SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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 Rule 14a-11(c) or Rule 14a-12
Reconditioned Systems, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act
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1) Title of each class of securities to which transaction applies:
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3) Per unit 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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[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
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1) Amount Previously Paid:
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RECONDITIONED SYSTEMS, INC.
444 WEST FAIRMONT
TEMPE, ARIZONA 85282
Dear Fellow Shareholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Shareholders of Reconditioned Systems, Inc. ("RSI") to be held at 8:00 a.m.,
local time, on January 25, 1999, at RSI's office, which is located at 444 West
Fairmont, Tempe, Arizona.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger, dated October 30,
1998 (the "Merger Agreement"), among RSI, Cort Investment Group, Inc., a Texas
corporation d/b/a Contract Network ("CNI"), and RSI Acquisition Corp., an
Arizona corporation and wholly-owned subsidiary of CNI ("Merger Corp.").
Pursuant to the Merger Agreement, among other things:
(i) Merger Corp. will be merged into RSI (the "Surviving
Corporation"), and the Surviving Corporation will become a wholly-owned
subsidiary of CNI (the "Merger"); and
(ii) All of the issued and outstanding shares of RSI Common Stock will
be converted, in the aggregate, into the sum of $8,575,000, plus an
adjustment amount (collectively, the "Merger Consideration"), and will be
allocated among the shares of RSI Common Stock and Options as follows: (a)
each outstanding share of RSI Common Stock shall be converted into an
amount in cash (the "Net Price Per Share") equal to (x) $8,575,000 plus the
total dollar amount that would be paid to RSI upon the exercise of all
outstanding Options on the effective date of the Merger (other than Options
which have an exercise price per share equal to or greater than the Net
Price Per Share) ("Out of the Money Options") divided by (y) the total
number of shares of RSI Common Stock and Options (other than Out of the
Money Options) outstanding on the effective date of the Merger; (b) each
outstanding Option (other than Out of the Money Options) shall be canceled
and converted into an amount of cash equal to the product of (x) the number
of shares of RSI Common Stock subject to the canceled Option and (y) the
excess of the Net Price Per Share over the exercise price of the Option;
and (c) each Out of the Money Option shall be canceled without cost or
liability to RSI or the Surviving Corporation.
There currently are no out of the Money Options outstanding. Based on shares of
RSI Common Stock and Options outstanding on the date hereof, and assuming no
Adjustment Amount, the RSI shareholders would receive $5.00 per share and the
RSI Option holders would receive $4.00 per share in the Merger.
The Adjustment Amount is a portion of the amount, if any, by which the
Merger Consideration has been increased during the time in which the Exchange
Agent holds the $8,575,000 less any amounts reserved for dissenting shares (the
"Exchange Fund"). The Exchange Agent will hold the Exchange Fund in escrow
beginning on the date on which the Special Meeting occurs or as soon as
practicable thereafter when each of the conditions to the Merger has been
satisfied or waived (the "Escrow Closing Date"), and may invest the Exchange
Fund as directed by CNI. Of the net earnings, if any, which are generated on the
Exchange Fund, 50% of such net earnings generated from the Escrow Closing Date
through the date on which joint written instructions by RSI and CNI are
delivered to the Co-Escrow Agents to file the Articles of Merger (the "Closing
Date"), minus the smallest dollar amount that would cure any and all
deficiencies in certain financial covenants of the Company (the "Cure Amount"),
shall become a part of the Merger Consideration (the "Adjustment Amount"). The
Company expects that this will result in a nominal upward adjustment in the
Merger Consideration to be received by each shareholder of no more than $0.10
per share.
The Merger, the Merger Agreement and the terms and conditions of the
transactions contemplated thereby are more fully described in the accompanying
Proxy Statement. We urge you to read this material carefully.
THE BOARD OF DIRECTORS OF RSI HAS UNANIMOUSLY DETERMINED THAT THE MERGER,
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND
IN THE BEST INTERESTS OF THE RSI SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THEM AND
RECOMMENDS THAT THE RSI SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER, THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Merger cannot be completed without the approval of RSI's shareholders.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of RSI Common Stock outstanding on
December 28, 1998, the record date for the Special Meeting.
It is important that your shares of RSI Common Stock are represented at the
Special Meeting regardless of the number of shares you hold. Whether or not you
plan to attend the Special Meeting, please vote by completing the enclosed proxy
card and mailing it to us. If you later decide to attend the Special Meeting and
vote in person, or if you wish to revoke your proxy for any reason prior to the
vote at the Special Meeting, you may do so and your proxy will have no further
effect. If you attend the Special Meeting, you may vote in person, if you wish,
even though you previously mailed your proxy. IF YOU DO NOT VOTE AT THE SPECIAL
MEETING EITHER IN PERSON OR BY PROXY, IT WILL HAVE THE SAME EFFECT AS IF YOU
VOTED AGAINST THE MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD AT
THIS TIME. If the Merger is consummated, you will be sent instructions as to the
procedures to be used in exchanging your RSI stock certificates for cash.
On a personal note, I want to thank all of you for your continued support
of our efforts. As you know, I was appointed to the Board in 1995, and have
served as Chairman since August 1996. Since I was not active in the furniture
business and since I am located in Pennsylvania, I have relied heavily on the
expertise and abilities of Wayne Collignon and Dirk Anderson. We have functioned
very effectively as a team, with each of us performing his duties and all of us
combining to effect the turnaround of RSI. From the brink of bankruptcy in 1996
to the profitable and thriving RSI today, we are justifiably proud of our
accomplishments. Now it is time for me to step aside and allow CNI to take RSI
to the next level. It was important to me that any transaction provide liquidity
to the existing shareholders of RSI, especially since a majority of you became
common stockholders through a mandatory conversion of preferred stock. I have
greatly enjoyed working with all the employees of RSI, who deserve all of the
credit for rebuilding your company.
I SUPPORT THIS MERGER BETWEEN RSI AND CNI AND JOIN WITH THE OTHER MEMBERS
OF THE BOARD IN RECOMMENDING THAT YOU VOTE IN FAVOR OF THE MERGER.
By Order of the Board of Directors,
Scott W. Ryan
Chairman of the Board
RECONDITIONED SYSTEMS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 25, 1999
To the Shareholders of Reconditioned Systems, Inc.:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Reconditioned Systems, Inc. ("RSI") will be held at 8:00 a.m.,
local time, on January 25, 1999, at RSI's office, which is located at 444 West
Fairmont, Tempe, Arizona, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated October 30, 1998, set forth in Appendix A to the
Proxy Statement accompanying this Notice (the "Merger Agreement"), among
RSI, Cort Investment Group, Inc., a Texas corporation d/b/a Contract
Network ("CNI"), and RSI Acquisition Corp., an Arizona corporation and
wholly-owned subsidiary of CNI ("Merger Corp."). Pursuant to the Merger
Agreement, among other things:
(i) Merger Corp. will be merged into RSI (the "Surviving
Corporation"), and the Surviving Corporation will become a
wholly-owned subsidiary of CNI (the "Merger"); and
(ii) All of the issued and outstanding shares of RSI Common Stock
will be converted, in the aggregate, into the sum of $8,575,000, plus
an adjustment amount (collectively, the "Merger Consideration"), and
will be allocated among the shares of RSI Common Stock and Options as
follows: (a) each outstanding share of RSI Common Stock shall be
converted into an amount in cash (the "Net Price Per Share") equal to
(x) $8,575,000 plus the total dollar amount that would be paid to RSI
upon the exercise of all outstanding Options on the effective date of
the Merger (other than Options which have an exercise price per share
equal to or greater than the Net Price Per Share) ("Out of the Money
Options") divided by (y) the total number of shares of RSI Common
Stock and Options (other than Out of the Money Options) outstanding on
the effective date of the Merger; (b) each outstanding Option (other
than Out of the Money Options) shall be canceled and converted into an
amount of cash equal to the product of (x) the number of shares of RSI
Common Stock subject to the canceled Option and (y) the excess of the
Net Price Per Share over the exercise price of the Option; and (c)
each Out of the Money Option shall be canceled without cost or
liability to RSI or the Surviving Corporation.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Information regarding the matters to be acted upon at the Special Meeting
is contained in the Proxy Statement accompanying this Notice which, together
with the Annexes thereto, form a part of this Notice.
If the Merger Agreement is adopted and the Merger is effected, holders of
RSI Common Stock who have complied with the requirements of the Arizona Business
Corporation Act (the "BCA") will have certain dissenters' rights under Arizona
law, if they wish to assert such rights, as described in more detail in the
Proxy Statement, which includes, as Annex B, a copy of the dissenters' rights
provisions of the BCA. The failure to follow the procedures specified will
result in the loss of appraisal rights.
The Board of Directors of RSI has fixed the date of close of business on
December 28, 1998 as the record date (the "Record Date") for determining the
holders of RSI Common Stock entitled to receive notice of, and to vote at, the
Special Meeting and any adjournments or postponements thereof. A list of
shareholders entitled to vote at the Special Meeting will be available for
inspection during normal business hours for ten days prior to the Special
Meeting at the offices of RSI at 444 West Fairmont, Tempe, Arizona 85282.
The adoption of the Merger Agreement requires the affirmative vote of the
holders of record of a majority of the shares of RSI Common Stock outstanding on
the Record Date.
By the Order of the Board of Directors,
Dirk D. Anderson
Secretary
PROXY STATEMENT
OF
RECONDITIONED SYSTEMS, INC.
444 WEST FAIRMONT
TEMPE, ARIZONA 85282
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GENERAL INFORMATION
This Proxy Statement relates to the proposed merger (the "Merger")
contemplated by the Agreement and Plan of Merger, dated October 30, 1998 (the
"Merger Agreement"), among Reconditioned Systems, Inc., an Arizona corporation
("RSI"), Cort Investment Group, Inc., a Texas corporation d/b/a Contract Network
("CNI"), and RSI Acquisition Corp., an Arizona corporation and wholly-owned
subsidiary of CNI ("Merger Corp.").
The Merger Agreement provides for the merger of Merger Corp. into RSI, with
RSI as the surviving corporation (the "Surviving Corporation"). Upon the
effectiveness of the Merger (the "Effective Time"), the Surviving Corporation
will become a wholly-owned subsidiary of CNI and each issued and outstanding
share of RSI common stock, no par value ("RSI Common Stock") (except shares
("RSI Dissenting Shares") held by RSI shareholders entitled to relief as
dissenters under the Arizona Business Corporation Act (the "BCA")), and the
options and warrants to acquire shares of RSI Common Stock outstanding on the
effective date of the Merger (the "Options") will be canceled and converted into
the right to receive the sum of $8,575,000 plus the Adjustment Amount (as
defined) (the "Merger Consideration") without any action on the part of the RSI
shareholders. The Merger Consideration shall be allocated among the shares of
RSI Common Stock and Options as follows:
(i) Each outstanding share of RSI Common Stock shall be converted
into an amount in cash (the "Net Price Per Share") equal to (x) $8,575,000
plus the total dollar amount that would be paid to RSI upon the exercise of
all outstanding Options on the effective date of the Merger (other than
Options which have an exercise price per share equal to or greater than the
Net Price Per Share) ("Out of the Money Options") divided by (y) the total
number of shares of RSI Common Stock and Options (other than Out of the
Money Options) outstanding on the effective date of the Merger
(collectively "RSI Common Stock Equivalents");
(ii) Each outstanding Option (other than Out of the Money Options)
shall be canceled and converted into an amount of cash equal to the product
of (x) the number of shares of RSI Common Stock subject to the canceled
Option and (y) the excess of the Net Price Per Share over the exercise
price of the Option; and
(iii) Each Out of the Money Option shall be canceled without cost or
liability to RSI or the Surviving Corporation.
This Proxy Statement and the accompanying form of proxy are being first
mailed to shareholders of RSI on or about January 5, 1999. The RSI shareholder
giving the proxy may revoke it at any time before it is exercised at the meeting
by: (i) delivering to the Secretary of RSI a written notice that is dated after
the proxy; (ii) submitting to the Secretary a new proxy relating to the same
shares; or (iii) attending the Special Meeting and voting in person (attendance
at the meeting will not automatically revoke a proxy). Any proxy which is not
revoked will be voted at the meeting in accordance with the shareholder's
instructions. If a shareholder returns a properly signed and dated proxy card
but does not mark any choices on one or more items, his or her shares will be
voted in accordance with the recommendations of the Board of Directors as to
such items. The proxy card gives authority to the proxies to vote shares in
their discretion on any other matter properly presented at the Special Meeting.
Proxies will be solicited from RSI's shareholders by mail. RSI will pay all
expenses associated with the solicitation, including postage, printing and
handling, and the expenses incurred by brokers, custodians, nominees and
1
fiduciaries in forwarding proxy materials to beneficial owners. Directors,
officers and regular employees of RSI may make further solicitations personally
or by telephone, facsimile or mail. These directors, officers and employees will
receive no additional compensation for any further solicitation.
Only holders of RSI's Common Stock at the close of business on December 28,
1998 (the "Record Date") are entitled to vote at the Special Meeting. Each
holder will be entitled to one vote per share. An affirmative vote of the
majority of the outstanding shares of RSI Common Stock entitled to be cast is
required for approval of the Merger Agreement.
