in good
repair, order and condition, reasonable wear and use and damage by fire or
other casualty excepted.
4.17 Maintenance of Records. Maintain its books, accounts and records in the
usual, regular and ordinary manner on a basis consistent with that heretofore
employed.
4.18 Credit Practices. Not extend credit in the sale of its products other
than in accordance with credit practices in effect on the date hereof.
4.19 Retention of Real Estate. Not sell, mortgage, lease, buy or otherwise
acquire any real estate or any interest therein.
4.20 Investigation. Allow, at all reasonable times, following reasonable
advance notice, during normal business hours, Robec's employees, attorneys,
accountants and other authorized representatives, free and full access to its
plants, properties, books, records, documents and correspondence, and all of
the work papers and other documents relating thereto in the possession of its
auditors or counsel, in order that Robec may have full opportunity to make such
investigation as it may desire of AmeriQuest's properties and business.
4.21 Compliance with Law. Comply with all laws applicable to it or to the
conduct of its business and will conduct its business in such manner that on
the Effective Date the representations and warranties contained in this
Agreement shall be true as though such representations and warranties were made
on and as of such date.
4.22 Repayment of Robec Debt. Prior to or contemporaneous with the Exchange
Closing, arrange for a third party to loan on the date of the Exchange Closing
to Robec cash sufficient to repay all of its outstanding indebtedness to
CoreStates Bank, N.A. and Fidelity Bank, N.A. pursuant to the Second Amended
and Restated Credit and Security Agreement dated March 29, 1993, as amended
(the "Credit Agreement"), estimated to be approximately $10,500,000 on the date
hereof.
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4.23 Retention and Voting of Shares.
(a) Not to sell, transfer, pledge, assign or otherwise dispose of, or
enter into any contract, option or other arrangement with respect to the
sale, transfer, pledge, assignment or other disposition of, any shares of
Robec Common Stock acquired in the Exchange to any person other than to a
wholly-owned subsidiary of AmeriQuest which shall agree in writing prior to
the transfer to be bound by all of the provisions of this Agreement,
including without limitation this Section 4.23.
(b) Vote all shares of Robec Common Stock owned by it on the record date
for any annual or special meeting of the shareholders of Robec, however
called, and in any action by written consent of the shareholders of Robec,
at such meeting (x) in favor of the Plan of Merger, (y) against any action
or agreement which would result in a breach of any representation, warranty
or covenant of Robec in this Agreement or which would otherwise impede,
interfere with or attempt to discourage the Merger and (z) against the
nomination or election of any director other than the current directors of
Robec or any successor nominated by them.
ARTICLE V.
CONDUCT OF ROBEC PRIOR TO THE EXCHANGE CLOSING
Robec covenants, warrants and agrees that, from the date hereof to the
Exchange Closing, except for transactions provided for or herein permitted or
disclosed in an exhibit or appendix hereto or expressly approved of in writing
by AmeriQuest, Robec shall:
5.1 Compensation. Not increase the rate of compensation payable or to become
payable by it or make, accrue or become liable for any bonus, profit-sharing,
termination or incentive payment (in excess of the applicable amounts or
percentages prevailing at December 31, 1993 or set forth in the Employment
Agreements attached as Exhibits hereto for the individuals indicated therein)
to (a) any of its officers, directors or employees whose compensation is in
excess of $50,000 per annum, or (b) any other of its employees except in the
ordinary and usual course of business.
5.2 Dividends. Not declare or pay any dividend or distribution (in cash or
other property) in respect of any shares of its capital stock.
5.3 Capital Changes. Not purchase, otherwise acquire, sell or issue any
shares of its capital stock, for cash or other consideration, except to honor
outstanding stock option and warrant obligations; nor declare or effect any
stock dividend, stock split or other action that would result in a change in
its authorized and outstanding capitalization.
5.4 Encumbrance of Assets. Not further mortgage, pledge or subject to any
lien, charge or encumbrance of any kind, any of its assets, tangible or
intangible, exclusive of liens arising as a matter of law in the ordinary
course of business as to which there is no known default.
5.5 Incur Liabilities. Not take any action which would cause it to incur any
obligation or liability (absolute or contingent) except liabilities and
obligations incurred in the ordinary course of business.
5.6 Debt Retirement. Not discharge or satisfy any lien or encumbrance, or pay
any obligation or liability (absolute or contingent) other than (a) current
liabilities disclosed in the balance sheet dated March 31, 1994 which was
included in the Robec SEC Documents, and (b) liabilities incurred since March
31, 1994 in the ordinary course of business, except as contemplated by Section
4.22 hereof.
5.7 Disposition of Assets. Not sell or transfer any of its tangible assets or
cancel any debts or claims, except in each case in the ordinary and usual
course of business.
5.8 Disposition of Intangibles. Not sell, assign, transfer or otherwise
dispose of patents, trademarks, tradenames, copyrights, licenses, customer
lists, trade secrets, product registrations or other intangible assets.
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5.9 Waivers. Not knowingly waive any rights of substantial value.
5.10 Executory Agreements. Not, except in the ordinary course of business,
modify, amend, alter or terminate (by written or oral agreement, or any manner
of action or inaction) any of its executory agreements of a material nature or
which are material in amount.
5.11 Material Transactions. Except as otherwise contemplated herein, not
enter into any transaction material in nature or amount other than in the
ordinary and usual course of business.
5.12 Long-Term Commitments. Not undertake any major long-term (long-term
being defined as extending over a twelve (12) month period) purchase
commitments or sale commitments, even though within the ordinary course of its
business, without the prior written consent of AmeriQuest, which consent shall
not be unreasonably withheld or delayed.
5.13 Insurance. Keep its property and assets insured in amounts and with
coverage at least as great as the amounts and coverage in effect on the date of
this Agreement.
5.14 Preservation of Business. Use its best efforts to preserve the
possession and control of all of its assets, to keep in faithful service its
present officers and key employees, to preserve the goodwill of its suppliers,
customers and others having business relations with it, and to do nothing to
impair its ability to keep and preserve its business existing on the date
hereof.
5.15 Amend Articles. Not amend its Articles of Incorporation or By-laws, or
change or agree to change in any manner the rights of its outstanding capital
stock or the character of its principal business.
5.16 Preservation of Assets. Maintain its properties and assets in good
repair, order and condition, reasonable wear and use and damage by fire or
other casualty excepted.
5.17 Maintenance of Records. Maintain its books, accounts and records in the
usual, regular and ordinary manner on a basis consistent with that heretofore
employed.
5.18 Credit Practices. Not extend credit in the sale of its products other
than in accordance with credit practices in effect on the date hereof.
5.19 Retention of Real Estate. Not sell, mortgage, lease, buy or otherwise
acquire any real estate or any interest therein.
5.20 Investigation. Allow, at all reasonable times, following reasonable
advance notice, during normal business hours, AmeriQuest's employees,
attorneys, accountants and other authorized representatives, free and full
access to its plants, properties, books, records, documents and correspondence,
and all of the work papers and other documents relating thereto in the
possession of its auditors or counsel, in order that AmeriQuest may have full
opportunity to make such investigation as it may desire of Robec's properties
and business.
5.21 Compliance with Law. Comply with all laws applicable to it or to the
conduct of its respective business and will conduct its business in such manner
that on the date of the Exchange Closing the representations and warranties
contained in this Agreement shall be true as though such representations and
warranties were made on and as of such date.
5.22 Affiliates. At least ten business days prior to the date of the special
meeting of shareholders to be convened by Robec, Robec shall deliver to
AmeriQuest a list of names and addresses of those persons who were, in Robec's
reasonable judgment, at the record date for the Robec special meeting of
shareholders, "Affiliates" of Robec (each such person, together with the
persons identified below, an "Affiliate") within the meaning of Rule 145 of the
rules and regulations promulgated by the SEC under the Securities Act ("Rule
II-15
145"). If requested by AmeriQuest, Robec shall use its best efforts to deliver
or cause to be delivered to AmeriQuest, prior to the Effective Date, from each
of the Affiliates of Robec identified in the foregoing list, agreements to vote
in favor of the Plan of Merger (collectively, the "Robec Affiliate Agreements")
substantially in a form satisfactory to both AmeriQuest and Robec. AmeriQuest
shall be entitled to place legends on the certificates evidencing any
AmeriQuest Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement and the Plan of Merger, and to issue appropriate stop-
transfer instructions to the transfer agent for AmeriQuest Common Stock,
consistent with the terms of the Robec Affiliate Agreements, whether or not
such Robec Affiliate Agreements are actually delivered to AmeriQuest.
ARTICLE VI.
AMERIQUEST'S CONDITIONS TO CLOSING
A. The obligations of AmeriQuest to effect the Exchange contemplated
hereunder shall be subject to the following express conditions precedent:
6.01 Board Approvals. The Boards of Directors of Robec and AmeriQuest will
have approved this Agreement, following due diligence inquiries acceptable to
the respective Boards of Directors.
6.02 No Litigation. No preliminary or permanent injunction or other order
shall have been issued by any federal or state court of competent jurisdiction
in the United States or by any United States federal or state governmental or
regulatory body which prevents consummation of the transactions contemplated by
this Agreement and which is in effect on the date of the Exchange Closing; no
action or proceeding by any governmental or regulatory authority shall have
been commenced or threatened (and be pending or threatened on the date of the
Exchange Closing) against Newco, AmeriQuest, Robec or any of their respective
affiliates, associates, officers, or directors seeking to prevent or
challenging the transactions contemplated by this Agreement; and no action or
proceeding before any federal or state court of competent jurisdiction in the
United States shall have been commenced (and be pending) against Newco,
AmeriQuest, Robec or any of their respective officers or directors seeking to
prevent or challenging the transactions contemplated hereby and seeking
material damages in connection therewith.