CNI has furnished all information provided in this Proxy Statement
regarding CNI and/or Merger Corp., and RSI has furnished all information
regarding RSI. No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Proxy Statement, and, if given or made, such information or representation
should not be relied upon as having been authorized. The delivery of this Proxy
Statement shall not, under any circumstances, imply that there has been no
change in the affairs of RSI or in the information set forth in this Proxy
Statement since the date of this Proxy Statement.
AVAILABLE INFORMATION
RSI is a small business issuer that files reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). Such
reports, proxy statements and other information filed with the SEC may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. The SEC maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC
(http://www.sec.gov). RSI Common Stock is listed on the Nasdaq Stock Market, and
the reports, proxy statements and other information may also be inspected at the
offices of Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006. Upon
consummation of the Merger, listing of the RSI Common Stock on the Nasdaq Stock
Market will be terminated.
Statements contained in this Proxy Statement, or in any document
incorporated in this Proxy Statement by reference, as to the provisions of any
contract or any documents referred to herein or therein are qualified in all
respects by reference to the copy of such contract or other document
incorporated herein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated by reference in this Proxy Statement:
1. RSI's Annual Report on Form 10-KSB for the year ended March 31, 1998;
2. RSI's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998;
3. RSI's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998; and
4. RSI's Current Report on Form 8-K filed November 17, 1998.
The information relating to RSI contained in this Proxy Statement does not
purport to be comprehensive and should be read together with the information in
the documents incorporated by reference herein.
This Proxy Statement is accompanied by a copy of RSI's latest Form 10-KSB
(for the fiscal year ended March 31, 1998) and by a copy of RSI's latest Form
10-QSB (for the quarter ended September 30, 1998).
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COPIES OF DOCUMENTS INCORPORATED BY REFERENCE THAT ARE NOT PRESENTED IN OR
DELIVERED WITH THIS PROXY STATEMENT (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) ARE AVAILABLE ON THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV). IN ADDITION, COPIES OF SUCH DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF RSI COMMON
STOCK, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL REQUEST TO
RECONDITIONED SYSTEMS, INC., 444 WEST FAIRMONT, TEMPE, ARIZONA 85282 (TELEPHONE
NUMBER (602) 968-1772), ATTENTION: INVESTOR RELATIONS). IN ORDER TO ENSURE
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD BE
RECEIVED BY JANUARY 18, 1999.
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TABLE OF CONTENTS
Page
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GENERAL INFORMATION.......................................................... 1
AVAILABLE INFORMATION........................................................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 2
QUESTIONS AND ANSWERS ABOUT THE RSI/CNI MERGER............................... 6
SUMMARY...................................................................... 8
The Parties to the Merger............................................... 8
The RSI Special Meeting................................................. 8
Required Vote........................................................... 9
The Merger.............................................................. 9
Exchange of Stock Certificates..........................................10
Common Stock Purchase Warrant...........................................10
Background..............................................................10
Reasons for the Merger..................................................10
Recommendation of the RSI Board of Directors............................11
Interests of Certain Persons in the Merger..............................11
Conditions to the Merger................................................11
Right to Terminate......................................................11
Regulatory Matters......................................................12
Certain Federal Income Tax Consequences.................................12
Dissenters' Rights......................................................12
Market Prices of RSI Stock..............................................12
MEETING, VOTING AND PROXIES..................................................13
RSI Special Meeting.....................................................13
THE MERGER...................................................................14
Background of the Merger................................................14
Reasons for the Merger; Recommendation of the RSI Board of Directors....15
Interest of Certain Persons in the Merger...............................16
Material Federal Income Tax Consequences................................17
Dissenters' Rights......................................................18
THE MERGER AGREEMENT.........................................................20
The Merger..............................................................20
Consummation of the Merger..............................................20
The Escrow Closing......................................................20
The Exchange Agent......................................................21
Computation of Adjustment Amount........................................21
Exchange of Certificates for Merger Consideration.......................22
Representations and Warranties..........................................23
Certain Covenants.......................................................23
No Solicitation.........................................................24
Conditions to Each Party's Obligation to Effect the Merger..............25
Termination.............................................................25
Termination Fees; Expenses..............................................26
Amendment and Waiver....................................................26
THE WARRANT..................................................................26
General.................................................................26
The Exercise of the Warrant.............................................26
Certain Covenants.......................................................27
Transfer Restrictions...................................................27
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Exercise Price..........................................................27
DESCRIPTION OF RSI...........................................................28
Description of RSI......................................................28
Year 2000 Issues........................................................28
Security Ownership of Certain Beneficial Owners and Management of RSI...29
DESCRIPTION OF CNI...........................................................30
EXPERTS......................................................................31
OTHER MATTERS................................................................31
SHAREHOLDER PROPOSALS........................................................31
ANNEX A - Agreement and Plan of Merger.......................................A-1
ANNEX B - Procedures for Exercise of Dissenters' Rights......................B-1
ANNEX C - Form of Employment Agreement Between CNI and Wayne R. Collignon....C-1
ANNEX D - Form of Employment Agreement Between CNI and Dirk D. Anderson......D-1
ANNEX E - CNI Warrant........................................................E-1
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QUESTIONS AND ANSWERS ABOUT
THE RSI/CNI MERGER
Q: WHAT WILL HAPPEN IF THE PROPOSED MERGER IS COMPLETED?
A: A subsidiary of CNI will merge into RSI. As a result of this merger:
* RSI will become a wholly-owned subsidiary of CNI
* RSI shareholders will be paid cash for their shares of RSI Common
Stock
Q: WHAT WILL RSI SHAREHOLDERS RECEIVE FOR THEIR RSI SHARES?
A: Each outstanding share of RSI Common Stock will be converted into a Net
Price Per Share equal to (x) $8,575,000 plus the total dollar amount that
would be paid to RSI upon the exercise of all outstanding Options on the
effective date of the Merger (other than Out of the Money Options) divided
by (y) the total number of RSI Common Stock Equivalents outstanding on the
effective date of the Merger. This Net Price Per Share will be $5.00 per
share, subject to nominal upward adjustments of no more than $0.10 per
share. Each outstanding Option (other than Out of the Money Options) shall
be canceled and converted into an amount of cash equal to the product of
(x) the number of shares of RSI Common Stock subject to the canceled Option
and (y) the excess of the Net Price Per Share over the exercise price of
the Option. Each Out of the Money Option shall be canceled without cost or
liability to RSI or the Surviving Corporation. You will not have any
ownership interest in RSI or CNI after the Merger.
Q: WILL RSI REMAIN A PUBLICLY-TRADED COMPANY AFTER THE MERGER?
A: No. The existing shares of RSI Common Stock will be canceled, and the newly
issued RSI shares, all of which will be owned by CNI, will not be publicly
traded.
Q: WHAT DO I NEED TO DO NOW?
A: After reading this document carefully, just mail your signed proxy card in
the enclosed return envelope as soon as possible so that your shares can be
voted at the January 25, 1999 RSI Special Meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
directions provided by your broker.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy card is voted
at the special meeting. You can do this in one of three ways. First, you
can send a written notice to RSI stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card. Third, you can
attend the meeting and vote in person. Your attendance at the meeting alone
will not, however, revoke your proxy. If you have instructed a broker to
vote your shares, you must follow the procedure provided by your broker to
change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, you will receive written instructions
for exchanging your shares of RSI Common Stock for cash.
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Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS?
A: In general, any gain or loss recognized by an RSI shareholder will be a
capital gain or loss. Certain non-corporate shareholders may be eligible
for reduced rates of taxation (which may vary depending on such
shareholder's holding period for the RSI Common Stock) if, as of the date
of the exchange, such shareholder has held such RSI Common Stock for more
than one year. The deductibility of a capital loss realized is subject to
limitations.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger in the first quarter of 1999.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect to ask our shareholders to vote on any other matters at
the Special Meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have questions about the Merger, you should contact: Reconditioned
Systems, Inc., 444 West Fairmont, Tempe, Arizona 85282, Telephone: (602)
968-1772; Fax: (602) 894-1907.
7
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN IMPORTANT TERMS AND CONDITIONS OF THE
MERGER AND RELATED INFORMATION. THIS SUMMARY DOES NOT CONTAIN EVERY DETAIL ABOUT
THE MERGER, AND YOU SHOULD REFER TO THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROXY STATEMENT, THE ANNEXES, AND THE DOCUMENTS INCORPORATED
INTO THIS PROXY STATEMENT BY REFERENCE. RSI ENCOURAGES YOU TO READ THIS PROXY
STATEMENT AND THE ANNEXES IN THEIR ENTIRETY.
THE PARTIES TO THE MERGER
RSI. RSI, an Arizona corporation formed in March 1987, reconditions and
markets modular office workstations consisting of panels, work surfaces, file
drawers, book and binder storage and integrated electrical components
("workstations"). RSI specializes in reconditioning and marketing workstations
originally manufactured by Haworth, Inc. ("Haworth"). RSI purchases used
workstations from manufacturers, dealers, brokers, and end-users throughout the
United States through competitive bids or directly negotiated transactions.
After purchasing used workstations, RSI transports them to its manufacturing
facility in Tempe, Arizona where it disassembles and inventories the
workstations by component parts, stores and, upon receipt of purchase orders,
reconditions and reassembles the workstations. RSI sells the reconditioned
workstations throughout the United States to dealers and end-users.
There are more than 50 manufacturers of new workstations in the United
States. Steelcase, Inc. ("Steelcase"), Herman Miller, Inc. ("Herman Miller"),
and Haworth constitute the dominant manufacturers, controlling a majority of the
market for new workstations. Steelcase, Herman Miller, and Haworth each have
created a unique system for connecting panels, power and telecommunications
raceways, resulting in virtually no interchangability between their respective
products. Due to the lack of interchangability of parts for workstations of
these dominant manufacturers, RSI has generally specialized in reconditioning
and marketing workstations originally manufactured by just one of the dominant
manufacturers. RSI elected to specialize in reconditioning and marketing
workstations originally manufactured by Haworth as a result of the extensive
experience of RSI's founders with Haworth workstations.
RSI's executive offices are located at 444 West Fairmont, Tempe, Arizona
85282 and its telephone number is (602) 968-1772.
CNI. CNI is a Texas corporation formed in October, 1994. CNI is a provider
of remanufactured office workstations and related products. Workstations, which
consist of moveable panels, worksurfaces, storage units, lighting and electrical
distribution combined in an integrated unit, are a popular alternative to a
freestanding desk concept. CNI purchases pre-owned workstations from end users,
brokers and dealers throughout the United States and restores these workstations
to a like new condition at its remanufacturing facility in Dallas, Texas. CNI
primarily sells its remanufactured workstations directly to end users which
range from small businesses to Fortune 500 companies. CNI specializes in
recycling and marketing workstations originally manufactured by Steelcase.
CNI's executive offices are located at 10390 Brockwood Road, Dallas, Texas
75238 and its telephone number is (214) 340-6400.
Because the RSI shareholders will receive only cash in the Merger and will
not have any ownership interest in CNI or the Surviving Corporation after the
Merger, this Proxy Statement does not contain or incorporate by reference any of
the following: (i) a detailed description of CNI's business; (ii) CNI's
historical financial information, market prices or dividend information; (iii)
the anticipated operations of the Surviving Corporation after the Merger, (iv)
CNI's pro forma financial information to give effect to the Merger with RSI; (v)
information with respect to CNI's anticipated accounting treatment of the
Merger; or (vi) a comparison of the relative rights of CNI and RSI shareholders.
THE RSI SPECIAL MEETING
At the RSI Special Meeting, the RSI shareholders will be asked to consider
and vote upon the proposal to adopt and approve the Merger Agreement.
8
THE RSI SPECIAL MEETING IS SCHEDULED TO BE HELD AT 444 WEST FAIRMONT,
TEMPE, ARIZONA 85282 AT 8:00 A.M., LOCAL TIME, ON JANUARY 25, 1999. THE RSI
BOARD HAS FIXED THE CLOSE OF BUSINESS ON DECEMBER 28, 1998 AS THE RECORD DATE
(THE "RECORD DATE") FOR DETERMINING RSI SHAREHOLDERS ENTITLED TO VOTE AT THE RSI
MEETING.
THE RSI BOARD, BY UNANIMOUS VOTE, HAS ADOPTED AND APPROVED THE MERGER
AGREEMENT, AND RECOMMENDS THAT RSI'S SHAREHOLDERS VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
REQUIRED VOTE
As provided under the BCA, the affirmative vote of a majority of the votes
entitled to be cast at the RSI Special Meeting by the holders of outstanding
shares of RSI Common Stock is required for approval of the Merger Agreement. On
the Record Date, directors and executive officers of RSI, together with their
affiliates, as a group owned approximately 34.2% of the issued and outstanding
shares of RSI Common Stock.
THE MERGER
In the Merger, Merger Corp. will be merged with and into RSI, and the
Surviving Corporation will become a wholly-owned subsidiary of CNI. Pursuant to
the Merger Agreement, except for RSI Dissenting Shares, each outstanding share
of RSI Common Stock will be canceled and converted into cash in the following
ratio:
(i) Each outstanding share of RSI Common Stock shall be converted into a
Net Price Per Share equal to (x) $8,575,000 plus the total dollar
amount that would be paid to RSI upon the exercise of all outstanding
Options on the effective date of the Merger (other than Out of the
Money Options) divided by (y) the total number of RSI Common Stock
Equivalents outstanding on the effective date of the Merger;
(ii) Each outstanding Option (other than Out of the Money Options) shall
be canceled and converted into an amount of cash equal to the product
of (x) the number of shares of RSI Common Stock subject to the
canceled Option and (y) the excess of the Net Price Per Share over
the exercise price of the Option; and
(iii) Each Out of the Money Option shall be canceled without cost or
liability to RSI or the Surviving Corporation.
There currently are no out of the Money Options outstanding. Based on shares of
RSI Common Stock and Options outstanding on the date hereof, and assuming no
Adjustment Amount, the RSI shareholders would receive $5.00 per share and the
RSI Option holders would receive $4.00 per share in the Merger.
The Adjustment Amount is a portion of the amount, if any, by which the
Merger Consideration has been increased during the time in which the Exchange
Agent holds the $8,575,000 less any amounts reserved for dissenting shares (the
"Exchange Fund"). The Exchange Agent will hold the Exchange Fund in escrow
beginning on the date on which the Special Meeting occurs or as soon as
practicable thereafter when each of the conditions to the Merger has been
satisfied or waived (the "Escrow Closing Date"), and may invest the Exchange
Fund as directed by CNI. Of the net earnings, if any, which are generated on the
Exchange Fund, 50% of such net earnings generated from the Escrow Closing Date
through the date on which joint written instructions by RSI and CNI are
delivered to the Co-Escrow Agents to file the Articles of Merger (the "Closing
Date"), minus the smallest dollar amount that would cure any and all
deficiencies in certain financial covenants of the Company (the "Cure Amount"),
shall become a part of the Merger Consideration (the "Adjustment Amount"). The
Company expects that this will result in a nominal upward adjustment in the
Merger Consideration to be received by each shareholder of no more than $0.10
per share.
9
EXCHANGE OF STOCK CERTIFICATES
Pursuant to the Merger Agreement, CNI will authorize Harris Trust & Savings
Bank to serve as the exchange agent ("Exchange Agent"). As soon as practicable
after the Effective Date, the Exchange Agent will mail a letter of transmittal
and instructions regarding the surrender of stock certificates and Options to
each holder (other than holders of Dissenting Shares) who, immediately prior to
the Merger, had stock certificate(s) or Options. The holder shall receive a
check representing the cash consideration to which that holder is entitled upon
surrendering to the Exchange Agent the holder's stock certificate(s) or Options
and a duly executed letter of transmittal. Holders of shares of RSI Common Stock
or Options should not submit their stock certificates or Options for exchange
until they have received a letter of transmittal and related instructions after
the Effective Time. See "The Merger Agreement - the Merger."
COMMON STOCK PURCHASE WARRANT
Pursuant to a Common Stock Purchase Warrant dated as of October 30, 1998
between RSI and CNI (the "Warrant"), RSI has granted to CNI the right to
purchase, under certain circumstances, up to 230,000 shares of RSI Common Stock
(representing 15.6% of the outstanding common stock of RSI on November 30,
1998), at a price of $3.75 per share, subject to adjustments under certain
circumstances. The exercise of the Warrant is subject to certain conditions set
forth in the Warrant and the Merger Agreement. See "The Warrant - General" and
"The Merger Agreement - Termination Fees." The Warrant is intended to increase
the likelihood that RSI and CNI will consummate the Merger in accordance with
the terms of the Merger Agreement. The Warrant also may discourage competing
offers. See "The Warrant."
BACKGROUND
For a description of the background of the Merger, see "The Merger --
Background of the Merger."
REASONS FOR THE MERGER
The decision of the RSI Board to approve the Merger, the Merger Agreement
and the transactions contemplated thereby and recommend the adoption thereof by
RSI shareholders was based upon consideration of various factors, including
those mentioned in "The Merger--Background of the Merger," and the following
favorable factors:
(1) The conditions in the remanufactured office furniture industry in
North America, the likelihood of future consolidation in the industry,
and the limitations placed on RSI's ability to take advantage of such
opportunities due to its present size;
(2) The limited alternative strategic courses of action available to RSI
(i.e., entering into the Merger with CNI or remaining independent);
(3) The fact that the Merger Consideration was significantly superior to
the consideration in all of the other offers received by RSI;
(4) Historical market prices and trading information with respect to
shares of RSI stock;
(5) The near term usage of all remaining net operating loss carryforwards
would make continued profit growth very difficult for an independent
RSI to achieve;
(6) Merger Consideration that is equal to approximately 3.25 times RSI's
current book value and 15 times RSI's current earnings (after imputing
income taxes);
(7) Merger Consideration that is an assured amount not subject to the
future performance of CNI; and
10
(8) The terms and conditions of the Merger Agreement.
The Board also considered one unfavorable factor -- namely that RSI might
increase in value if it did not enter into the Merger and instead continued to
be operated independently, thereby potentially resulting in the shares of RSI
stock someday being worth more than the Merger Consideration. However, given the
favorable factors listed above, particularly factors (1), (5) and (6), the Board
determined that it was unlikely that the shareholders would receive more within
a reasonable period of time by RSI remaining independent than by entering into
the Merger. See "The Merger -- Reasons for the Merger."
RECOMMENDATION OF THE RSI BOARD OF DIRECTORS
THE RSI BOARD, BY A UNANIMOUS VOTE, HAS ADOPTED AND APPROVED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTEREST OF, RSI'S SHAREHOLDERS AND RECOMMENDS THAT THE RSI SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT. The RSI Board adopted and approved the
Merger Agreement after considering a number of factors described under the
heading "The Merger - Reasons for the Merger; Recommendation of the Board of
Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of RSI may have interests in the Merger that
are different from the interests of shareholders of RSI. Such interests relate
to, among other things, positions on the Board of Directors of the Surviving
Company, employment agreements, and possible severance payments. See "The Merger
- -- Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER
RSI and CNI must satisfy (or waive) certain conditions for the Merger to
occur, including the approval of the Merger Agreement by RSI shareholders, the
accuracy of the representations and warranties of the other party set forth in
the Merger Agreement as of the Closing Date (except for inaccuracies which are
not material), the due diligence review by CNI not revealing any item which in
CNI's reasonable judgment would constitute a material adverse change or a
prospect of a material adverse change in a particular balance sheet or income
statement item of RSI, the execution of the employment agreements with Wayne R.
Collignon and Dirk D. Anderson, and the performance by the other party in all
material respects (or waiver) of all obligations required to be performed under
the Merger Agreement. See "The Merger Agreement - Conditions to Each Party's
Obligation to Effect the Merger."
RIGHT TO TERMINATE
The Merger Agreement may be terminated under certain circumstances,
including: (i) by mutual consent of RSI and CNI; (ii) by either party if the
other party makes a material misrepresentation or breaches a warranty in the
representations and warranties or fails to perform in any material respect a
covenant with respect to its representations, warranties and covenants set forth
in the Merger Agreement; (iii) by either party if the Escrow Closing Date has
not occurred by March 31, 1999 unless this is due to the failure of the
terminating party to perform or observe the covenants, agreements and conditions
required to be performed by or before the Effective Date; (iv) by either party
if the transactions contemplated by the Merger Agreement violate any
nonappealable final order, decree, or judgment of any court or governmental body
or agency having competent jurisdiction; (v) by RSI if its Board of Directors
determines in good faith that termination is required by reason of another
acquisition proposal; (vi) by CNI if RSI's Board of Directors withdraws or
materially modifies or changes its recommendations to the shareholders to
approve the Merger Agreement and if there exists at such time another
acquisition; or (vii) by CNI under certain circumstances if RSI was not in
compliance with certain financial covenants.
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REGULATORY MATTERS
RSI and CNI are not aware of any material governmental or regulatory
approvals required to be obtained to consummate the Merger, other than
compliance with applicable federal and state securities and corporate laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, any gain or loss recognized by an RSI shareholder will be a
capital gain or loss. Certain non-corporate shareholders may be eligible for
reduced rates of taxation (which may vary depending on such shareholder's
holding period for the RSI Common Stock) if, as of the date of the exchange,
such shareholder has held such RSI Common Stock for more than one year. The
deductibility of a capital loss realized is subject to limitations.
In addition to the foregoing, special income tax provisions relating to the
exclusion or rollover of gain from the sale of qualified small business stock by
the shareholders may apply. In particular, these provisions may apply with
respect to holders of RSI Common Stock that acquired their shares through the
conversion of Series A Convertible Preferred Stock acquired from RSI in February
1994, assuming, among other things, that the holding period requirements under
the Internal Revenue Code are met.
In general, noncorporate shareholders may exclude up to 50% of the gain
from the sale of qualified small business stock, subject to certain limitations,
if they have held such stock for more than five years, or they may defer some of
the gain by reinvesting the proceeds from the sale of qualified small business
stock that they have held for at least six months in other qualified small
business stock within the 60-day period beginning on the date of sale.
RSI believes that it meets all requirements applicable to it to be a
qualified small business and for the shares acquired pursuant to the conversion
of Series A Convertible Preferred Stock into RSI Common Stock to qualify as
qualified small business stock, including the "active business requirement" set
forth in the Code. Accordingly shareholders who meet the requirements applicable
to individual shareholders, including the holding period requirements, may be
eligible for the exclusion or deferral treatment described herein.
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER UNDER FEDERAL, STATE, LOCAL OR
ANY OTHER APPLICABLE LAW.
DISSENTERS' RIGHTS
Subject to the terms and conditions of the Merger Agreement, holders of RSI
Common Stock who do not vote in favor of the Merger and who strictly comply with
certain statutory procedures will be entitled to dissenters' rights to receive
payment of the fair value of their shares if the Merger is consummated. Failure
to take any required step in connection with the exercise of such rights will
result in a loss of such rights. See "The Merger - Dissenters' Rights" and Annex
B.
MARKET PRICES OF RSI STOCK
On October 26, 1998, the last full trading day for which prices were
available before the execution of the Merger Agreement, the high, low and
closing sales prices per share of RSI Common Stock on the Nasdaq Stock Market
were each $3-5/8.
On ____________, 1998, the most recent date for which it was practicable to
obtain market price data prior to printing this Proxy Statement, the high, low
and closing sales prices per share of RSI Common Stock on the Nasdaq Stock
Market were $____, $_____, and $____.
12
The market price of RSI Common Stock is subject to fluctuation.
Shareholders are urged to obtain current market quotations for RSI Common Stock.
MEETING, VOTING AND PROXIES
This Proxy Statement is being furnished to the holders of RSI Common Stock
in connection with the solicitation of proxies by the RSI Board of Directors
from the holders of RSI Common Stock for use at the RSI Special Meeting.
RSI SPECIAL MEETING
PURPOSE OF THE MEETING. The purpose of the RSI Special Meeting is to
consider and vote upon the proposal to approve and adopt the Merger Agreement
and to transact such other business as may properly come before the Special
Meeting or any adjournment or postponements thereof. The RSI Board, by unanimous
vote, has adopted and approved the Merger Agreement, and recommends that RSI
shareholders vote FOR approval of the Merger Agreement.
DATE, PLACE AND TIME, RECORD DATE. The RSI Special Meeting will be held at
8:00 a.m., Arizona time, on January 25, 1999, at RSI's executive offices on 444
West Fairmont, Tempe, Arizona 85282. Only holders of record of RSI Common Stock
at the close of business on the Record Date are entitled to vote at the RSI
Special Meeting. On the Record Date, there were ______ holders of record of RSI
Common Stock and 1,473,950 shares of RSI Common Stock issued and outstanding.
VOTING RIGHTS. Each outstanding share of RSI Common Stock is entitled to
one vote upon each matter presented at the RSI Special Meeting. A majority of
the votes entitled to be cast by holders of shares of RSI Common Stock,
represented in person or by proxy, shall constitute a quorum for each matter
presented at the RSI Special Meeting. Abstentions and broker non-votes (i.e.,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
as to a matter with respect to which brokers or nominees do not have
discretionary power to vote) will be considered present for the purpose of
establishing a quorum.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of RSI Common Stock is required for approval of the Merger
Agreement. Abstentions and broker non-votes will have the same effect as votes
cast against approval of the Merger Agreement. The directors and executive
officers of RSI, together with their affiliates as a group, own approximately
34.2% of the issued and outstanding shares of RSI Common Stock.
PROXIES. RSI shareholders may vote either in person or by properly executed
proxy. By completing and returning the form of proxy, an RSI shareholder
authorizes the persons named therein to vote all the RSI shareholder's shares on
his or her behalf. All completed RSI proxies returned will be voted according to
the instructions indicated on such proxies. If no instructions are given, the
RSI proxies will be voted FOR approval of the Merger Agreement. The proxy card
gives authority to the proxies to vote shares in their discretion on any other
matter properly presented at the Special Meeting. The RSI shareholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of RSI a written notice that is dated after the
proxy; (ii) submitting to the Secretary a new proxy relating to the same shares;
or (iii) attending the Special Meeting and voting in person (attendance at the
meeting will not automatically revoke a proxy).