6.03 Employment Contracts. Neither Robec nor any of its subsidiaries shall
have executed any employment agreements or labor agreements to which it is not
now a party, and shall not have extended any new severance right or increased
any existing severance right to any employee except as consented to by
AmeriQuest.
6.04 Continued Truth of Warranties. The representations and warranties of
Robec herein contained shall be true on and as of the Exchange Closing in all
material respects with the same force and effect as though made on such date,
except for any variations permitted by this Agreement.
6.05 Performance of Covenants. Robec shall have performed in all material
respects all covenants and obligations and complied with all conditions
required or contemplated by this Agreement to be performed or complied with by
it prior to the Exchange Closing.
6.06 Damages by Casualty. The business, properties, financial condition,
earnings, prospects and operations of Robec shall not have been adversely
affected on or prior to the Exchange Closing in any material way as a result of
any accident or other casualty (whether or not covered by insurance) or any
labor disturbance or Act of God or of the public enemy.
6.07 No Adverse Change. There shall have been no material adverse change in
the business, properties, operations, financial condition or earnings of Robec
since the date hereof, which contemplates, among other things, that, except as
indicated on the Appendices attached hereto, there will be no significant loss
of customers or vendors, but a loss of up to an average of $500,000 per month
on a cumulative basis since July 1, 1994 shall not be considered a material
adverse change with respect to Robec.
II-16
6.08 Certificate. Robec shall have delivered to AmeriQuest such certificates
and other documents evidencing satisfaction of the foregoing conditions
specified in this Article VI as AmeriQuest shall have reasonably requested.
Unless Robec shall have delivered to AmeriQuest a certificate executed by it
dated prior to the Exchange Closing, certifying that one or more of the
conditions set forth in Section 6.01 through 6.12 of this Agreement have not
been fulfilled, the consummation of the Exchange hereunder shall constitute a
representation and warranty by Robec that each of such conditions has been
fulfilled or satisfied.
6.09 Regulatory Consents. All consents, authorizations, orders and approvals
of, and filings and registrations with, any United States federal or state
governmental commission, board or other regulatory body which are required for
the consummation of the Exchange or the Merger shall have been obtained or
made, and the applicable waiting periods, if any, under the Antitrust
Improvements Act and the rules thereunder shall have expired or been
terminated. No preliminary or permanent injunction or other order by any
federal or state court of competent jurisdiction in the United States or by any
United States federal or state governmental or regulatory body shall have been
issued and remain in effect which prevents the consummation of the Exchange.
6.10 Approval of Legal Matters by Counsel. All legal matters in connection
with this Agreement and the Exchange Closing hereunder shall be approved by
Raymond L. Ridge, Esq., legal counsel for AmeriQuest, in the exercise of
reasonable judgment; and there shall have been furnished to such counsel by
Robec such corporate and other records and information as he may reasonably
have requested for such purpose.
6.11 Opinion of Counsel. Robec shall have furnished AmeriQuest with a
favorable opinion, dated the date of the Exchange Closing, of Morgan, Lewis &
Bockius addressed to Robec and in form and substance satisfactory to AmeriQuest
and its counsel to the effect that:
(a) Robec is a corporation duly incorporated, validly existing, and in
good standing under the laws of the Commonwealth of Pennsylvania; and
(b) Except for obtaining such shareholder approval as is required under
Pennsylvania law, all corporate proceedings required to be taken by or on
the part of Robec to authorize it to carry out this Agreement have been
performed, and this Agreement has been duly executed and delivered by
Robec, is valid and binding upon Robec and is enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and except to the extent
the enforceability is subject to general principles of equity.
6.12 AmeriQuest Shareholder Approval. The required approval from the
shareholders of AmeriQuest which is referred to in Section 1.08(a) hereof shall
have been obtained.
B. The obligations of AmeriQuest to consummate the Merger contemplated
hereunder shall be subject to the following express conditions precedent:
6.13 Completion of Exchange and Fulfillment of Conditions to Exchange. The
Exchange shall have occurred.
6.14 Robec Shareholder Approvals. The required approval from the shareholders
of Robec which is referred to in Section 1.08(b) hereof shall have been
obtained.
6.15 No Litigation. No preliminary or permanent injunction or other order
shall have been issued by any federal or state court of competent jurisdiction
in the United States or by any United States federal or state governmental or
regulatory body which prevents consummation of the Merger and which is in
effect on the Merger Closing Date.
ANY OF THE CONDITIONS CONTAINED IN THIS ARTICLE VI MAY BE WAIVED, IN WHOLE OR
IN PART, BY AMERIQUEST.
II-17
ARTICLE VII.
PRINCIPAL SHAREHOLDERS' AND ROBEC'S CONDITIONS TO CLOSING
A. The obligation of the Principal Shareholders to effect the Exchange
contemplated hereunder shall be subject to the following express conditions
precedent:
7.01 Board Approvals. The Boards of Directors of Robec and AmeriQuest will
have approved this Agreement, following due diligence inquiries acceptable to
the respective Boards of Directors.
7.02 No Litigation. No preliminary or permanent injunction or other order
shall have been issued by any federal or state court of competent jurisdiction
in the United States or by any United States federal or state governmental or
regulatory body which prevents consummation of the transactions contemplated by
this Agreement and which is in effect on the date of the Exchange Closing; no
action or proceeding by any governmental or regulatory authority shall have
been commenced or threatened (and be pending or threatened on the date of the
Exchange Closing) against Newco, AmeriQuest, Robec or any of their respective
affiliates, associates, officers, or directors seeking to prevent or
challenging the transactions contemplated by this Agreement; and no action or
proceeding before any federal or state court of competent jurisdiction in the
United States shall have been commenced (and be pending) against Newco,
AmeriQuest, Robec or any of their respective officers or directors seeking to
prevent or challenging the transactions contemplated hereby and seeking
material damages in connection therewith.
7.03 Continued Truth of Warranties. The representations and warranties of
AmeriQuest herein contained shall be true on and as of the Exchange Closing
with the same force and effect as though made as of such date, except for any
variations permitted by this Agreement.
7.04 Performance of Covenants. AmeriQuest shall have performed all material
covenants and obligations and complied with all material conditions required by
this Agreement to be performed or complied with by it prior to the Exchange
Closing.
7.05 Certificate. AmeriQuest shall have delivered to Robec such certificates
and other documents evidencing satisfaction of the foregoing conditions
specified in this Article VII as Robec shall have reasonably requested. Unless
an executive officer of AmeriQuest shall have delivered to Robec a certificate
executed by him, dated prior to the Exchange Closing, certifying that one or
more of the conditions set forth in Section 7.01 through 7.17 hereof have not
been fulfilled, the consummation of the Exchange shall constitute a
representation and warranty by AmeriQuest that each of such conditions has been
fulfilled or satisfied.
7.06 Record Date. The record date for the determination of the Robec
shareholders entitled to vote upon the adoption of the Plan of Merger shall
have been fixed or determined in accordance with Section 1763 of the BCL.
7.07 Regulatory Consents. Except for the filing of the Articles of Merger
with the Department of State of the Commonwealth of Pennsylvania, all consents,
authorizations, orders and approvals of, and filings and registrations with,
any United States federal or state governmental commission, board or other
regulatory body which are required for the consummation of the Exchange or the
Merger shall have been obtained or made, and the applicable waiting periods, if
any, under the Antitrust Improvements Act and the rules thereunder shall have
expired or been terminated. No preliminary or permanent injunction or other
order by any federal or state court of competent jurisdiction in the United
States or by any United States federal or state governmental or regulatory body
shall have been issued and remain in effect which prevents the consummation of
the Exchange or the Merger.
II-18
7.08 Employment Contracts. Each of Messrs. Robert H. Beckett, Robert S.
Beckett and Alexander C. Kramer, Jr., shall have been offered an employment
contract, in substantially the form attached hereto as Exhibit C with base
salaries in amounts previously agreed to between such employee and AmeriQuest.
Except as otherwise provided in this Section 7.08, neither AmeriQuest nor any
of its subsidiaries shall have executed any employment agreements or labor
agreements to which it is not now a party, and shall not have extended or
increased any severance right to any employee.
7.09 Fairness Opinion. The Board of Directors of Robec shall have received a
"fairness opinion" on the Exchange and the Merger from a firm qualified to
render the same, satisfactory to the Board of Directors of Robec.
7.10 Opinion of Counsel. AmeriQuest shall have furnished Robec and the
Principal Shareholders with a favorable opinion, dated the date of the Exchange
Closing, of Raymond L. Ridge, Esq., addressed to Robec and in form and
substance satisfactory to Robec and its legal counsel, to the effect that:
(a) AmeriQuest is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
(b) All corporate proceedings required to be taken by or on the part of
AmeriQuest to authorize it to carry out this Agreement have been performed,
and this Agreement has been performed, and this Agreement has been duly
executed and delivered by AmeriQuest, is valid and binding upon AmeriQuest
and, subject to any insolvency law of general applicability, is enforceable
in accordance with its terms.
(c) The shares to be issued in the Exchange have been duly authorized and
upon receipt by the Principal Shareholders will be duly issued, fully-paid
and nonassessable shares of AmeriQuest Common Stock, duly approved for
listing on the NYSE upon official notice of issuance.
7.11 Third Party Consents. Robec shall have received all consents from third
parties which are required for the consummation of the Exchange or the Merger.
7.12 Horsham Lease. AmeriQuest shall have confirmed that the Surviving
Corporation will continue the existing lease and the use of the Robec office
building and warehouse in Horsham, Pennsylvania as its East Coast distribution
facility through end of the term of such lease.
7.13 No Material Adverse Change. There shall have been no material adverse
change in the business, properties, operations, financial conditions or
earnings of AmeriQuest since the date hereof.
7.14 Registration Rights. AmeriQuest shall have entered into a form of
Registration Rights Agreement with the Principal Shareholders in the form
attached hereto as Exhibit B.
7.15 Approval of Legal Matters by Counsel. All legal matters in connection
with this Agreement and the Exchange Closing hereunder shall be approved by
Morgan, Lewis & Bockius, legal counsel for Robec, in the exercise of reasonable
judgment; and there shall have been furnished to such counsel by AmeriQuest
such corporate and other records and information as they may reasonably have
requested for such purpose.
7.16 New York Stock Exchange Listing. The AmeriQuest Common Stock to be
issued pursuant to the Exchange shall have been approved for listing on the
NYSE upon official notice of issuance.
7.17 Repayment of Robec Debt. AmeriQuest or Robec shall have received
proceeds of a loan in an amount to Robec sufficient to repay all amounts
outstanding under the Credit Agreement pursuant to Section 4.22 hereof.
B. The obligation of Robec to consummate and to effect the Merger
contemplated hereunder shall be subject to the following express conditions
precedent:
II-19
7.18 Completion of Exchange and Fulfillment of Conditions to Exchange. The
Exchange shall have occurred.
7.19 Effective Registration Statement. The Registration Statement on Form S-4
which is referred to in Section 1.08(c) hereof shall have been declared
effective by the SEC and not be the subject of any stop-order from the SEC or
other proceeding by the SEC which would bring into question the accuracy and
adequacy of the disclosures contained therein.
7.20 Shareholder Approvals. All required approvals from the shareholders of
Robec, Newco and AmeriQuest shall have been obtained.
7.21 New York Stock Exchange Listing. The AmeriQuest Common Stock issued
pursuant to the Exchange and to be issued pursuant to the Merger shall have
been approved for listing on the NYSE upon official notice of issuance.
7.22 Opinion of Counsel. AmeriQuest shall have furnished Robec with a
favorable opinion, dated the Effective Date, of Raymond L. Ridge, Esq.,
addressed to Robec and in form and substance satisfactory to Robec and its
legal counsel, to the effect that:
(a) AmeriQuest is a corporation duly incorporated, validly existing, and
in good standing under the laws of the State of Delaware.
(b) Newco is a corporation duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania.
(c) All corporate proceedings required to be taken by or on the part of
AmeriQuest to authorize it to carry out this Agreement have been performed,
and this Agreement has been duly executed and delivered by AmeriQuest, is
valid and binding upon AmeriQuest and, subject to any insolvency laws of
general applicability, is enforceable in accordance with its terms.
(d) The shares to be issued in the Merger have been duly authorized and
upon receipt by the Robec shareholders will be duly issued, fully-paid and
nonassessable shares of AmeriQuest Common Stock, duly approved for listing
on the NYSE upon official notice of issuance.
7.23 No Litigation. No preliminary or permanent injunction or other order
shall have been issued by any federal or state court of competent jurisdiction
in the United States or by any United States federal or state governmental or
regulatory body which prevents consummation of the Merger and which is in
effect on the Merger Closing Date.
7.24 Continued Truth of Warranties. The representations and warranties of
AmeriQuest herein contained shall be true on and as of the Effective Date with
the same force and effect as though made as of such date, except for any
variations permitted by this Agreement.
7.25 Performance of Covenants. AmeriQuest shall have performed all material
covenants and obligations and complied with all material conditions required by
this Agreement to be performed or complied with by it prior to the Effective
Date.
7.26 Approval of Legal Matters by Counsel. All legal matters in connection
with this Agreement and the Merger Closing hereunder shall be approved by
Morgan, Lewis & Bockius, legal counsel for Robec, in the exercise of reasonable
judgment; and there shall have been furnished to such counsel by AmeriQuest
such corporate and other records and information as they may reasonably have
requested for such purpose.
ANY OF THE CONDITIONS CONTAINED IN THIS ARTICLE VII OTHER THAN SECTION 7.14
MAY BE WAIVED, IN WHOLE OR IN PART, BY ROBEC.
II-20
ARTICLE VIII.
MISCELLANEOUS
8.01 Broker For AmeriQuest. AmeriQuest represents and warrants that no
person, firm or corporation has acted in the capacity of broker on its behalf
to bring about the negotiation of this Agreement, and agrees to indemnify and
hold harmless Robec, its subsidiaries and affiliates, against any claims or
liabilities asserted against them by any person acting or claiming to act as a
broker or finder on behalf of AmeriQuest.
8.02 Broker for Robec. Robec represents and warrants that it is obligated to
pay to Penn Hudson Financial Group, Inc. a fee of $75,000 (the "Penn Hudson
Fee") in such firm's capacity as a broker on behalf of Robec in connection with
this Agreement. Robec agrees to pay the Penn Hudson Fee prior to or on the
Effective Date and to indemnify and hold harmless AmeriQuest, its subsidiaries
and affiliates, against any claims or liabilities asserted against them by any
other person acting or claiming to act as a broker or finder on behalf of
Robec.
8.03 Notices. Any notices or other communications required or permitted
hereunder to AmeriQuest and Robec shall be sufficiently given if delivered in
person or sent by telephonic facsimile or by registered mail or courier
service, charges prepaid, addressed as follows:
In the case of AmeriQuest:
AmeriQuest Technologies, Inc.
2722 Michelson Drive
Irvine, California
FAX No. (714) 222-6310
ATTENTION: Harold L. Clark, President
In the case of Robec:
Robec Inc.
425 Privet Road
Horsham, Pennsylvania
FAX No. (215) 672-9747
ATTENTION: Robert H. Beckett, Chairman, Chief Executive Officer
and President
With a copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
FAX No. (215) 963-5299
ATTENTION: Edward B. Cloues II, Esq.
or to such substituted address as any party has given notice to the other in
writing.
8.04 Waivers and Amendments. Any failure by AmeriQuest or of Robec to comply
with any of their respective obligations, agreements or covenants as set forth
herein may be expressly waived in writing by AmeriQuest in the case of a
default by Robec, and by Robec in the case of a default by AmeriQuest.
8.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
8.06 Confidentiality. Robec and AmeriQuest will provide to each other and, in
the case of AmeriQuest, to the Principal Shareholders, information concerning
their respective businesses and properties. All such information which each
party may provide (or which it has already provided) to the other party, except
information available to the public through documents filed with the Securities
and Exchange Commission
II-21
or otherwise available to the public, is hereinafter called the "Confidential
Information." The Confidential Information shall be treated by the receiving
party as confidential and shall be used by the receiving party only for the
purpose of considering the transaction contemplated by this Agreement. Each of
the parties hereto will retain in confidence, and will require its employees,
consultants, professional representatives and agents to retain in confidence,
all Confidential Information of the other party, and neither party will use or
disclose to others, or permit the use or disclosure of, any such Confidential
Information except for such purpose and except for such disclosure to their
employees, consultants, professional representatives and agents as may be
necessary for such purpose.
If either Robec or AmeriQuest terminates this Agreement, each party will
promptly deliver to the other (without retaining copies thereof) any and all
documents and other materials containing the Confidential Information obtained
from the other party in connection with such discussions, and the Principal
Shareholders will do likewise. Additionally, if this Agreement should be
terminated as herein provided, the parties hereto shall each keep confidential
any information (unless readily ascertainable from public information) obtained
from the other party concerning the properties, operations and business of the
other.
8.07 Expenses. The parties hereto shall each pay their own expenses in
connection with this Agreement and the Merger contemplated hereby. The expense
of furnishing documents required under this Agreement shall be borne by the
party obligated to furnish the same.
8.08 Termination of Agreement. This Agreement may be terminated: (a) by
mutual agreement of Robec and AmeriQuest; (b) by AmeriQuest, prior to the
Exchange, if there has been a breach by Robec of any representation, warranty,
covenant or agreement set forth in this Agreement on the part of Robec which
has or can reasonably be expected to have a material adverse effect on Robec
and which Robec fails to cure prior to the Exchange (except that no cure period
shall be provided for a breach by Robec which by its nature cannot be cured) or
if approval of this Agreement by its board of directors pursuant to Section
6.01 hereof is not obtained; (c) by Robec, if there has been a breach by
AmeriQuest of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of AmeriQuest which has or can reasonably be
expected to have a material adverse effect on AmeriQuest and which AmeriQuest
fails to cure prior to the Effective Date (except that no cure period shall be
provided for a breach by AmeriQuest which by its nature cannot be cured) or if
approval of this Agreement by its board of directors pursuant to Section 7.01
hereof or by its shareholders pursuant to Section 1.08(b) hereof is not
obtained; (d) by either party, if the Exchange shall not have occurred on or
prior to September 30, 1994; (e) by Robec, if the Merger shall not have
occurred on or prior to December 31, 1994, or (f) by Robec or any of the
Principal Shareholders if prior to the Exchange Robec decides to accept a
Superior Proposal (as defined in Section 8.09 hereof). Unless a termination is
caused by the willful failure of one of the parties hereto to perform or
satisfy an agreement or condition to be performed or satisfied by it hereunder,
none of the parties hereto shall have any further obligation or liability to
the other parties under this Agreement other than their respective obligations
under Sections 8.06, 8.07 and 8.12 hereof.