Proxies will be solicited from RSI's shareholders by mail. RSI will pay all
expenses associated with the solicitation, including postage, printing and
handling, and the expenses incurred by brokers, custodians, nominees and
fiduciaries in forwarding proxy materials to beneficial owners. Directors,
officers and regular employees of RSI may make further solicitations personally
or by telephone, facsimile or mail. These directors, officers and employees will
receive no additional compensation for any further solicitation.
13
The RSI meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
THE MERGER
BACKGROUND OF THE MERGER
After going public in December 1992, the founders of RSI embarked on an
acquisition program during 1993. The acquisition program proved to be ill-fated
and by mid-1994, RSI sustained serious deterioration in operating and financial
results. Resulting cash flow problems caused RSI to suspend dividend payments on
its 9% Series A Convertible Preferred Stock ("Preferred Stock"), and in December
1995, following the non-payment of three consecutive quarterly dividend
payments, the preferred shareholders appointed Scott W. Ryan as their
representative to the Board of Directors. Mr. Ryan orchestrated a restructuring
of RSI's capital structure, which was approved by RSI's shareholders on August
5, 1996. The reorganization, which was effective August 12, 1995, consisted of
the automatic conversion of each share of RSI's Preferred Stock, including any
and all accrued but unpaid dividends through the conversion date, into 13 shares
of RSI Common Stock. In addition, the shareholders approved a one-for-six
reverse stock split effective immediately following the Preferred Stock
conversion. As a result of the restructuring, the preferred shareholders
effectively owned approximately 80% of the reorganized RSI, and the former
common shareholders owned about 20%. When the reorganization was approved, the
founders and previous directors resigned, and Mr. Ryan became Chairman of the
Board. The new Board, consisting of Wayne Collignon, Dirk Anderson and Scott
Ryan, began to restore RSI to profitability. Consistent progress has been made
since 1995, with RSI showing steady growth in sales and earnings.
CNI started in 1988, a year after RSI, and is a factor in the
remanufactured workstation industry. CNI has been interested in acquiring RSI
for several years, prior to Mr. Ryan becoming a Director of RSI. Mr. Ryan first
discussed a possible transaction with Mr. O'Neal of CNI in September 1996. A
confidentiality agreement was executed on October 9, 1996. Early discussions of
a combination took various forms, including a sale of assets, a merger of CNI
into RSI, and an outright sale of RSI to CNI. CNI first proposed buying the
assets and assuming the liabilities of RSI for $3 million. On October 29, 1996,
RSI's Board received another proposal to merge CNI and RSI into a single public
entity. RSI's Board rejected both offers as inadequate. Informal communications
continued until August 1997, when Mr. Ryan and Mr. O'Neal executed another
confidentiality agreement and exchanged updated financial information. RSI's
Board first visited CNI in Dallas in October 1997, and has been in various
stages of negotiation with CNI, on and off, since that time. As RSI's results
continued to improve, CNI's interest grew and discussions intensified in April
1998, when RSI reported record sales and earnings for its fiscal year ending
March 31, 1998. Chairman Ryan received a letter dated June 5, 1998, from Mr.
O'Neal of CNI proposing to purchase the assets of RSI, excluding all cash in
excess of $150,000, for $8 million in cash. Again RSI's Board rejected the offer
as not in the best interest of the shareholders, and suggested that any offer be
for the stock of RSI. CNI revised its offer in a letter to Chairman Ryan dated
June 24, 1998, offering $8 million for 100% of the stock of RSI, with a working
capital adjustment. Again, RSI's Board rejected the offer as inadequate.
Finally, RSI received a proposal dated August 10, 1998 from CNI which revised a
letter of July 16, 1998 and outlined the basic terms and conditions for the
present Merger Agreement between CNI and RSI. The proposal stated that a
definitive merger agreement needed to be executed promptly and in good faith.
While discussions were proceeding with CNI, RSI's Board had discussions
with several other potential merger candidates. Chairman Scott Ryan had informal
discussions with the chairman of the industry's largest remanufacturer about a
possible combination, prior to that company going public in May 1996. Even
though nothing materialized, they continued to discuss a possible merger until
that company experienced operating problems during 1997.
Mr. Ryan also had extensive discussions with a large office products
company which indicated interest in acquiring RSI. In December 1996, RSI's Board
hired an exclusive agent to represent RSI in a possible transaction with this
company, and executed a confidentiality agreement with it on November 21, 1997.
14
Information was exchanged and several discussions were held from December 1996
through July 1998, among our agent, Chairman Ryan and senior executives at this
company. RSI's Board received a letter dated July 10, 1998, from our agent
outlining a proposal to acquire all of the outstanding shares of RSI for cash.
RSI's Board rejected the proposal because it was inferior to CNI's final offer;
however, discussion continued among the parties.
RSI also had discussions with a public company in the furniture business
located in southern California and executed a confidentiality agreement with it
in June 1998. Although information was exchanged, no proposals were generated.
Before accepting the CNI offer, Chairman Ryan revisited all other known
potential candidates, but RSI received no proposals as a result of these
revisits. After evaluating all possibilities, the Board approved the terms
contained in CNI's Letter of Intent on August 17, 1998.
The Merger Agreement between CNI and RSI was executed on October 30, 1998.
REASONS FOR THE MERGER; RECOMMENDATION OF THE RSI BOARD OF DIRECTORS
Although RSI has not retained a financial advisor to render an opinion with
respect to the fairness of the consideration to be paid to RSI's shareholders in
connection with the Merger, the RSI Board of Directors has determined that the
terms of the proposed Merger are fair to, and in the best interests of, RSI's
shareholders. At the meeting held on October 29, 1998, the RSI Board of
Directors unanimously adopted and approved the Merger Agreement and the
transactions contemplated thereby.
The decision of the RSI Board to approve the Merger, the Merger Agreement
and the transactions contemplated thereby and recommend the adoption thereof by
RSI shareholders was based upon consideration of various factors, including
those mentioned in "The Merger--Background of the Merger," and the following
favorable factors:
(1) The conditions in the remanufactured office furniture industry in
North America, the likelihood of future consolidation in the industry,
and the limitations placed on RSI's ability to take advantage of such
opportunities due to its present size;
(2) The limited alternative strategic courses of action available to RSI
(i.e., entering into the Merger with CNI or remaining independent);
(3) The fact that the Merger Consideration was signficantly superior to
the consideration in all of the other offers received by RSI;
(4) Historical market prices and trading information with respect to
shares of RSI stock;
(5) The near term usage of all remaining net operating loss carryforwards
would make continued profit growth very difficult for an independent
RSI to achieve;
(6) Merger Consideration that is equal to approximately 3.25 times RSI's
current book value and 15 times RSI's current earnings (after imputing
income taxes);
(7) Merger Consideration that is an assured amount not subject to the
future performance of CNI; and
(8) The terms and conditions of the Merger Agreement.
The Board also considered one unfavorable factor -- namely that RSI might
15
increase in value if it did not enter into the Merger and instead continued to
be operated independently, thereby potentially resulting in the shares of RSI
stock someday being worth more than the Merger Consideration. However, given the
favorable factors listed above, particularly factors (1), (5) and (6), the Board
determined that it was unlikely that the shareholders would receive more within
a reasonable period of time by RSI remaining independent than by entering into
the Merger.
The foregoing discussion of the information and factors considered by the
RSI Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the RSI Board did
not find it practicable to and did not attempt to rank or assign relative
weights to the foregoing factors. In addition, individual members of the RSI
Board may have given different weights to different factors.
THE RSI BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTEREST OF,
RSI'S SHAREHOLDERS. THE RSI BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the RSI Board of Directors with
respect to the Merger, RSI shareholders should be aware that certain members of
the Board of Directors have certain interests separate from their interests as
shareholders, including those referred to below.
CERTAIN DIRECTORS AND OFFICERS OF RSI WILL BE DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION. The following persons have been members of the RSI Board
of Directors or have been executive officers of RSI during the last twelve
months: Wayne R. Collignon, Dirk D. Anderson, Scott W. Ryan, Susan J. Zinga, and
Warren Palitz. The Merger Agreement provides that Merger Corp. will merge with
and into RSI. The Surviving Corporation will become a wholly-owned subsidiary of
CNI. The members of the Board of Directors of the Surviving Corporation shall be
(i) the three persons holding such office in Merger Corp. as of the Effective
Date and (ii) Messrs. Collignon and Anderson. The officers of the Surviving
Corporation shall be the persons holding such offices in Merger Corp. as of the
Effective Date, except that Mr. Collignon shall be the President and Mr.
Anderson shall be the Chief Financial Officer of the Surviving Corporation.
EXISTING EMPLOYMENT AGREEMENTS; SEVERANCE PROVISIONS. RSI has entered into
employment agreements with Wayne Collignon and Dirk Anderson pursuant to which
they serve as RSI's President and Chief Executive Officer, and Chief Financial
Officer, respectively. Under these agreements, Mr. Collignon receives a base
annual salary of $105,000 and Mr. Anderson receives a base annual salary of
$75,000. Increases to their base salaries and bonuses are at the discretion of
RSI's Board of Directors. Both Mr. Collignon and Mr. Anderson are entitled to
participate in all retirement and employee benefit plans that RSI may adopt for
the benefit of its senior executives, and are entitled to a car allowance of
$300 per month.
Under these agreements, if the executive's employment is terminated by
reason of death, Disability or Retirement (as defined in the agreements), upon
expiration of the term of the agreement, by RSI for Cause or by the executive
without Good Reason (in each case as such terms are defined in the agreements),
RSI shall: (i) pay the executive any base salary which has accrued but has not
been paid as of the termination date (the "Accrued Base Salary"); (ii) reimburse
the executive for expenses incurred by him prior to termination which are
subject to reimbursement pursuant to applicable RSI policies (the "Accrued
Reimbursable Expenses"); (iii) provide to the executive any accrued and vested
benefits required to be provided by the terms of any RSI-sponsored benefit plans
(the "Accrued Benefits"); (iv) pay the executive any discretionary bonus with
respect to a prior fiscal year which has accrued and been earned but has not
been paid (the "Accrued Bonus"); (v) permit the executive to exercise all
vested, unexercised stock options outstanding at the termination date; and (vi)
to the extent permitted by the terms of the policies then in effect, give the
executive a right of first refusal to cause the transfer of the ownership of all
key-man life insurance policies maintained by RSI on the executive to the
executive at the executive's expense (the "Right of First Refusal"). If the
16
executive's employment is terminated by RSI without Cause or by the executive
for Good Reason, RSI shall: (i) pay the executive the Accrued Base Salary; (ii)
pay the executive the Accrued Reimbursable Expenses; (iii) pay the executive the
Accrued Benefits; (iv) pay the executive the Accrued Bonus; (v) pay the
executive the base salary, as and when it would have been paid had the
termination not occurred, for a period of six months following the termination
date; (vi) maintain in effect, until the first to occur of (a) his attainment of
comparable benefits upon alternative employment or (b) six months following the
termination date, the employee benefits in which he was entitled to participate
immediately prior to such termination; (vii) permit the executive to exercise
all vested, unexercised stock options in accordance with the terms of the plans
and agreements pursuant to which they were issued; and (viii) give the executive
the Right of First Refusal.
On August 19, 1996, RSI amended the employment agreements to include
compensation pursuant to a Change in Control (as defined in the agreements). If
the executive's employment is terminated by RSI subsequent to a Change in
Control of RSI either by the new controlling party or by the executive for Good
Reason, the executive will receive a two-year consulting agreement at $100,000
per year in addition to the severance pay detailed above. Although the Merger
will constitute a Change of Control, the existing employment agreements will be
superseded as of the Effective Date of the Merger by new employment agreements
between CNI and Messrs. Collignon and Anderson. Accordingly, Messrs. Collignon
and Anderson will have no further rights under their existing employment
agreements with RSI and will not be entitled to severance payments thereunder.
NEW EMPLOYMENT AGREEMENTS. At the Escrow Closing, Messrs. Collignon and
Anderson will enter into employment agreements with CNI (attached as Annexes C
and D, respectively) that will become effective as of the Effective Date and
will supersede their existing employment agreements with RSI. The terms of these
agreements were negotiated with CNI by Mr. Ryan rather than directly by Messrs.
Collignon and Anderson. Pursuant to these agreements, Mr. Collignon will serve
as the President of the Surviving Corporation and Mr. Anderson will serve as the
Chief Financial Officer of the Surviving Corporation. The term of employment
under these agreements begins on the Effective Date of the Merger and continues
until the termination, resignation, death, disability or retirement of the
executive or the one year anniversary of the Effective Date. CNI will pay each
executive a base salary of $100,000 per year, which will be reviewed upon the
one year anniversary of the Effective Date. In addition, each executive is
entitled to an annual performance bonus in an amount, which shall not be less
than $50,000, determined by CNI's Board of Directors. Each executive also is
entitled to participate to the same extent as other similarly situated employees
in all retirement and employee benefit plans that CNI has adopted or may adopt
for the benefit of its employees. Further, each executive is entitled to $25,000
upon the Effective Date in exchange for certain noncompetition and
nonsolicitation covenants.