8.09 Competing Offers. Notwithstanding the foregoing, in the event that Robec
receives a bona fide proposal relating to the possible acquisition of Robec
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its capital stock or assets by any person
other than AmeriQuest, which proposal is, in the reasonable good faith judgment
of the Board of Directors of Robec, financially more favorable to the
shareholders of Robec than the terms of the Merger (a "Superior Proposal"),
nothing contained in this Agreement shall prevent the Board of Directors of
Robec from providing information to the party making the Superior Proposal,
negotiating with the party making the Superior Proposal, communicating the
Superior Proposal to the shareholders of Robec or making a recommendation in
favor of the Superior Proposal if before making such recommendation the Board
of Directors determines in good faith, after consultation with legal counsel,
that such action is required or likely required by reason of the fiduciary
duties of the members of the Board of Directors of Robec to the shareholders of
Robec under applicable law.
II-22
However, Robec shall immediately notify AmeriQuest of each proposal it may so
receive to afford AmeriQuest the opportunity to counter with a proposal that is
equal to or better than any Superior Proposal that Robec may receive.
8.10 Announcement. Upon execution of this Agreement, AmeriQuest and Robec
promptly will issue a joint press release approved by both AmeriQuest and Robec
announcing the Exchange and the Merger. Thereafter, neither of such parties
shall make any further announcements with respect to this Agreement or the
transactions proposed herein, without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed, provided,
however, that AmeriQuest and Robec may issue such press releases, and make such
other disclosures regarding the transactions contemplated herein, as each
determines (after consultation with legal counsel) are required under
applicable securities laws, NYSE rules or rules of the National Association of
Securities Dealers Automated Quotation system ("NASDAQ").
8.11 Robec Approvals After the Exchange. After the consummation of the
Exchange, any waiver of any condition, or consent to any action, or any
amendment to this Agreement or the Plan of Merger by Robec, shall require, in
addition to any other approval required by applicable law or Robec's Articles
of Incorporation, the approval of a majority of the Robec directors who were
directors of Robec as of the date hereof.
8.12 Indemnification and Insurance. (a) The Certificate of Incorporation of
the Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Articles of Incorporation of Robec on the date
of this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Date in any manner that
would adversely affect the rights thereunder of individuals who at the
Effective Date were directors, officers, employees or agents of Robec, unless
such modification is required by law.
(b) After the Effective Date (and with respect to the Principal Shareholders,
after the Exchange Closing), AmeriQuest and the Surviving Corporation shall, to
the fullest extent permitted under applicable law or under AmeriQuest's or the
Surviving Corporation's Certificate of Incorporation or By-laws, indemnify and
hold harmless each present and former director and officer of Robec and, to the
fullest extent permitted under applicable law, each Principal Shareholder
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring prior to the Effective Date, or arising out of or pertaining
to the transactions contemplated by this Agreement (collectively, "Damages"),
for a period of six years after the date hereof. Furthermore, for a period of
six years after the date hereof, AmeriQuest and the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless each Principal Shareholder in his capacity as an accommodating
shareholder against any Damages arising out of or pertaining to the
transactions contemplated by this Agreement. AmeriQuest or the Surviving
Corporation shall, to the fullest extent permitted under applicable law, pay
expenses incurred by an Indemnified Party in advance of a disposition of the
applicable action or suit upon the receipt of an undertaking by such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified hereunder. If for any reason AmeriQuest and the Surviving
Corporation do not promptly fulfill the indemnification and payment obligations
to the Principal Shareholders set forth in this Section 8.12(b), Robec or its
successor shall perform such obligations as though named in such provisions to
the fullest extent permitted under applicable law. The indemnifying party shall
have the right to choose counsel reasonably acceptable to the Indemnified
Parties. Indemnified Parties may not agree to settle claim without the consent
of the indemnifying party, which consent may not be unreasonably withheld.
(c) For a period of six years after the Effective Date, AmeriQuest shall
cause the Surviving Corporation to use its best efforts to maintain in effect,
if available, directors' and officers' liability insurance covering those
persons who are currently covered by Robec's directors' and officers' liability
insurance policy (a copy
II-23
of which has been heretofore delivered or made available to AmeriQuest) on
terms comparable to those applicable to the then current directors and officers
of AmeriQuest.
8.13 Attorney's Fees. If any action or proceeding is brought by either party
against the other with respect to this Agreement, the prevailing party shall be
entitled to recover attorney's fees and costs in such amount as the court (or
the arbitrators) may adjudge reasonable.
8.14 Further Assurances. Each of Robec and AmeriQuest agree to use its best
efforts to obtain all consents required by it to consummate the transactions
contemplated by this Agreement. Each party agrees to cooperate with the other
and to execute such further instruments, documents and agreements as may be
reasonably requested by the other to evidence and reflect the transactions
contemplated by this Agreement.
8.15 Headings. The headings herein are for convenience of reference only, do
not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions of this Agreement.
8.16 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
8.17 Entire Agreement. All prior negotiations and agreements between the
parties hereto are superseded by this Agreement and there are no
representations, warranties, understandings or agreements other than those
expressly set forth herein, in the attached Appendices or in Exhibits delivered
pursuant hereto, except as modified in writing concurrently herewith or
subsequent hereto.
WHEREFORE, the parties have set their hands on September 21, 1994 but
effective as of August 11, 1994.
AmeriQuest Technologies, Inc.
Attest:
/s/ Stephen G. Holmes /s/ Harold L. Clark
_____________________________________ _____________________________________
Stephen G. Holmes, Harold L. Clark,
Secretary President
Robec, Inc.
Attest:
/s/ Robert S. Beckett /s/ Robert H. Beckett
_____________________________________ _____________________________________
Robert S. Beckett, Robert H. Beckett,
Secretary Chairman, Chief Executive Officer
and President
PRINCIPAL SHAREHOLDERS
Each individual Principal Shareholder is joining in this Amended and Restated
Agreement and Plan of Reorganization in his or her capacity as an individual
shareholder solely for the purpose of agreeing to be bound by Sections 1.01,
8.06, 8.08 and 8.16 hereof.
/s/ Robert H. Beckett
_____________________________________
Robert H. Beckett
/s/ Robert S. Beckett
_____________________________________
Robert S. Beckett
/s/ Alexander C. Kramer, Jr.
_____________________________________
Alexander C. Kramer, Jr.
/s/ G. Wesley McKinney
_____________________________________
G. Wesley McKinney
II-24
APPENDICES
Appendix I --Stock Options, Warrants and Convertible Securities of AmeriQuest
Appendix II --AmeriQuest's Subsidiaries
Appendix III --Instruments Violated by AmeriQuest being party to the Agreement
Appendix IV --Defaults by AmeriQuest
Appendix V --Certain Material AmeriQuest Agreements
Appendix VI --Certain AmeriQuest Litigation
Appendix VII --AmeriQuest's Highly Compensated Employees
Appendix VIII--AmeriQuest's Labor Concerns and Financial Condition
Appendix IX --Stock Options, Warrants and Convertible Securities of Robec
Appendix X --Robec's Subsidiaries
Appendix XI --Instruments Violated by Robec being party to the Agreement
Appendix XII --Robec's Loans in Default and Scheduled for Repayment Prior to the
Effective Date
Appendix XIII--Certain Material Robec Agreements
Appendix XIV --Certain Robec Litigation
Appendix XV --Robec's Highly Compensated Employees
Appendix XVI --Robec's Labor Concerns and Financial Condition
II-25
EXHIBITS
Exhibit A--Plan of Merger
Exhibit B--Registration Rights Agreement
Exhibit C--Form of Employment Agreement.
II-26
APPENDIX III
COMPASS
CAPITAL ADVISORS
September 20, 1994
Board of Directors
Robec, Inc.
425 Privet Road
Horsham, PA 19044
Dear Sirs:
You have asked us to render our opinion as to whether the proposed merger of
Robec, Inc. ("Robec" or the "Company") with a wholly-owned subsidiary of
AmeriQuest Technologies, Inc. ("AmeriQuest"), pursuant to which the outstanding
shares of Robec common stock will be converted to 0.63075 shares of AmeriQuest
common stock (the "Transaction"), is fair, from a financial point of view, to
the current shareholders of the Company.
Compass Capital Advisors ("CCA"), as part of its investment banking business,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, employee benefit plans, and
valuations for corporate, estate, and other purposes. Neither CCA nor any of
its officers or employees has any interest in AmeriQuest or the Company, and
all of such persons are otherwise independent with respect to the Transaction.
In arriving at our opinion we have:
1. reviewed the Amended and Restated Agreement and Plan of Reorganization
dated as of August 11, 1994 by and among, inter alia, Robec and AmeriQuest,
including the Plan of Merger attached thereto;
2. reviewed the filings of Robec and AmeriQuest with the Securities and
Exchange Commission in 1993 and 1994 to date;
3. reviewed the Company's 1994 budget income statement and 1995 projected
consolidated statement of operations prepared by the Company's management;
4. reviewed AmeriQuest's budget model;
5. reviewed AmeriQuest's internally prepared projected financial
statements for Robec and AmeriQuest operations for 1994 through 1998;
6. reviewed AmeriQuest's Form S-4 Registration Statement, as filed with
the Securities and Exchange Commission on July 20, 1994;
7. reviewed press releases issued by Robec between August 1993 and August
10, 1994 and by AmeriQuest between December 1993 and August 12, 1994;
8. reviewed price and volume information relating to trading in Robec and
AmeriQuest common stock from 1992 through September 16, 1994;
9. reviewed and analyzed market trading and financial information about
certain publicly-traded companies which we deemed to be reasonably similar
to Robec and AmeriQuest;
10. reviewed and analyzed publicly available information with respect to
reported acquisitions in the computer industry;
11. discussed the business and prospects of the Company with its senior
management; and
12. reviewed all of the foregoing with you before forming our opinion.