Under these agreements, if either executive resigns or CNI terminates his
employment for Cause (as defined in the agreements), CNI will pay: (i) his base
salary through the date of termination; (ii) the unpaid portion of his
performance bonus, if any, that he has earned or qualified for prior to the date
of termination; and (iii) for any accrued and unused vacation, if any, that the
executive was eligible for at the date of termination. If CNI terminates either
executive's employment for any reason other than Cause, CNI will pay the items
listed in the preceding sentence and will continue to pay the executive's base
salary for six months after the date of termination. If either executive's
employment is terminated by his death, Disability or Retirement (each as defined
in the agreements), CNI will pay: (i) his base salary through the date of the
event; and (ii) the unpaid portion of his performance bonus, if any, that he has
qualified for prior to the date of the event.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of all material federal
income tax consequences of the Merger. This summary is not a complete
description of all of the tax consequences of the Merger and, in particular, may
not address federal income tax considerations that may be important to a
shareholder in light of such shareholder's particular circumstance or to
shareholders subject to special rules, such as a shareholder that, at the
Effective Time, is not a U.S. person or is a tax-exempt entity or an individual
who acquired RSI Common Stock pursuant to the exercise of options or similar
derivative securities or otherwise as compensation. In addition, no information
17
is provided with respect to the tax consequences of the Merger under foreign,
state or local laws. This discussion further assumes that RSI shareholders hold
their RSI Common Stock as capital assets within the meaning of Section 1221 of
the Code.
The discussion is based on the Code as in effect on the date of this Proxy
Statement, without consideration of the particular facts or circumstances of any
shareholder. CONSEQUENTLY, EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER.
THE MERGER. In general, any gain or loss recognized by an RSI shareholder
will be a capital gain or loss. Certain non-corporate shareholders may be
eligible for reduced rates of taxation (which may vary depending on such
shareholder's holding period for the RSI Common Stock) if, as of the date of the
exchange, such shareholder has held such RSI Common Stock for more than one
year. The deductibility of a capital loss realized is subject to limitations.
In addition to the foregoing, special income tax provisions relating to the
exclusion or rollover of gain from the sale of qualified small business stock by
the shareholders may apply. In particular, these provisions may apply with
respect to holders of RSI Common Stock that acquired their shares through the
conversion of Series A Convertible Preferred Stock acquired from RSI in February
1994, assuming, among other things, that the holding period requirements under
the Internal Revenue Code are met.
In general, noncorporate shareholders may exclude up to 50% of the gain
from the sale of qualified small business stock, subject to certain limitations,
if they have held such stock for more than five years, or they may defer some of
the gain by reinvesting the proceeds from the sale of qualified small business
stock that they have held for at least six months in other qualified small
business stock within the 60-day period beginning on the date of sale.
RSI believes that it meets all requirements applicable to it to be a
qualified small business and for the shares acquired pursuant to the conversion
of Series A Convertible Preferred Stock into RSI Common Stock to qualify as
qualified small business stock, including the "active business requirement" set
forth in the Code. Accordingly shareholders who meet the requirements applicable
to individual shareholders, including the holding period requirements, may be
eligible for the exclusion or deferral treatment described herein.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
PROXY STATEMENT. RSI SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER (INCLUDING THE
APPLICABILITY OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).
DISSENTERS' RIGHTS
Under Arizona law, RSI shareholders may dissent from and obtain payment of
the fair value of their shares if the Merger is consummated. "Fair value" means
the value of the shares immediately before the Effective Time of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger unless
exclusion is inequitable. A copy of Sections 10-1320 through 10-1328 of the BCA,
which govern the procedures for the exercise of such dissenters' rights under
Arizona law, is attached as Annex B. The description of dissenters' rights set
forth below is a summary only and is qualified in its entirety by reference to
the text of Sections 10-1320 through 10-1328 of the BCA. Because failure by a
RSI shareholder to follow precisely all of the steps required by Sections
10-1320 through 10-1328 will result in the loss of dissenters' rights, any RSI
shareholder contemplating the exercise of dissenters' rights is urged to review
Annex B carefully.
Any RSI Shareholder who wishes to dissent and obtain payment of the fair
value of his or her shares must: (1) deliver to RSI, before the vote is taken on
the Merger, written notice of the shareholder's intention to demand fair value
payment for his or her shares if the Merger is effectuated; and (2) not vote his
or her shares in favor of the Merger.
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If the Merger is approved, the Surviving Corporation will, no later than
ten days after the Effective Time, deliver a written notice (the "Dissenters'
Notice") to all RSI shareholders who are entitled to demand fair value payment
for their shares (i.e., who have satisfied the above requirements). The
Dissenters' Notice will: (1) state where the payment demand must be sent and
where and when share certificates shall be deposited; (2) supply a form for
demanding payment that includes the date of the first announcement to the news
media or to shareholders of the terms of the proposed Merger and that requires
that the person asserting dissenters' rights to certify whether the person
acquired beneficial ownership of the shares before that date; (3) set a date by
which the Surviving Corporation must receive the fair value payment demand,
which date shall be at least 30 but not more than 60 days after the date the
Dissenters' Notice is delivered; and (4) be accompanied by a copy of Sections
10-1320 through 10-1328 of the BCA.
A shareholder who is sent the Dissenters' Notice and desires to assert
dissenters' rights must demand fair value payment, certify whether the
shareholder's acquired beneficial ownership of the shares before the date
required to be set forth in the Dissenters' Notice pursuant to item (2) above,
and deposit the shareholder's certificates in accordance with the terms of the
Dissenter's Notice. A shareholder who demands fair value payment, makes the
necessary certification and deposits his or her certificates in this manner
retains all other rights of a shareholder until these rights are canceled or
modified by the taking of the proposed corporate action.
ANY RSI SHAREHOLDER WHO DOES NOT DELIVER TO RSI BEFORE THE VOTE IS TAKEN
WRITTEN NOTICE OF HIS OR HER INTENT TO DEMAND FAIR VALUE PAYMENT FOR THE
SHAREHOLDER'S SHARES, WHO VOTES IN FAVOR OF THE MERGER, WHO DOES NOT DEMAND
PAYMENT OR WHO DOES NOT DEPOSIT THE SHAREHOLDER'S CERTIFICATES BY THE DATE SET
FORTH IN THE DISSENTERS' NOTICE IS NOT ENTITLED TO FAIR VALUE PAYMENT FOR HIS OR
HER SHARES OF RSI COMMON STOCK UNDER SECTIONS 10-1320 THROUGH 10-1328 OF THE
BCA.
Subject to certain exceptions, upon the Effective Time, RSI will pay each
dissenter who complies with the above procedures the amount RSI estimates to be
the fair value of the dissenters' shares of RSI Common Stock plus accrued
interest (the "Payment"). The Payment will be accompanied by: (1) certain
financial statements of RSI; (2) a statement of RSI's estimate of the fair value
of the shares; (3) an explanation of how the interest was calculated; (4) a
statement of the dissenters' right to demand payment under Section 10-1328 of
the BCA; and (5) a copy of Sections 10-1320 through 10-1329 of the BCA.
RSI may elect to withhold payment from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the Dissenters'
Notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed Merger. To the extent RSI elects to so withhold
payment to Dissenting Shareholders, after effectuating the Merger, the Surviving
Corporation shall estimate the fair value of the shares plus accrued interest
and shall pay this amount to each dissenter who agrees to accept it in full
satisfaction of his or her demand. The Surviving Corporation shall send with its
offer a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated and a statement of the
dissenters' right to demand payment under Section 10-1328.
If a dissenter believes that the amount paid or offered is less than the
fair value of the shares or that the interest was incorrectly calculated or if
the Surviving Corporation fails to make payment within 60 days after the date
set by the Surviving Corporation by which it must receive the payment demand,
the dissenter may give written notice (the "Additional Payment Notice") to the
Surviving Corporation of the dissenter's own estimate of the fair value of the
dissenter's shares and of the amount of interest due and may demand payment of
such estimate, less any payment made by the Surviving Corporation. A DISSENTER
WAIVES THE RIGHT TO DEMAND ADDITIONAL PAYMENT UNLESS HE OR SHE CAUSES THE
SURVIVING CORPORATION TO RECEIVE THE ADDITIONAL PAYMENT NOTICE WITHIN 30 DAYS
AFTER THE SURVIVING CORPORATION MADE OR OFFERED PAYMENT FOR THE DISSENTERS'
SHARES. If an Additional Payment Notice remains unsettled, the Surviving
Corporation shall commence a proceeding within 60 days after receiving the
Additional Payment Notice and shall petition the court to determine the fair
value of the shares of the RSI Common Stock and accrued interest. If the
Surviving Corporation does not commence such a proceeding within the 60-day
period, it shall pay to each dissenter whose Additional Payment Notice remains
unsettled the amount demanded therein.
19
THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF ALL OF THE MATERIAL PROVISIONS OF THE
MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A AND IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE MERGER AGREEMENT.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by RSI shareholders, and the satisfaction or waiver of the other
conditions to the Merger, Merger Corp. will be merged with and into RSI, and the
Surviving Corporation will be a wholly-owned subsidiary of CNI.
If the RSI shareholders approve the Merger Agreement, and the other
conditions to the Merger are satisfied or waived, a closing into escrow will
take place. See "--The Escrow Closing" and "--Computation of Adjustment Amount."
The Merger will become effective at the Effective Time, as specified in the
articles of merger filed by the Surviving Corporation with the Arizona
Corporation Commission. See "--The Escrow Closing."
CONSUMMATION OF THE MERGER
Upon consummation of the Merger, the shares of RSI Common Stock and Options
shall, in the aggregate on the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into the sum
(the "Merger Consideration") of (i) $8,575,000 plus (ii) the Adjustment Amount
(as defined below). Upon consummation of the Merger, the Merger Consideration
shall be allocated among the shares of RSI Common Stock and the Options on the
following basis:
* Each outstanding share of RSI Common Stock shall be converted into an
amount in cash (the "Net Price Per Share") equal to (x) $8,575,000
plus the total dollar amount that would be paid to RSI upon the
exercise of all outstanding Options on the effective date of the
Merger (other than Out of Money Options) divided by (y) the total
number of RSI Common Stock Equivalents outstanding on the effective
date of the Merger;
* Each outstanding Option (other than Out of Money Options) shall be
canceled and converted into an amount of cash equal to the product of
(x) the number of shares of RSI Common Stock subject to the canceled
Option and (y) the excess of the Net Price Per Share over the exercise
price of the Option; and
* Each Out of Money Option shall be canceled without cost or liability
to RSI or the Surviving Corporation.
The Adjustment Amount is a portion of the amount, if any, by which the
Merger Consideration has been increased during the time in which the Exchange
Agent holds the $8,575,000, less any amounts reserved for Dissenting Shares (the
"Exchange Fund"). See "The Merger Agreement - Computation of Adjustment Amount."
As more fully described in "The Merger Agreement - The Exchange Agent," the
Exchange Agent will hold the Exchange Fund in escrow and may invest the Exchange
Fund as directed by CNI. Of the net earnings, if any, which are generated on the
Exchange Fund, 50% of such net earnings generated from the Escrow Closing Date
through the Closing Date, minus the Cure Amount (as defined in "The Merger
Agreement - Computation of Adjustment Amount"), shall become a part of the
Merger Consideration (the "Adjustment Amount").
THE ESCROW CLOSING
A closing into escrow of the transactions contemplated by the Merger
Agreement will take place at the offices of RSI in Tempe, Arizona at 10:00 a.m.,
20
local time, on the date (i) on which the Special Meeting occurs or (ii) as soon
as practicable thereafter when each of the other conditions set forth in the
Merger Agreement has been satisfied or waived, or at such other place, time and
date as shall be fixed by mutual agreement between RSI and CNI (the "Escrow
Closing"). RSI and CNI will cause to be prepared, executed and delivered into
escrow with counsel to RSI and CNI (the "Co-Escrow Agents") the Articles of
Merger and all other appropriate and customary documents as RSI, CNI or their
respective counsel may reasonably request for the purpose of consummating the
transactions contemplated by the Merger Agreement. CNI shall deposit with the
Exchange Agent the Exchange Fund. To facilitate the Escrow Closing, RSI will
allow CNI's lenders to perfect security interests in RSI's assets as of the
Escrow Closing Date. However, such lenders will irrevocably undertake in writing
to immediately release such security interests if the Closing does not occur as
contemplated in the Merger Agreement. Such lenders shall also have a security
interest in the Exchange Fund, which shall be released on the Effective Date of
the Merger.
The consummation of the Merger shall then occur promptly upon the
occurrence of the delivery of joint written instructions by RSI and CNI to the
Co-Escrow Agents to effect the filing of the Articles of Merger. The day on
which such joint written instructions are delivered to the Co-Escrow Agents is
the Closing Date.
THE EXCHANGE AGENT
On the Escrow Closing, CNI shall deposit the Exchange Fund with the
Exchange Agent. The Exchange Agent shall hold the Exchange Fund in escrow until
the earliest of (i) the receipt by the Exchange Agent of a copy of the joint
written instructions of RSI and CNI to the Co-Escrow Agents to cause the
Articles of Merger to be filed, whereupon the Exchange Agent shall notify the
holders of RSI Common Stock as set forth in "The Merger Agreement - Exchange of
Certificates for Merger Consideration"; (ii) receipt by the Exchange Agent of a
notice from CNI that it is entitled, and so elects, to terminate the Merger
Agreement, whereupon the Exchange Agent will promptly deliver the Exchange Fund
to CNI; or (iii) the failure of the Exchange Agent to receive the notices under
clause (i) or (ii) above prior to May 15, 1999, whereupon the Exchange Agent
will promptly deliver the Exchange Fund to CNI.
The Exchange Agent may invest the Exchange Fund as directed by CNI only in
direct obligations of the United States, obligations for which the full faith
and credit of the United States is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest quality by Moody's
Investors Services, Inc. or Standard & Poor's Corporation or certificates of
deposit, bank repurchase agreements or bankers' acceptances of a commercial bank
having at least $100,000,000 in assets (collectively, "Permitted Investments")
or in money market funds which are invested in Permitted Investments. Of the net
earnings which are generated on the Exchange Fund, 50% of all net earning
generated from the Escrow Closing through the Closing Date shall be segregated
from the Exchange Fund, reserved for CNI and paid to CNI as and when requested
by CNI. The remaining 50% of such net earnings generated for such period (such
remaining 50% portion, net of the Cure Amount defined in "Computation of
Adjustment Amount" is referred to as the "Adjustment Amount") shall be retained
in the Exchange Fund and shall become a part of the Merger Consideration. If
applicable, the Exchange Agent shall also deduct from the Adjustment Amount, and
pay to CNI, the Cure Amount. See "- Computation of Adjustment Amount."
COMPUTATION OF ADJUSTMENT AMOUNT
The Merger Agreement provides that no later than 30 days after the Escrow
Closing, CNI will prepare and deliver to the Board of Directors of RSI an
unaudited statement of the current assets and current liabilities of RSI as of
the Escrow Closing (the "Closing Balance Sheet"), prepared in accordance with
generally accepted accounting principles ("GAAP"). CNI shall make available to
RSI and its accountants all work papers and other pertinent information used in
preparing the Closing Balance Sheet. RSI will then have 5 days after receiving
the Closing Balance Sheet to examine it and deliver to CNI either (i) a written
acknowledgment accepting the Closing Balance Sheet or (ii) a written report (the
"Objection Report") setting forth in reasonable detail any proposed objections
to the Closing Balance Sheet. RSI's failure to deliver the Objection Report
within the required five-day period shall constitute its acceptance of the
calculations set forth in the Closing Balance Sheet.
21
During a period of 10 days following CNI's receipt of the Objection Report,
RSI and CNI will attempt to resolve any differences they may have with respect
to the matters RSI raises in the Objection Report. If the parties are unable to
agree on any of RSI's proposed adjustments in the Objection Report within the
10-day period, they will submit such dispute to the Phoenix office of Arthur
Andersen, LLP to make the final determination, prior to the 60th day after the
Escrow Closing Date, with respect to the Closing Balance Sheet. Arthur Andersen
LLP's decision shall be final and binding on the parties. Each of RSI and CNI
will equally bear the costs and expenses of Arthur Andersen LLP.
If, after finalization of the Closing Balance Sheet (which shall be either
the acceptance by RSI of the Closing Balance Sheet or resolution of the matters
raised in the Objection Report, but which shall in no event occur prior to
February 28, 1999), the Closing Balance Sheet shall reveal that RSI failed to
comply with the financial covenants set forth in the Merger Agreement (all
computed in accordance with GAAP), then
(i) if the smallest dollar amount that would cure any and all
deficiencies in the financial covenants set forth in "--Conditions to Each
Party's Obligations to Effect the Merger" (the "Cure Amount") is equal to
or less than the Adjustment Amount, then the Cure Amount will be segregated
from the Exchange Fund and will be paid to CNI, whereupon CNI and RSI will
furnish joint written instructions to the Co-Escrow Agents (and a copy to
the Exchange Agent) to file the Articles of Merger with the Arizona
Corporation Commission; or
(ii) if the Cure Amount is greater than the Adjustment Amount, then
CNI shall elect either to (x) waive its right to receive any Cure Amount in
excess of the Adjustment Amount (whereupon CNI and RSI shall furnish the
joint written instructions to the Co-Escrow Agents) or (y) terminate the
Merger Agreement (whereupon CNI will provide notice of such termination to
the Co-Escrow Agents and the Exchange Agent).
EXCHANGE OF CERTIFICATES FOR MERGER CONSIDERATION
As soon as practicable after the Effective Date, the Exchange Agent shall
mail to each RSI shareholder (other than Dissenting Shareholders) and Option
holder as of the Effective Date a form of letter of transmittal and instructions
for surrendering the RSI Common Stock certificates (the "Certificate" or
"Certificates") or RSI Options for conversion and payment. The risk of loss and
title to the Certificates and Options will pass only upon proper delivery of
such Certificates or Options to the Exchange Agent, and the form of letter of
transmittal shall so reflect. Upon surrender to the Exchange Agent of a
Certificate or Option, together with the duly-executed letter of transmittal,
the holder of such Certificate or Option shall be entitled to receive in
exchange a check representing the cash consideration to which such holder is
entitled pursuant to the Merger Agreement, and the Certificate or Option shall
be canceled. No interest will be paid or accrued on the cash payable upon the
surrender of the Certificate or the Option.
If the Exchange Agent is to issue or pay any portion of the consideration
to a person other than the registered holder of such Certificate or Option
surrendered, the Certificate or Option so surrendered shall be properly endorsed
or otherwise in proper form for transfer, and the person requesting such
exchange shall pay in advance any transfer or other taxes required by reason of
the issuance of a check representing cash to such other person, or establish to
the satisfaction of the Exchange Agent that such tax has been paid or that no
such tax is applicable.
If a Certificate has been lost, mislaid, stolen or destroyed, the holder
may be required, before that holder may receive the consideration for the
exchange, to deliver to CNI a bond in such reasonable sum as CNI may direct as
indemnity against any claim that may be made against the Exchange Agent, CNI or
the Surviving Corporation with respect to the Certificate lost, mislaid, stolen
or destroyed.
After the Effective Date, there will be no transfers on the stock transfer
books of the Surviving Corporation of the shares of RSI Common Stock that were
outstanding immediately before the Effective Date. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for transfer, they will
be canceled and exchanged for the cash consideration.
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HOLDERS OF RSI COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES OR
OPTIONS UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
RSI relating to, among other things:
* the organization of RSI and similar corporate matters;
* the authorization, execution, delivery, performance and enforceability
of the Merger Agreement and related matters;
* RSI's capital structure;
* the absence of restrictions and conflicts between the consummation of
the Merger Agreement and RSI's material contracts, RSI's corporate
filings, judgments, decrees or orders to which RSI is a party, or any
statute, law, regulation or rule applicable to RSI;
* RSI's financial statements and records and the accuracy of the
information contained therein and in RSI's filings with the SEC;
* the absence of certain changes in RSI's business, operations, assets
or financial conditions and of certain transactions outside the
ordinary course of business;
* the absence of any material undisclosed liabilities;
* tax matters;
* RSI's compliance with applicable laws and agreements;
* certain agreements relating to certain employment, consulting, and
benefits matters;
* retirement and other employee benefit plans and matters relating to
the Employee Retirement Income Security Act of 1974, as amended;
* intellectual property matters;
* real estate matters;
* RSI's compliance with environmental laws;
* the absence of adverse material suits, claims or proceedings, and
other litigation issues;
* the condition of RSI's assets and inventory;
* RSI's compliance with generally accepted accounting principles in the
calculation of its accounts receivable; and
* Year 2000 compliance.
The Merger Agreement also contains customary representations and warranties
by CNI and Merger Corp. relating to: (a) the organization and standing of CNI
and Merger Corp.; (b) the authorization, execution, delivery, performance, and
enforceability of the Merger Agreement and related matters; and (c) the absence
of restrictions and conflicts between the consummation of the Merger Agreement
and CNI's and/or Merger Corp.'s material contracts, the corporate filings,
judgments, decrees or orders to which either CNI or Merger Corp. is a party, or
statute, law, regulation or rule applicable to both CNI and Merger Corp.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, RSI has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement or as otherwise consented to in writing by
CNI, RSI will, subject to certain specified exceptions, among other things:
23
* comply with certain financial covenants;
* carry on its business only in the ordinary course consistent with
prior practice;
* not amend its Articles of Incorporation or Bylaws;
* not issue, sell or grant any options or warrants;
* not declare or pay any dividends on or make any distributions;
* not engage in acquisitions, mergers or sales;
* use its reasonable efforts to preserve intact the corporate existence,
goodwill and business organization of RSI, to keep the officers and
employees of RSI available to RSI, and to preserve the relationships
of RSI with third parties;
* not incur any debt except in the ordinary course of business;
* not assume or otherwise become liable for the obligations of any other
person or make any capital contributions to, or investments in, any
person;
* not make any loans in excess of $1,000;
* not enter into or modify the terms of any employment or severance
agreements with officers or directors, not increase compensation to
officers or directors, and not increase compensation to other
employees except in the ordinary course of business and consistent
with past practice;
* not make or incur any capital expenditures in excess of $5,000 or in
the aggregate in excess of $10,000;
* perform all obligations under all material contracts and not enter
into, assume or amend any material contract or commitment;
* prepare and file all tax returns and pay all taxes;
* promptly notify CNI in writing of any material change to RSI's
representations and warranties;
* permit CNI to have reasonable access to RSI's premises, contracts,
commitments, books, records and other information; and
* conduct a shareholders' special meeting to approve the Merger
Agreement and prepare a Proxy Statement.
The Merger Agreement generally requires the parties to use their reasonable
best efforts to cause the Merger to be consummated. In addition, it provides
that if a claim, action, suit or investigation by any governmental body or other
person is commenced which questions the validity of the Merger Agreement or any
of the transactions contemplated by the Merger Agreement, RSI and CNI shall
cooperate and use all reasonable efforts to defend against such claim, action
suit, or investigation and, if an injunction or other order is issued, shall use
all reasonable efforts to have such injunction or other order lifted.
NO SOLICITATION
The Merger Agreement provides that from the date of the Merger Agreement
until it is terminated as provided therein, RSI will not, and will not permit
any of its representatives to, directly or indirectly, (i) solicit or initiate
discussion with or (ii) enter into negotiations with, or furnish information to,
any person or entity other than CNI (a "Third Party") concerning any proposal
for a merger, sale of substantial assets, sale of shares of stock or securities
or other takeover or business combination transaction (an "Acquisition
Proposal") involving RSI. RSI may, however, at any time before the RSI
shareholders approve the Merger Agreement, engage in discussions or negotiations
with a Third Party and may furnish such Third Party information concerning
itself and its business, properties and assets if, and only to the extent that,
the RSI Board of Directors, in the exercise of good faith judgment as to its
fiduciary duties, authorizes such discussions or negotiations relating to an
Acquisition Proposal. If the Board of Directors authorizes such discussions or
negotiations, the Board's authorization must be based upon the advice of
independent, outside legal counsel that a failure of the Board of Directors to
authorize such action would likely constitute a breach of its fiduciary duties
to such shareholders. Additionally, RSI or the Board of Directors may (1) take
and disclose to the RSI shareholders a position contemplated by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to any tender offer, or (2)
make such disclosure to the RSI shareholders which, as advised in the opinion of
counsel, is required under applicable law.
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RSI must notify CNI promptly if RSI becomes aware of any inquiries or
proposals with respect to an Acquisition Proposal or if any information is
requested or any negotiations or discussions are sought to be initiated with RSI
with respect to an Acquisition Proposal. RSI must provide CNI with any written
inquiries or proposals relating to an Acquisition Proposal unless independent
counsel has advised RSI that providing such information to CNI would likely
result in a breach of the fiduciary duties of RSI's Board of Directors to the
RSI shareholders. Each time, if any, that the RSI Board of Directors determines,
upon advise of such legal counsel and in the exercise of its good faith judgment
as to its fiduciary duties to the RSI shareholders, that it must enter into
negotiations with, or furnish any information to, a Third Party concerning any
Acquisition Proposal, RSI will give CNI prompt notice of such determination,
except in instances where RSI receives the advice of independent, outside legal
counsel for RSI that providing such information to CNI would be a breach of the
RSI Board of Directors' fiduciary duties.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligations of RSI and CNI to effect the Merger are subject
to the following conditions: (a) RSI shareholders shall approve the Merger
Agreement; (b) no temporary restraining order, preliminary or permanent
injunction or other order shall be in effect that prevents consummation of the
Merger; (c) RSI and CNI each shall certify the accuracy in all material respects
of the representations and warranties required to be performed by that party
under the Merger Agreement as of October 30, 1998 and as of the Closing Date;
(d) RSI and CNI shall each perform in all material respects all obligations of
that other party required to be performed under the Merger Agreement; (e) RSI
and CNI shall each receive officers' certificates from each other stating that
certain conditions set forth in the Merger Agreement have been satisfied; (f)
CNI shall have conducted its due diligence review of RSI's business, which shall
not have revealed any item which in CNI's reasonable judgment would constitute a
material adverse change or a prospect of a material adverse change in a
particular balance sheet or statement of income item of RSI; and (g) CNI shall
have entered into the employment agreements with Wayne R. Collignon and Dirk D.
Anderson, which are attached as Annexes C and D.