III-1
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by Robec and
AmeriQuest, and we have not independently verified such information or
undertaken an independent appraisal of the assets of Robec or AmeriQuest. We
assume no responsibility to revise or update our opinion if there is a change
in the financial condition or prospects of Robec or AmeriQuest from that
disclosed or projected in the information we reviewed and set forth above or in
the general, economic or market conditions. This opinion does not constitute a
recommendation to any Robec shareholder as to how any such shareholder should
vote on the Transaction. This opinion does not address the relative merits of
the Transaction and any other transactions or business strategies that may have
been discussed by the Company's Board of Directors as alternatives to the
Transaction or the decision of the Company's Board of Directors to proceed with
the Transaction. Our opinion has been prepared solely for the use of the
Company's Board of Directors in its consideration of the Transaction and may
not be reproduced, summarized, described or referred to or given to any other
person or otherwise made public without CCA's prior written consent, except for
inclusion in full in the proxy statement to be sent to the Company's
shareholders in connection with obtaining shareholder approval of the
Transaction, and in any other filings made by the Company under applicable
securities laws. No opinion is expressed herein as to the price at which the
securities to be issued in the Transaction may trade at any time.
Based upon and subject to the foregoing, it is our opinion that the
Transaction is fair, from a financial point of view, to the shareholders of the
Company.
Compass Capital Advisors
/s/ Gabriel F. Nagy
By __________________________________
Gabriel F. Nagy, A.S.A.
Vice President
III-2
APPENDIX IV
SUBCHAPTER 15D OF THE PENNSYLVANIA BUSINESS CORPORATION LAW
DISSENTERS RIGHTS
Section
1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576. Failure to comply with notice to demand payment, etc.
1577. Release of restrictions or payment for shares.
1578. Estimate by dissenter of fair value of shares.
1579. Valuation proceedings generally.
1580. Costs and expenses of valuation proceedings.
(S)1571. APPLICATION AND EFFECT OF SUBCHAPTER.
(a) GENERAL RULE.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(d) (relating to dissenters rights upon election).
Section 2705(c) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(B) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
IV-1
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or
the effectuation of the transaction the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(D) NOTICE OF DISSENTERS RIGHTS.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(E) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may not be
relaxed by any provision of the articles.
(G) CROSS REFERENCES.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S)1572. DEFINITIONS.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
IV-2
"DISSENTER." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"FAIR VALUE." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
of the circumstances, taking into account all relevant factors including
the average rate currently paid by the corporation on its principal bank
loans.
(S)1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(A) RECORD HOLDERS OF SHARES.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other
shares were registered in the names of different shareholders.
(B) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
(S)1574. NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
(S)1575. NOTICE TO DEMAND PAYMENT.
(A) GENERAL RULE.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
of the fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
IV-3
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
(S)1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(B) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S)1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(A) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(B) RENEWAL OF NOTICE TO DEMAND PAYMENT.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance
under this section will be made. The remittance or notice shall be accompanied
by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(D) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had
after making demand for payment of their fair value.
IV-4
(S)1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(A) GENERAL RULE.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(B) EFFECT OF FAILURE TO FILE ESTIMATE.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
(S)1579. VALUATION PROCEEDINGS GENERALLY.
(A) GENERAL RULE.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(B) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(C) JURISDICTION OF THE COURT.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(D) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
(S)1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(A) GENERAL RULE.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
IV-5
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefitted.
IV-6
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers against expenses incurred in the defense of any lawsuit to which they
are made parties by reason of being or having been such directors or officers,
subject to specified conditions and exclusions; gives a director or officer who
successfully defends an action the right to be so indemnified; and authorizes
the Registrant to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
Article VII, Section 7 of the By-laws of the Registrant makes mandatory the
indemnification expressly authorized under the General Corporation Law of
Delaware. The general effect of the provisions in the Registrant's By-laws and
under Delaware law is to provide that the Registrant shall indemnify its
directors and officers against all liabilities and expenses reasonably incurred
in connection with the defense or settlement of any judicial or administrative
proceedings in which they become involved by reason of their status as
corporate directors or officers, if they acted in good faith and in the
reasonable belief that their conduct was neither unlawful (in the case of
criminal proceedings) nor inconsistent with the best interests of the
Registrant. With respect to legal proceedings by or in the right of the
Registrant in which a director or officer is adjudged liable for improper
performance of his duty to the Registrant, indemnification is limited by such
provisions to that amount which is permitted by the court.
The Registrant has not purchased liability policies which indemnify its
officers and directors against loss arising from claims by reason of their
legal liability for acts as officers and directors.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of Exhibits filed as part of the Registration
Statement:
SEQUENTIALLY
EXHIBIT NUMBERED
NO. TITLE OF DOCUMENT PAGE
------- ----------------- ------------
2.01 Amended and Restated Agreement and Plan of Original Filing
Reorganization to acquire Robec, Inc.
2.02 Plan of Merger to acquire Robec, Inc. Original Filing
3.01 Certificate of Incorporation of AmeriQuest 85*
3.02 By-laws of AmeriQuest 258**
4.01 Reference is made to Exhibits 3.01 and 3.02, the
Certificate of Incorporation and By-laws, which
define the rights of security holders
4.02 Specimen Common Stock Certificate 274**
5.01 Opinion of Raymond L. Ridge, Esq. Original Filing
8.01 Opinion of Arthur Andersen & Co. re: tax aspects Original Filing
10.01 Loan and Security Agreement dated August 19, 1993, 283**
as amended, between AmeriQuest and certain of its
subsidiaries and Silicon Valley Bank.
10.02 Addendum to Agreement for Wholesale Financing-- 365**
Flexible Payment Plan dated September 30, 1993
between CDS Distribution Inc. and IBM Credit
Corporation
10.03 Standard Industrial Lease--Net dated July 26, 1990, 402**
as amended, between AmeriQuest and Varian
Associates (successor-in-interest to Koll Center
Irvine East)
10.04 Agreement of Sublease dated December 5, 1994 by and **
between AmeriQuest and The Austin Company.
13.01 AmeriQuest's Annual Report on Form 10-K/A (Amendment This Filing
No. 6) as amended for the fiscal year ended June
30, 1994.
13.02 AmeriQuest's Quarterly Report on Form 10-Q/A This Filing
(Amendment No. 3) as amended for the quarter ended
December 30, 1994.
13.03 AmeriQuest's Current Reports on Form 8-K/A, as This Filing
amended, dated June 14, 1994, July 18, 1994,
September 12, 1994 and November 14, 1994.
22.01 Subsidiaries of the Registrant **
23.01 Consent of Raymond L. Ridge, Esq., Counsel to This Filing
Registrant
23.02 Consent of Arthur Andersen L.L.P. Auditors for the This Filing
Registrant
23.03 Consent of Arthur Andersen L.L.P. (contained in
Exhibit 8.01).
23.04 Consent of Deloitte & Touche LLP, Auditors for This Filing
Kenfil Inc.
23.05 Consent of Coopers & Lybrand, L.L.P., Auditors for This Filing
Robec
23.06 Consent of KPMG Peat Marwick LLP, Auditors for NCD This Filing
23.07 Consent of Hansen, Barnett & Maxwell, Auditors for This Filing
NCD
23.08 Consent of Coopers & Lybrand, L.L.P., Auditors for This Filing
NCD
24.01 Powers of Attorney for the Directors **
- --------
* As contained in the original filing of AmeriQuest's Annual Report on Form
10-K for the year ended June 30, 1994, SEC File No. 1-10397 and incorporated
herein by this reference.
** As contained in the original filing of Registration Statement 33-81726 and
incorporated herein by this reference pursuant to Rule 411(c) under the
Securities Act of 1933, as amended, and Rule 24 of the Commission's Rules of
Practice.
The Index to Financial Statement Schedules is set forth on page S-1 and is
incorporated herein by this reference. The Financial Statement Schedules are on
pages S-1 through S-11, and are incorporated herein by this reference.
II-2
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. That prior to any public reoffering of the securities registered hereunder
through the use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
2. That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3. To deliver or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under
the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not
set forth in the prospectus, to deliver, or cause to be delivered to each
person to whom the prospectus is sent or given, the latest quarterly report
that is specifically incorporated by reference in the prospectus to provide
such interim financial information.
4. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
5. To supply by means of a post-effective amendment all information concerning
a transaction, and Kenfil Inc., that was not the subject of and included in
this Registration Statement when it became effective.
6. That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of the General
Corporation Law of Delaware discussed under Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in said
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act
and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-effective Amendment No. 1 to its Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Ana, State of California, on the 8th day
of May, 1995.
AMERIQUEST TECHNOLOGIES, INC.
By:
HAROLD L. CLARK
Harold L. Clark,
Chief Executive Officer
(This Space Intentionally Left Blank)
II-4
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
HAROLD L. CLARK Co-Chairman, Chief Executive May 8, 1995
____________________________________ Officer and Director
Harold L. Clark (Principal Executive
Officer)
GREGORY A. WHITE President, Chief Operating May 8, 1995
____________________________________ Officer
Gregory A. White and Director
STEPHEN G. HOLMES Secretary, Treasurer, Chief May 8, 1995
____________________________________ Financial Officer and
Stephen G. Holmes Director
(Principal Financial and
Accounting Officer)
MARC L. WERNER Chairman of the Board May 8, 1995
____________________________________
Marc L. Werner **
ERIC J. WERNER Director May 8, 1995
____________________________________
Eric J. Werner **
TERREN S. PEIZER Director May 8, 1995
____________________________________
Terren S. Peizer **
Director May , 1995
____________________________________
William T. Walker, Jr.
WILLIAM N. SILVIS Director May 8, 1995
____________________________________
William N. Silvis**
ROBERT H. BECKETT- Director May 8, 1995
____________________________________
Robert H. Beckett**
HAROLD L. CLARK STEPHEN G. HOLMES
- ------------------------------------ -----------------------------------
Harold L. Clark,* Stephen G. Holmes,**
Attorney-in-Fact Attorney-in-Fact
II-5
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE NO.
--------
ROBEC'S FINANCIAL STATEMENT SCHEDULES
Schedule II. Valuation and Qualifying Accounts(1)
NCD'S FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report......................................... S-2
Schedule II. Valuation and Qualifying Accounts....................... S-3
Financial Statement Schedules Excluded:
All financial statement schedules not included are not applicable, not
required or would contain information which is shown in the financial
statements or notes thereto.
- --------
(1) The schedule required for Robec, Inc. is incorporated herein by reference
to Robec's Annual Report in Form 10-K for the year ended December 31, 1994
(SEC File No. 0-18115) filed March 31, 1995.
S-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ross White Enterprises, Inc.:
We have audited the accompanying balance sheets of Ross White Enterprises,
Inc. (d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the two-year period ended March 31, 1994. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ross White Enterprises, Inc.
(d/b/a National Computer Distributors) as of March 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the years in the two-
year period ended March 31, 1994 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
July 21, 1994, except as to notes 7,
8, 11(b) and 11(c) which are as of
September 27, 1994
S-2
ROSS WHITE ENTERPRISES, INC.
(D/B/A NATIONAL COMPUTER DISTRIBUTORS)
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND 1993, THE THREE MONTHS ENDED
MARCH 31, 1992 AND THE YEAR ENDED DECEMBER 31, 1991
ADDITIONS
---------------------------------------------------------------
BALANCE
AT CHARGED TO CHARGED TO OTHER CHARGES BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS: ADD (DEDUCT): END OF
OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
--------- ---------- --------------- ------------- ----------
Trade accounts
receivable:
Year ended March 31,
1994:
Allowance for
doubtful accounts.. $362,374 911,545 -- (748,919)(1) 525,000
======== ======= ======= ======== =======
Year ended March 31,
1993:
Allowance for
doubtful accounts.. $ 22,652 637,275 -- (297,553)(1) 362,374
======== ======= ======= ======== =======
Three months ended
March 31, 1992:
Allowance for
doubtful accounts.. $ 78,500 -- -- (55,848)(1) 22,652
======== ======= ======= ======== =======
Year ended December
31, 1991:
Allowance for
doubtful accounts.. $ 10,000 115,264 -- (46,764)(1) 78,500
======== ======= ======= ======== =======
Inventory:
Year ended March 31,
1994:
Allowance for
obsolescence....... $ 30,000 500,000 -- -- 530,000
======== ======= ======= ======== =======
Year ended March 31,
1993:
Allowance for
obsolescence....... $ -- 30,000 -- -- 30,000
======== ======= ======= ======== =======
Three months ended
March 31, 1992:
Allowance for
obsolescence....... $ -- -- -- -- --
======== ======= ======= ======== =======
Year ended December
31, 1991:
Allowance for
obsolescence....... $ -- -- -- -- --
======== ======= ======= ======== =======
- --------
(1) Write offs
S-3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 1994
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number: 0-19905
-------
Kenfil Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-3973756
- ---------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16745 Saticoy Street, Van Nuys, California 91406
- --------------------------------------------------------------
(Address of principal executive offices) (zip code)
(818) 785-1181
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of common stock outstanding at May 12, 1994:
Class: Common Stock, $0.01 par value 6,401,918
------
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENFIL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
June 30, March 31,
1993 1994
-------- ---------
(RESTATED
SEE NOTE 9)
ASSETS
Current assets:
Cash $ 555 $ 720
Accounts receivable, net 34,297 20,777
Inventory 17,146 19,441
Income taxes receivable 213 1,258
Prepaid expenses and other
current assets 2,110 1,967
------- -------
Total current assets 54,321 44,163
Property and equipment - net 1,093 1,268
Other assets 636 356
------- -------
Total $56,050 $45,787
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Line of credit $23,789 $16,267
Notes payable 2,064 6,056
Accounts payable 9,166 18,929
Accrued expenses and other
current liabilities 1,405 1,091
------- -------
Total current liabiliites 36,424 42,343
------- -------
Long-term debt 6,480 1,437
------- -------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 25,000,000 shares
authorized; 6,394,818 shares issued and outstanding
at June 30, 1993 and 6,401,918 at March 31, 1994 64 64
Additional paid-in capital 21,301 21,301
Accumulated deficit (8,219) (19,358)
------- -------
Total stockholders' equity 13,146 2,007
------- -------
Total $56,050 $45,787
======= =======
See accompanying notes to consolidated financial statements.
2
KENFIL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(UNAUDITED)
Three Months Nine Months
Ended March 31, Ended March 31,
---------------- ------------------
1993 1994 1993 1994
------- ------- -------- --------
(RESTATED (RESTATED
SEE NOTE 9) SEE NOTE 9)
Net sales $47,467 $ 27,699 $137,170 $124,171
Cost of goods sold 40,910 30,433 118,735 115,685
------- -------- -------- --------
Gross profit/(loss) 6,557 (2,734) 18,435 8,486
Selling, general and administrative
expenses 4,553 4,768 13,095 14,311
Earthquake loss 0 2,821 0 2,821
Restructuring charges 0 484 0 484
------- -------- ------- --------
Operating income (loss) 2,004 (10,807) 5,340 (9,130)
Interest expense - net 732 674 2,529 2,097
------- -------- ------- --------
Income (loss) before provision for income
taxes 1,272 (11,481) 2,811 (11,227)
Income tax provision (benefit) 457 (161) 1,063 (88)
------- -------- -------- --------
Net income (loss) $ 815 $(11,320) $ 1,748 $(11,139)
======= ======== ======== ========
Net income (loss) applicable to common
shares $ 1,178 $(11,320) $ 1,683 $(11,139)
======= ======== ======== ========
Net income (loss) per common and common equivalent
share $ .22 $ (1.77) $ .45 $ (1.74)
======= ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding 5,244 6,402 3,733 6,398
======= ======== ======== ========
See accompanying notes to consolidated financial statements.
3
KENFIL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(UNAUDITED)
Nine Months
Ended March 31,
-------------------
1993 1994
-------- -------
(RESTATED
SEE NOTE 9)
Cash flows from operating activities:
Net income (loss) $ 1,748 $(11,139)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Depreciation and amortization 181 194
Amortization of debt issuance costs 19 19
Deferred income taxes (271) 943
Changes in operating assets and liabilities:
Accounts receivable (8,441) 13,520
Inventory (7,920) (2,295)
Prepaid expenses and other current assets 747 (555)
Income taxes receivable 1,081 (1,045)
Accounts payable (2,518) 9,763
Accrued expenses and other current liabilities 176 (314)
-------- -------
Net cash (used in) provided by operating activities (15,198) 9,091
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (162) (311)
Other assets 87 16
-------- -------
Net cash used in investing activities (75) (295)
-------- -------
Cash flows from financing activities:
Net borrowings (payment) under line of credit agreements 3,613 (7,522)
Repayment of senior subordinated note (4,000) (1,000)
Repayment of stockholder note (100) 0
Net borrowings (payments) under capital leases (58) (109)
Initial public stock offering 16,550 0
Offering costs related to public offering
of common shares (666) 0
-------- -------
Net cash (used in) provided by financing activities 15,339 (8,631)
Net increase in cash 66 165
Cash, beginning of period 243 555
-------- -------
Cash, end of period $ 309 $ 720
======== =======
Supplemental disclosures of cash flow information:
Interest payments $ 2,983 $ 2,012
Income tax payments $ 428 $ 0
Supplemental disclosures of non-cash investing and financing activities:
A capital lease obligation of $188,000 was incurred for a lease for new
computer equipment during the nine month period ended March 31, 1993.
A capital lease obligation of $58,000 was incurred for a lease for new
computer equipment during the nine month period ended March 31, 1994.
See accompanying notes to consolidated financial statements.
4
KENFIL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods
Ended March 31, 1994
1. General
The consolidated financial statements of Kenfil Inc. ("Kenfil" or the
"Company") include the accounts of Kenfil and its consolidated subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The information for the three and nine months periods ended March 31, 1994
has not been audited by independent accountants, but includes all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
The results of operations for the three and nine month periods ended March 31,
1994 are not necessarily indicative of results that might be expected for the
full fiscal year.
Certain information and footnote disclosures normally included in annual
financial statements have been omitted pursuant to the requirements of the
Securities and Exchange Commission, although the Company believes that the
disclosures included in these financial statements are adequate to make the
information not misleading. The consolidated financial statements as presented
herein should be read in conjunction with the audited consolidated financial
statements and notes thereto included in Kenfil's Form 10-K as filed with the
Securities and Exchange Commission.
The Company operates under a four week - four week - five week fiscal
quarter calendar such that each quarter ends at the close of business on a
Friday. All references to March 31, 1994 on the financial statements and
accompanying documents actually refer to the close of business for the
quarter which occurred on April 1, 1994.