In addition, RSI must satisfy the following financial conditions for the
Merger to occur: (a) cash and cash equivalents, plus net accounts receivables,
minus customer deposits must exceed $1,925,000; (b) cash, plus net accounts
receivable, plus inventory, minus total liabilities must exceed $2,475,000; (c)
total liabilities must be less than $800,000; (d) accounts payable must be less
than $475,000; (e) inventory must be at least $900,000; (f) total assets, minus
intangible assets, plus the value of intangible assets listed on Schedule 2.4 of
the Merger Agreement ($45,078.37), plus $800,000, minus total liabilities, must
exceed $3,275,000; and (g) the shareholder's equity must be at least $2,925,000.
TERMINATION
The Merger Agreement may be terminated at any time (a) on or before the
Closing Date, whether before or after approval by RSI shareholders by mutual
consent of RSI and CNI; (b) on or before the Escrow Closing, by CNI if there has
been a material misrepresentation or breach of warranty by RSI set forth in the
Merger Agreement or a failure by RSI to perform in any material respect a
covenant set forth in the Merger Agreement; (c) on or before the Escrow Closing,
by RSI if there has been a material misrepresentation or breach of warranty by
CNI set forth in the Merger Agreement or a failure by CNI to perform in any
material respect a covenant set forth in the Merger Agreement; (d) on or before
the Escrow Closing, by either RSI or CNI if the transactions contemplated by the
Merger Agreement are not consummated by March 31, 1999, unless such failure to
consummate is due to the failure of the terminating party to perform or observe
the covenants, agreements, and conditions of the Merger Agreement that must be
performed or observed at or before the Closing Date; (e) on or before the Escrow
Closing, by either RSI or CNI if the transactions contemplated by the Merger
Agreement violate any nonappealable final order, decree, or judgment of any
court or governmental body or agency having competent jurisdiction; (f) on or
before the Escrow Closing, by RSI if, in the exercise of good faith judgment of
its Board of Directors (which judgment is based upon the advice of independent,
outside legal counsel) as to its fiduciary duties to its shareholders, such
termination is required by reason of an Acquisition Proposal or, if the Board of
Directors of RSI withdraws or materially modifies or changes its recommendation
to its shareholders to approve the Merger Agreement and the Merger if there
25
exists at such time an Acquisition Proposal for RSI and such change in
recommendation is based upon the advice of independent, outside legal counsel;
(g) on or before the Escrow Closing, by CNI if the RSI Board of Directors
withdraws or materially modifies its recommendation to the RSI shareholders to
approve the Merger Agreement and the Merger if there exists at such time an
Acquisition Proposal; or (h) by CNI is the Cure Amount is greater than the
Adjustment Amount.
TERMINATION FEES; EXPENSES
If the Merger is not consummated, each party shall pay its own expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby. Additionally, if the Merger is terminated due to the
termination of the Merger Agreement by virtue of the occurrence of an
Acquisition Proposal, and RSI enters into such an Acquisition Proposal within 24
months of such termination, CNI's option to purchase 230,000 shares of RSI
Common Stock at a purchase price equal to $3.75 per share will become effective
immediately. See "The Warrant."
AMENDMENT AND WAIVER
The parties may amend, modify or supplement the Merger Agreement by a
written instrument executed by the party against which enforcement of the
amendment, modification or supplement is sought.
THE WARRANT
The following is a brief summary of the terms of the Common Stock Purchase
Warrant (the "Warrant"), a copy of which is attached as Annex E and which is
incorporated herein by reference. Because the following is only a summary, RSI
encourages shareholders to read the Warrant in its entirety. The Warrant is
intended to increase the likelihood that RSI and CNI will consummate the Merger
in accordance with the terms of the Merger Agreement. Consequently, certain
aspects of the Warrant may discourage persons who might now or prior to the
Effective Time be interested in acquiring all or a significant interest in, or
otherwise effecting a business combination with, RSI from considering or
proposing such a transaction, even if such persons were prepared to offer to pay
consideration to the RSI shareholders which constitutes more than RSI
shareholders will receive pursuant to the Merger Agreement.
GENERAL
Pursuant to the Warrant entered into concurrently with the Merger
Agreement, RSI has granted to CNI the right (the "Option") to purchase, under
certain circumstances, up to 230,000 shares (the "Warrant Shares") of RSI Common
Stock (representing 15.6% of the outstanding common stock of RSI on November 30,
1998), at a price of $3.75 per share, subject to adjustments under certain
circumstances.
CNI may exercise the Option immediately upon the occurrence of both the
following: (i) certain terminations of the Merger Agreement and (ii) the
entering by the Company of such Acquisition Proposal within 24 months after such
termination. CNI shall be entitled to purchase the RSI Common Stock at a price
equal to $3.75 per share from RSI at any time prior to 5:00 p.m. (Arizona time)
on the date (the "Expiration Date") which is the later of (i) the termination
date set in the Acquisition Proposal or (ii) the closing date of the Acquisition
Proposal (if the holder of the Warrant has received at least 15 days' prior
written notice of such date). CNI may exercise the Option in whole or in part at
any time prior to the Expiration Date (but not as to fractional shares). If CNI
purchases less than all the Warrant Shares, RSI shall cancel the Warrant and
execute and deliver a new Warrant of like tenor for the balance of the Warrant.
THE EXERCISE OF THE WARRANT
CNI shall exercise the Warrant by delivering to RSI a duly executed
exercise notice and payment of the purchase price by check or cash in an amount
equal to $3.75 per share of RSI Common Stock, subject to normal adjustments for
dividends, reclassifications and the like (the "Exercise Price"). See "-
Exercise Price." Within ten days of the exercise and payment of the Exercise
Price, RSI, at its expense, shall cause to be issued in the name of and
delivered to CNI, or as CNI (upon payment by CNI of all applicable transfer
26
taxes) may direct, a certificate or certificates for the Warrant Shares, and
shall cause to be delivered (with appropriate instruments of assignment) to CNI
all of the cash, or other property to which CNI may be entitled.
CERTAIN COVENANTS
RSI has agreed to reserve sufficient shares of its Common Stock to satisfy
the Warrant Shares. It also has agreed not to seek to avoid the observance and
performance of the Warrant. RSI must give prompt written notice to CNI of any
lawsuit known by RSI to have been instituted by or against it in any court,
regulatory body, or commission which, if adversely determined, would have a
material adverse effect upon the value or the legality of issuance or
registration of the RSI Common Stock.
TRANSFER RESTRICTIONS
The Warrant provides that CNI has acquired the Warrant for its own account
for investment and not with a present view to distribute or resell it. Any
certificates issued pursuant to the Warrant will contain a legend notifying CNI
or any potential transferee of the provisions of the Warrant and that the
Warrant has not been registered under the Securities Act of 1933, as amended
(the "Act"), and may not be sold or transferred in the absence of an effective
registration statement or an opinion of counsel, satisfactory to RSI, that
registration is not required under the Act. The Warrant provides that CNI
understands the restrictions on the resale of the Warrant and Warrant Shares and
also understands that RSI has no obligation to register the Warrant or the
Warrant Shares under the Act or applicable state securities laws.
EXERCISE PRICE
The Exercise Price is $3.75 per share of RSI Common Stock, subject to the
following adjustments:
CONSOLIDATION, MERGER, SALE, CONVEYANCE. If RSI consolidates or merges
with, or sells or conveys all or substantially all of its assets to, any other
corporation, the Warrant shall entitle CNI to purchase at the Exercise Price
then in effect such number and kind of securities as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance upon
or with respect to the Warrant Shares immediately prior to such consolidation,
merger, sale or conveyance. RSI shall take all necessary steps to assure that
the provisions of the Warrant shall be applicable, as nearly as they reasonably
may be, in relation to any securities or property delivered to CNI upon the
exercise of the Warrant.
STOCK DIVIDEND, RECLASSIFICATION, ETC. If RSI (i) pays a dividend or makes
a distribution of shares of its capital stock, (ii) subdivides its outstanding
shares of Common Stock, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iv) issues any shares of
its capital stock in a reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which RSI is
the surviving corporation), the number of shares purchasable upon the exercise
of the Warrant immediately prior thereto shall be adjusted so that CNI shall be
entitled to receive the kind and number of shares or other securities of RSI
which CNI would have owned or would have been entitled to receive had the
Warrant been exercised.
ADJUSTMENT OF PURCHASE PRICE. If the number of Warrant Shares is adjusted
as provided above, the Exercise Price payable upon exercise of the Warrant shall
be adjusted by multiplying the Exercise Price immediately prior to such
adjustment by a fraction, the numerator of which is the number of Warrant Shares
subject to the Warrant immediately prior to such adjustment and the denominator
of which is the number of Warrant Shares subject to the Warrant immediately
thereafter.
27
DESCRIPTION OF RSI
DESCRIPTION OF RSI
RSI, an Arizona corporation formed in March 1987, reconditions and markets
modular office workstations consisting of panels, work surfaces, file drawers,
book and binder storage and integrated electrical components ("workstations").
RSI specializes in reconditioning and marketing workstations originally
manufactured by Haworth. RSI purchases used workstations from manufacturers,
dealers, brokers, and end-users throughout the United States through competitive
bids or directly negotiated transactions. After purchasing used workstations,
RSI transports them to its manufacturing facility in Tempe, Arizona where it
disassembles and inventories the workstations by component parts, stores and,
upon receipt of purchase orders, reconditions and reassembles the workstations.
RSI sells the reconditioned workstations throughout the United States to dealers
and end-users.
There are more than 50 manufacturers of new workstations in the United
States. Steelcase, Herman Miller, and Haworth constitute the dominant
manufacturers, controlling a majority of the market for new workstations.
Steelcase, Herman Miller, and Haworth each have created a unique system for
connecting panels, power and telecommunications raceways, resulting in virtually
no interchangability between their respective products. Due to the lack of
interchangability of parts for workstations of these dominant manufacturers, RSI
has generally specialized in reconditioning and marketing workstations
originally manufactured by just one of the dominant manufacturers. RSI elected
to specialize in reconditioning and marketing workstations originally
manufactured by Haworth as a result of the extensive experience of RSI's
founders with Haworth workstations.
YEAR 2000 ISSUES
The "Year 2000 problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous results when the year 2000 begins.
RSI has implemented a program to assess and monitor the progress of its
material customers, suppliers and other significant third parties in resolving
Year 2000 compliance issues. Questionnaires have been sent to all significant
third parties to evaluate their Year 2000 readiness. All responses are due to be
returned to RSI no later than January 31, 1999, at which time second requests
will be delivered to any parties who did not respond in a timely basis. In
addition, all new suppliers and customers will be required to complete the
questionnaires. The initial evaluation is scheduled to be completed by February
28, 1999; however, new third parties will be evaluated as needed. All material
third parties with potential unresolved Year 2000 compliance issues which become
evident through this assessment program will be monitored on an individual basis
depending on the significance of the relationship to RSI and the severity of the
unresolved issues.
RSI has evaluated its existing systems, including information technology
and non-information technology systems, for Year 2000 compliance. Following this
evaluation, RSI believes all of its non-information technology systems are in
compliance at this time.
RSI's computer hardware and accounting software are not Year 2000 compliant
at this time. RSI has developed two plans to bring these systems into compliance
based upon the outcome of the vote by the shareholders on the proposed Merger
with CNI. The two plans are as follows:
PLAN 1 - APPROVAL OF THE MERGER BY RSI'S SHAREHOLDERS. If RSI's
shareholders approve the proposed Merger with CNI, RSI will upgrade its current
accounting and network software programs to Year 2000 compliance. The estimated
cost of the upgrade is approximately $500 and is scheduled for completion by
February 28, 1999. RSI also will contract with a third party vendor to analyze
the existing computer hardware for Year 2000 compliance and will upgrade all
necessary hardware. The cost of the analysis and hardware upgrades is estimated
28
at between $3,000 and $5,000 and is expected to be completed no later than June
30, 1999. The cost of both the software and hardware upgrades will be funded
from current cash reserves and is not expected to have a material effect on
RSI's operating results. These upgrades would bring RSI's computer systems into
Year 2000 compliance. RSI and CNI would then begin a search for a new
accounting/manufacturing software program to replace those used by both CNI and
RSI. The cost of this replacement software and any necessary hardware is unknown
at this time and is expected to be implemented within 18 to 24 months.
PLAN 2 - MERGER IS NOT APPROVED BY RSI'S SHAREHOLDERS. If RSI's
shareholders do not approve the proposed Merger with CNI, RSI intends to replace
its existing computer hardware with new Year 2000 compliant equipment. RSI
estimates the replacement cost to be approximately $50,000 and anticipates that
the replacement would be completed by March 31, 1999. RSI also would replace the
existing accounting software program with a new accounting/manufacturing
software program. The estimated cost of this program, including implementation
and training, is approximately $60,000. Implementation would be scheduled to
begin April 1, 1999 with an estimated completion date of August 31, 1999. The
cost of the hardware and software replacement would be funded from current cash
reserves and is not expected to have a material effect on RSI's operating
results. These capital expenditures would bring the Company into Year 2000
compliance and are expected to improve RSI's administrative efficiency.