2. Earthquake Loss
The January 17, 1994 earthquake in Southern California greatly affected the
Company. Virtually all sales activities were discontinued for approximately two
weeks subsequent to the earthquake. The effects of the earthquake continued to
impact the Company during the remainder of the quarter ended March 31, 1994, as
sales were substantially below pre-earthquake levels. Overall, the Company
sustained an earthquake loss of approximately $2.8 million, net of insurance
proceeds, consisting of damaged inventory and office equipment, and other
related costs. In addition, cash flow shortages caused by the earthquake made it
necessary for the Company to sell certain inventory below its cost to generate
cash flow for operations. The resulting sales volume declines has also caused
the overstock of certain software titles. The Company recorded a $4.3 million
provision during the third quarter to value its inventory at net realizable
value. (See Management's Discussion and Analysis).
3. Restructuring Charges
During the quarter ended March 31, 1994, the Company decided to consolidate
its warehouse operations and downsize its staff resulting in a restructuring
charge of $484,000, principally relating to severance costs and warehouse lease
termination costs.
5
4. Earnings Applicable to Common Shares
Net income applicable to common shares represents the portion of the
Company's earnings applicable to its common stockholders. Such amount is
calculated for the three and nine month periods ended March 1993 by adjusting
net income by preferred stock dividends and the reversal of the equity put
obligation.
5. Earnings (loss) per Share
Earnings (loss) per share are computed using the weighted average number of
shares of common stock and dilutive common stock equivalents (stock options and
a warrant) outstanding during each period. For the three and nine months ended
March 1, 1993, the dilutive effect of the warrant is calculated using the
"equity method" as if the put warrant was converted, as this method is more
dilutive than if the related shares are not considered outstanding for earnings
per share purposes.
6. Borrowings
The Company had a senior line of credit facility with American National
Bank and Trust, which expired on April 30, 1994. Although the Company has
received a letter of non-renewal from the bank, the bank has extended the line
of credit through May 31, 1994. The Company is exploring alternative financing
sources. (See Liquidity and Capital Resources section for discussion of
potential acquisition of the Company by AmeriQuest Technologies, Inc.). There
can be no assurances that the facility will be extended beyond May 31, 1994,
that an alternative source of funds will be found, or that any such extension or
alternative source of funding will not be on terms less favorable to the Company
than the current facility. If the facility is not extended, or an alternative
source of funds is not found, the Company will not be able to repay the
outstanding balance under the facility which would have a material adverse
impact on its operations and financial condition.
As of March 31, 1994, the Company was not in compliance with the inventory
turnover covenant, net worth covenant, interest coverage covenant and debt
coverage covenant under its senior line of credit. The bank has agreed to
forebear exercising certain of its remedies with respect to certain defaults
through May 31, 1994. Nevertheless, the Company has not obtained a waiver as to
such events of non-compliance. Under certain circumstances, such as if events of
non-compliance other than those as to which the bank has agreed to forebear
exercising its remedies occur prior to, or if the facility is not extended
beyond, May 31, 1994, the bank may exercise its remedies under the credit
facility, including declaring the outstanding amount of the loan immediately due
and payable, which would have a material adverse effect on the Company's
operations and financial condition.
The Company also has an outstanding senior subordinated note issued to
Chrysler Capital Corporation. As of March 31, 1994, the Company was not in
compliance with the inventory turnover covenant, net worth covenant, interest
coverage covenant and debt coverage covenant under its senior subordinated
6
note. In addition, at the election of the senior lender, under the terms of the
subordination agreement, the Company was prohibited from making its interest
payment to Chrysler Capital which was due on March 21, 1994. The Company has not
obtained a waiver for such events of non-compliance. Under certain circumstances
the lender may exercise its remedies under the applicable note documents,
including declaring the outstanding amount of the note immediately due and
payable, which would have a material adverse effect on the Company's operations
and financial condition. The note payable has been reclassified to short-term on
the Company's consolidated balance sheet at March 31, 1994.
7. Income Taxes
Due to the losses incurred during the quarter ended March 31, 1994,
management recorded a valuation allowance of $943,000 to eliminate the Company's
deferred tax assets. This charge has been offset by the recognition of tax
benefits of $1,104,000 for which refunds will be received subsequent to March
31, 1994.
8. Subsequent Event
The Company has entered into an Agreement and Plan of Reorganization (the
"Agreement") with AmeriQuest Technologies, Inc. ("AmeriQuest") and certain
principal stockholders of Kenfil pursuant to which and subject to the terms and
conditions therein, AmeriQuest will acquire Kenfil. The Agreement is
incorporated by reference as Exhibit 2.1. Pursuant to the Agreement, certain of
Kenfil's stockholders (who together hold approximately 51.9% of the outstanding
common stock of Kenfil) would exchange (the "Exchange") their common stock of
Kenfil ("Kenfil Common Stock") for common stock of AmeriQuest ("AmeriQuest
Common Stock") at an exchange ratio of .34 shares of AmeriQuest Common Stock for
each share of Kenfil Common Stock. Subsequent to the Exchange, and after
appropriate stockholder approval, the remaining stockholders of Kenfil would
convert their Kenfil Common Stock into AmeriQuest Common Stock (at the same
ratio as in the Exchange) pursuant to a merger of a wholly-owned subsidiary of
AmeriQuest with and into Kenfil, which would result in Kenfil becoming a
wholly-owned subsidiary of AmeriQuest. Simultaneously with such merger, holders
of approximately $7.3 million of Kenfil subordinated debt will exchange their
debt for additional shares of AmeriQuest Common Stock. The transactions would
result in AmeriQuest issuing approximately 3.9 million shares of Common Stock to
the Kenfil stockholders and debtholders. The transactions are subject to a
number of conditions, such as obtaining necessary consents, regulatory approvals
and approvals of the stockholders of AmeriQuest and Kenfil.
9. Restatement
The accompanying unaudited condensed consolidated financial statements for
the three and nine month periods ended March 31, 1994 have been restated to
reflect an additional provision of $4,264,000 related to the realization of
certain inventory items.
The restatement resulted from management's detailed analysis of the
Company's realizability of its software titles performed in conjunction with
AmeriQuest's acquisition of Kenfil as discussed in Note 8 above. The effect of
this restatement is to decrease gross profit and increase the net loss by
$4,264,000 ($.67 per share) in the three and nine month periods ended March 31,
1994.
7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three and Nine Month Periods
Ended March 31, 1994
Overview
- --------
The January 17, 1994 Southern California earthquake severely impacted the
Company's operations and financial performance for the quarter ended March 31,
1994. Virtually all sales activities were discontinued for approximately two
weeks as damaged offices were repaired and fallen inventory was cleaned up and
segregated. The Company then had to complete a physical inventory of its Van
Nuys warehouse for what remained on the shelves.
Without the ability to ship out of its main warehouse for this time
period,the Company's working capital line of credit decreased significantly
without new sales to build collateral, causing a severe cash flow shortage. As a
result, the Company's ability to purchase needed inventory was hindered. In
addition, the Company's customers were slow to move orders back following the
business interruption, due to apprehension about the Company's ability to fill
orders. Accordingly, the earthquake continued to detrimentally impact the
Company's sales efforts throughout the quarter ended March 31, 1994. The cash
shortage required the Company to sell products at less than cost to generate
collateral for its borrowing base.
These declining sales trends are expected to continue into the Company's
fourth fiscal quarter.
Results of Operations
- ---------------------
Net sales decreased by $19.8 million (or 42%) for the quarter ended March
31, 1994 compared to the quarter ended March 31, 1993. For the nine month
period ended March 31, 1994 compared to this same period for the prior year, net
sales have decreased by $13.0 million (or 9%). Virtually all sales activities
were discontinued for approximately two weeks after the earthquake and were
substantially impacted for the remainder of the quarter. The decrease in net
sales for the three month period resulted primarily from a decline in sales to
CompUSA of approximately $13.3 million compared to the same quarter in the prior
year. In addition, sales of products of the Company's largest publisher,
WordPerfect Corporation, declined by $10.9 million compared to the same quarter
in the prior year. A portion of this decline would be included in the decrease
in sales to CompUSA. The Company will discontinue carrying products of
WordPerfect as of July 1, 1994. In addition, marketing service revenues declined
by approximately $1.3 million for the quarter ended March 31, 1994 compared to
this quarter for the prior year.
Gross profit decreased as a percentage of net sales from 13.8% to (9.9%)
for the quarter ended March 31, 1994 compared to this same period for the prior
year primarily due to an additional inventory realization provision of $4.3
million. This provision is based upon the Company's detailed review of its
software titles, performed in conjunction with its acquisition by AmeriQuest.
Reduced sales volumes experienced subsequent to the earthquake caused an
overstock of certain software titles. Gross profit for the nine month period
ended March 31, 1994 has decreased as a percentage of net sales from 13.4% to
6.8% compared to the same period for the prior year. This percentage decrease
was primarily
8
attributable to the Company's cash flow problems caused by the business
interruption following the earthquake and the resulting third quarter writedowns
of certain software title to realizable value. The Company did not earn cash
discounts as it had in the past, it did not meet certain quarterly rebate
quotas, and had to sell certain products at a discount in order to generate cash
for operations. The Company increased its reserves for slow-moving
inventory by $6.1 million during the third Quarter 1994.
Selling, general and administrative (SG&A) expenses increased by $215,000
for the quarter ended March 31, 1994 compared to this period for the prior
year. For the nine month period ended March 31, 1994 as compared to this period
for the prior year, SG&A expenses have increased by $1.2 million due to
increased salary and wage expenses of $600,000 and increased international SG&A
costs of $500,000 caused by the growth of the Hong Kong and Malaysian
operations.
The Company incurred restructuring charges during the quarter ended March
31, 1994 of $484,000 due to consolidation of its warehousing facilities and the
downsizing of the workforce. This amount is principally comprised of lease
termination costs and severance expenses.
The Company sustained an earthquake loss of approximately $2.8 million, net
of insurance proceeds, comprised of damaged inventory and office equipment, and
related costs.
Operating income (loss) decreased by $12.8 million from a $2.0 million
income to a $10.8 million loss for the quarter ended March 31, 1994 compared to
this period for the prior year because of the decreased gross profit, additional
SG&A costs, plus the non recurring restructuring and earthquake costs during the
quarter ended March 31, 1994.
Interest expense-net decreased from $732,000 to $674,000 for the quarter
ended March 31, 1994 compared to this quarter for the prior year, and from $2.5
million to $2.1 million for the nine month period. These decreases were
primarily the result of the Company's principal payments of $4,000,000 made in
February, 1993 and $1,000,000 made in February, 1994 against its senior
subordinated note, and from $74,000 of interest income recognized in December,
1993 resulting from a state tax refund.
The Company's tax benefit for the quarter ended March 31, 1994 includes the
recognition of the benefit of loss carrybacks of $1,104,000 offset by the
elimination of the Company's deferred tax assets.
Recent Developments
- -------------------
The Company has entered into an Agreement and Plan of Reorganization (the
"Agreement") with AmeriQuest Technologies, Inc. ("AmeriQuest") and certain
principal stockholders of Kenfil pursuant to which and subject to the terms and
conditions therein, AmeriQuest will acquire Kenfil. The Agreement is
incorporated by reference as Exhibit 2.1. Pursuant to the Agreement, certain of
Kenfil's stockholders (who together hold approximately 51.9% of the
9
outstanding common stock of Kenfil) would exchange (the "Exchange") their common
stock of Kenfil ("Kenfil Common Stock") for common stock of AmeriQuest
("AmeriQuest Common Stock") at an exchange ratio of .34 shares of AmeriQuest
Common Stock for each share of Kenfil Common Stock. Subsequent to the Exchange,
and after appropriate stockholder approval, the remaining stockholders of Kenfil
would convert their Kenfil Common Stock into AmeriQuest Common Stock (at the
same ratio as in the Exchange) pursuant to a merger of a wholly-owned subsidiary
of AmeriQuest with and into Kenfil, which would result in Kenfil becoming a
wholly-owned subsidiary of AmeriQuest. Simultaneously with such merger, holders
of approximately $7.3 million of Kenfil subordinated debt will exchange their
debt for additional shares of AmeriQuest Common Stock. The transactions would
result in AmeriQuest issuing approximately 3.9 million shares of Common Stock
to the Kenfil stockholders and debtholders. The transactions are subject to a
number of conditions, such as obtaining necessary consents, regulatory approvals
and approvals of the stockholders of AmeriQuest and Kenfil. On April 5, 1994,
the Company announced it has signed an agreement with AmeriQuest Technologies
for AmeriQuest to acquire the Company. Under the terms of the agreement, the
Company's stockholders will be entitled to receive .34 shares of AmeriQuest
common stock for each share of the Company's common stock. The transaction is
subject to meeting various conditions including obtaining necessary consents,
regulatory approvals, shareholder approvals, and obtaining a working capital
line of credit for the combined companies.
10
Liquidity and Capital Resources
During the nine months ended March 31, 1994, current assets decreased by
$10.2 million dollars, principally due to a $13.5 million decrease in accounts
receivable caused by lower sales levels, offset by an increase in inventory of
$2.3 million, which was caused by the Company increasing inventory in the prior
quarter in anticipation of enhanced sales to CompUSA which did not materialize
in the three months ended March 31, 1994 offset by additional reserves for
slow-moving inventory of $6.1 million. The Company's line of credit decreased
by $7.5 million dollars for the nine months ended March 31, 1994 due to the
reduction of the accounts receivable collateral base. Accounts payable increased
during this period by $9.8 million due to reduced availability under the line of
credit.
The Company has a senior line of credit facility with American National
Bank and Trust Company of Chicago. The facility is secured by a lien on
substantially all of the Company's assets. The available amount fluctuates based
on an asset borrowing base, with a maximum facility currently of $20.0 million,
and bears interest as of March 31, 1994 at the bank's corporate base rate (6.25%
at March 31, 1994) plus 1.5%. The facility is a committed facility that expired
on April 30, 1994 and although the Company has received a letter of non-renewal
from American National Bank and Trust, the bank has extended the facility
through May 31, 1994. The Company is exploring alternative financing sources.
In connection with the proposed acquisition by AmeriQuest, the Company and
AmeriQuest are in the process of seeking financing for the combined companies.
If this financing is completed, the Company's senior line of credit will be
repaid in full. There can be no assurances that such new financing though the
acquisition can be completed, the existing facility extended beyond May 31,
1994, alternative source of funds found, or that any such extension or
alternative source of funding will not be on terms less favorable to the Company
than the current facility. If the acquisition and new financing is not
completed, the facility is not extended beyond May 31, 1994, or alternative
financing not found, the Company will not be able to repay the outstanding
balance under the facility which would have a material adverse impact on its
operations and financial condition.
As of March 31, 1994, the Company was not in compliance with the inventory
turnover covenant, net worth covenant, interest coverage covenant and debt
coverage covenant under its senior line of credit. The bank has agreed to
forebear exercising certain of its remedies with respect to certain defaults
through May 31, 1994. Nevertheless, the Company has not obtained a waiver as to
such events of non-compliance. Under certain circumstances, such as if events
of non-compliance other than those as to which the bank has agreed to forebear
exercising its remedies occur prior to, or if the facility is not extended
beyond, May 31, 1994, the bank may exercise its remedies under the credit
facility, including declaring the outstanding amount of the loan immediately due
and payable, which would have a material adverse effect on the Company's
operations and financial condition.
As of March 31, 1994, the Company had an outstanding balance of
approximately $16.3 million on its credit facility, with approximately $750,000
available for borrowing.
11
The Company also has an outstanding unsecured senior subordinated note
issued to Chrysler Capital Corporation. The note bears interest payable
semi-annually at a fixed rate of 13.91% per annum. The Company repaid $4 million
of principal of the original $10 million note on February 4, 1993, from its
public offering proceeds and paid $1.0 million in February 1994, leaving a
remaining balance of $5 million as of March 31, 1994. Principal payments of $1.0
million are due and payable on each of January 31, 1995 and 1996 and of $3.0
million on January 31, 1997. As of March 31, 1994, the Company was not in
compliance with the inventory turnover covenant, net worth covenant, interest
coverage covenant and debt coverage covenant under its senior subordinated note.
The Company has not obtained a waiver for such events of non-compliance. Under
certain circumstances the lender may exercise its remedies under the applicable
note documents, including declaring the outstanding amount of the note
immediately due and payable, which would have a material adverse effect on the
Company's operations and financial condition. This liability has been
reclassified to short-term on the Company's balance sheet.
In the event that the existing credit facility is not renewed, extended or
replaced on improved terms, and any necessary waivers not obtained, the Company
anticipates experiencing cash flow shortages which would most likely have a
material adverse effect on the Company's financial position and operations.
The Company believes that inflation has not had a material effect on its
operations.
12
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
------------------
None.
ITEM 2: Changes in Securities.
----------------------
None.
ITEM 3: Defaults Upon Senior Securities.
--------------------------------
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources"
ITEM 4: Submission of Matters to a Vote of Security-Holders.
----------------------------------------------------
None.
ITEM 5: Other Information.
------------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
2.1 Agreement and Plan of Reorganization, by and between Kenfil Inc.
and AmeriQuest Technologies, Inc. and certain other persons, dated
as of March 31, 1994 (previously filed as Exhibit 2.1 to Kenfil's
Current Report on Form 8-K dated April 14, 1994 and incorporated
herein by reference).
10.1 Amendment 5 and Forbearance Agreement dated April 29, 1994 in regard
to the Company's Loan and Security Agreement with American National
Bank and Trust.
10.2 Stock Pledge Agreement dated April 29, 1994 between the Company
and American National Bank and Trust.
(b) Reports
None during the quarter ended March 31, 1994, however the Company
filed a report on Form 8-K dated April 14, 1994 in regard to the
Agreement and Plan of Reorganization with AmeriQuest Technologies,
Inc.
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 8, 1995
Kenfil Inc.
By /s/ Stephen G. Holmes
----------------------
Stephen G. Holmes
Chief Financial Officer
14
EXHIBIT INDEX
Exhibit *Sequentially
Number Description Numbered Page
- ------- ----------- -------------
2.1 Agreement and Plan of Reorganization, by and between
Kenfil Inc., and AmeriQuest Technologies, Inc. and
certain other persons, dated as of March 31, 1994
(previously filed as Exhibit 2.1 to Kenfil's Current
Report on Form 8-K dated April 14, 1994 and incorporated
herein by reference).
10.1 Amendment No. 5 and Waiver and Forbearance Agreement
to Amended and Restated Loan and Security Agreement
dated as of April 29, 1994 between American National
Bank and Trust Company and Kenfil Inc.
10.2 Stock Pledge Agreement between American National Bank
and Trust Company and Kenfil Inc.
*This information appears only in the manually signed original of this Form 10-Q
filed with the Securities Exchange Commission.
15