The most likely worse case scenario regarding RSI's Year 2000 compliance
would be that RSI would be unable to implement the new accounting/manufacturing
package before December 31, 1999 or that the cost would exceed the estimated
costs. If for any reason the conversion process cannot be completed before
January, 2000, RSI would resort to its backup plan (See Plan 1). Should the
implementation of Plan 2 fail, Plan 1 could be completed within 30 to 60 days.
If the cost of the conversion exceeds the estimated costs, RSI believes any
additional expense could be funded from cash reserves without a material effect
on operations.
RSI's reconditioning and sale of workstations is not dependent upon
computer operations. Accordingly, RSI does not believe there is a risk of
interruption in its supply of workstations to its customers or lost revenues
associated with any potential Year 2000 compliance issues. Further, RSI does not
believe that it faces any potential liability to third parties for breach of
contract or other harm if its systems are not Year 2000 compliant. No costs
associated with RSI's Year 2000 compliance have been incurred to date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF RSI
The following table sets forth certain information, as of November 30,
1998, with respect to the number of shares of RSI's equity securities
beneficially owned by individual directors, by all directors and officers of the
Company as a group and by persons known by RSI to own more than 5% of RSI's
Common Stock.
Name and Address Common Percent of
of Beneficial Owners Shares Total
----------------------------------------------------------------------
Granite Capital 331,117 18.7%
126 East 56th Street
25th Floor
New York, NY 10022
29
Scott W. Ryan 304,929* 17.2%
111 Presidential Boulevard
Suite 246
Bala Cynwyd, PA 19004
Dirk Anderson 150,750* 8.5%
444 West Fairmont
Tempe, AZ 85282
Wayne Collignon 150,017* 8.4%
444 West Fairmont
Tempe, AZ 85282
E. & W. Zachs Partnership 144,443 8.1%
40 Woodland Street
Hartford, CT 06105
Warren Palitz 89,548 5.1%
328 Euclid Avenue
Haddonfield, NJ 08033
All directors and officers as a group
(four persons) 605,696** 34.2%
- ----------------
* Includes options to purchase 100,000 shares that are presently exercisable.
** Includes options to purchase an aggregate of 300,000 shares that are
presently exercisable.
DESCRIPTION OF CNI
CNI is a Texas corporation formed in October, 1994. CNI is a provider of
remanufactured office workstations and related products. Workstations, which
consist of moveable panels, worksurfaces, storage units, lighting and electrical
distribution combined in an integrated unit, are a popular alternative to a
freestanding desk concept. CNI purchases pre-owned workstations from end users,
brokers and dealers throughout the United States and restores these workstations
to a like new condition at it remanufacturing facility in Dallas, Texas. CNI
primarily sells its remanufactured workstations directly to end users which
range from small businesses to Fortune 500 companies. CNI specializes in
recycling and marketing workstations originally manufactured by Steelcase.
Because the RSI shareholders will receive only cash in the Merger and will
not have any ownership interest in CNI or the Surviving Corporation after the
Merger, this Proxy Statement does not contain or incorporate by reference any of
the following: (i) a detailed description of CNI's business; (ii) CNI's
historical financial information, market prices or dividend information; (iii)
the anticipated operations of the Surviving Corporation after the Merger, (iv)
30
CNI's pro forma financial information to give effect to the Merger with RSI; (v)
information with respect to CNI's anticipated accounting treatment of the
Merger; or (vi) a comparison of the relative rights of CNI and RSI shareholders.
EXPERTS
The historical financial statements of RSI as of March 31, 1998 and 1997
and for each of the two years in the period ended March 31, 1998 incorporated in
this Proxy Statement by reference to RSI's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1998, have been so incorporated in reliance upon the
report of Semple & Cooper, LLP, independent accountants, given on the authority
of such firm as experts in accounting and auditing.
Representatives of Semple & Cooper, LLP are not expected to be present at
the Special Meeting. However, if they are, they will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
OTHER MATTERS
RSI's Board of directors is not aware of any other business to be
considered or acted upon at the Special Meeting other than those items described
above. If other business requiring a vote of the shareholders is properly
presented at the meeting, proxies will be voted in accordance with the judgment
on such matters of the person or persons acting as proxy. If any matter not
appropriate for action at the Special Meeting should be presented, the holder of
the proxies will vote against consideration thereof or action thereon.
SHAREHOLDER PROPOSALS
RSI welcomes comments or suggestions from its shareholders. If the Merger
is not consummated and a shareholder desires to have a proposal formally
considered at the 1999 Annual Meeting of Shareholders, and evaluated by the
Board for possible inclusion in the Proxy Statement for that meeting, the
proposal (which must comply with the requirements of Rule 14a-8 promulgated
under the Exchange Act) must be received in writing by the Secretary of the
Company at the address set forth on the first page hereof on or before March 15,
1999.
31
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
AMONG
CORT INVESTMENT GROUP, INC.
(a Texas corporation)
RSI ACQUISITION CORP.
(an Arizona corporation)
and
RECONDITIONED SYSTEMS, INC.
(an Arizona corporation)
A-1
TABLE OF CONTENTS
Page
----
ARTICLE 1 THE MERGER........................................................A-2
1.1 Merger.............................................................A-2
1.2 Continuing of Corporate Existence..................................A-2
1.3 Effective Date.....................................................A-2
1.4 Corporate Governance...............................................A-2
1.5 Rights and Liability of the Surviving Corporation..................A-2
1.6 Closing............................................................A-3
ARTICLE 2 CONVERSION OF SHARES; TREATMENT OF OPTIONS........................A-3
2.1 Conversion of Shares...............................................A-3
2.2 Dissenting Shares..................................................A-4
2.3 Exchange Agent.....................................................A-4
2.4 Computation of Adjustment Amount...................................A-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF RSI.............................A-7
3.1 Organization and Good Standing of RSI..............................A-7
3.2 Foreign Qualification..............................................A-7
3.3 Corporate Power and Authority......................................A-7
3.4 Binding Effect.....................................................A-7
3.5 Absence of Restrictions and Conflicts..............................A-7
3.6 Capitalization of RSI..............................................A-8
3.7 RSI SEC Reports....................................................A-8
3.8 Financial Statements and Records of RSI............................A-8
3.9 Absence of Certain Changes.........................................A-9
3.10 No Material Undisclosed Liabilities...............................A-9
3.11 Tax Returns; Taxes................................................A-10
3.12 Material Contracts................................................A-10
3.13 Litigation and Government Claims..................................A-10
3.14 Compliance with Laws..............................................A-10
3.15 Employee Benefit Plans............................................A-11
3.16 Employment Agreements; Labor Relations............................A-11
3.17 Intellectual Property.............................................A-11
3.18 Real Estate; Environmental Laws...................................A-11
3.19 Condition of Assets...............................................A-12
3.20 Accounts Receivable...............................................A-12
3.21 Inventory.........................................................A-12
3.22 Year 2000.........................................................A-12
3.23 Brokers and Finders...............................................A-12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF CNI AND MERGER CORP.............A-12
4.1 Organization and Good Standing.....................................A-12
4.2 Corporate Power and Authority......................................A-12
4.3 Binding Effect.....................................................A-13
4.4 Absence of Restriction and Conflicts...............................A-13
4.5 Brokers and Finders................................................A-13
ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS..................................A-13
5.1 Conduct of Business by RSI.........................................A-13
5.2 Notice of any Material Change......................................A-14
5.3 Inspection and Access to Information...............................A-15
5.4 Shareholders' Meeting; Proxy Statement.............................A-15
5.5 Reasonable Efforts; Further Assurances; Cooperation................A-15
A-i
5.6 Public Announcements...............................................A-16
5.7 No Solicitations...................................................A-16
5.8 Survival of Covenants and Agreements...............................A-17
ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF RSI........................A-17
6.1 Compliance.........................................................A-17
6.2 Representations and Warranties.....................................A-17
6.3 Certificates.......................................................A-17
6.4 Shareholder Approval...............................................A-17
ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF CNI AND MERGER CORP........A-17
7.1 Compliance.........................................................A-17
7.2 Representation and Warranties......................................A-17
7.3 Certificates.......................................................A-18
7.4 Due Diligence......................................................A-18
7.5 Employment Agreements..............................................A-18
ARTICLE 8 MISCELLANEOUS.....................................................A-18
8.1 Termination........................................................A-18
8.2 Expenses...........................................................A-18
8.3 Entire Agreement...................................................A-18
8.4 Survival of Representations and Warranties.........................A-19
8.5 Counterparts.......................................................A-19
8.6 Notices............................................................A-19
8.7 Successors; Assignments............................................A-20
8.8 Governing Law......................................................A-20
8.9 Waiver and Other Action............................................A-20
8.10 Severability......................................................A-20
8.11 No Third Party Beneficiaries......................................A-20
8.12 Mutual Contribution...............................................A-20
8.13 Counterparts......................................................A-20
8.14 Mediation.........................................................A-20
8.15 Arbitration.......................................................A-20
A-ii
This Agreement and Plan of Merger (the "Agreement") is made as of the 30th
day of October, 1998, among Cort Investment Group, Inc., a Texas corporation
d/b/a Contract Network ("CNI"); RSI Acquisition Corp., an Arizona corporation
("Merger Corp."), which is wholly-owned by CNI; and Reconditioned Systems, Inc.,
an Arizona corporation ("RSI").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of CNI, Merger Corp. and RSI
each have determined that it is in the best interests of their respective
stockholders for CNI and Merger Corp. to acquire RSI upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto covenant
and agree as follows:
ARTICLE 1
THE MERGER
1.1. MERGER. In accordance with the provisions of the Arizona Business
Corporation Act, at the Effective Date (as hereinafter defined), Merger Corp.
shall be merged (the "Merger") into RSI, as soon as practicable following the
satisfaction or waiver, if permissible, of the conditions set forth in Articles
6 and 7. Following the Merger, RSI shall continue as the surviving corporation
(the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Arizona.
1.2. CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of RSI, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Merger Corp., with all its purposes, powers, franchises, privileges,
rights and immunities, at the Effective Date shall be merged with and into that
of RSI, and the Surviving Corporation shall be vested fully therewith and the
separate corporate existence and identity of Merger Corp. shall thereafter
cease.
1.3. EFFECTIVE DATE. The Merger shall become effective upon the filing of
the Articles of Merger with the Corporation Commission of the State of Arizona
pursuant to the provisions of the Arizona Business Corporation Act (the "BCA").
The date and time when the Merger shall become effective is hereinafter referred
to as the "Effective Date."
1.4. CORPORATE GOVERNANCE.
(a) The Articles of Incorporation of RSI, as in effect on the
Effective Date, shall continue in full force and effect and shall be the
Articles of Incorporation of the Surviving Corporation.
(b) The Bylaws of RSI, as in effect as of the Effective Date, shall
continue in full force and effect and shall be the Bylaws of the Surviving
Corporation.
(c) The members of the Board of Directors of the Surviving Corporation
shall be (i) the three persons holding such office in Merger Corp. as of
the Effective Date and (ii) Wayne R. Collignon and Dirk D. Anderson.
(d) The officers of the Surviving Corporation shall be the persons
holding such offices in Merger Corp. as of the Effective Date, except that
Wayne R. Collignon shall be elected as President and Dirk D. Anderson shall
be elected as Chief Financial Officer of the Surviving Corporation.
A-2
1.5. RIGHTS AND LIABILITIES OF THE SURVIVING CORPORATION. The Surviving
Corporation shall have the following rights and obligations:
(a) The Surviving Corporation shall have all the rights, privileges
immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under the laws of the State of
Arizona.
(b) The title to all real estate and other property owned by RSI and
Merger Corp. shall be vested in the Surviving Corporation without revision
or impairment;
(c) The Surviving Corporation automatically has all of the liabilities
of RSI and Merger Corp.; and
(d) At the Effective Date, a proceeding pending against RSI or Merger
Corp. may be continued as if the Merger did not occur or the Surviving
Corporation may be substituted in the proceeding.
1.6. CLOSING.
(a) A closing into escrow of the transactions contemplated by this
Agreement (the "Escrow Closing") shall take place at the offices of RSI in
Tempe, Arizona commencing at 10:00 a.m., local time, on the date (i) on
which the Special Meeting (as defined herein) of RSI's shareholders occurs
or (ii) as soon as possible thereafter when each of the other conditions
set forth in Articles 6 and 7 have been satisfied or waived, or at such
other place, time and date as shall be fixed by mutual agreement between
CNI and RSI. The day on which the Escrow Closing shall occur is referred to
herein as the "Escrow Closing Date." Each party will cause to be prepared,
executed and delivered into escrow with counsel to RSI and CNI (the
"Co-Escrow Agents") the Articles of Merger and all other appropriate and
customary documents as any party or its counsel may reasonably request for
the purpose of consummating the transactions contemplated by this
Agreement. CNI shall deposit with the Exchange Agent (as described in
Section 2.3 below) the cash amounts specified therein on the Escrow Closing
Date. In order to facilitate the Escrow Closing, RSI will allow CNI's
lenders to perfect security interests in RSI's assets as of the Escrow
Closing Date; it being understood that such lenders shall irrevocably
undertake in writing to immediately release such security interests if the
Closing does not occur as contemplated herein. Such lenders shall also have
a security interest in the Exchange Fund (as defined in Section 2.3), which
shall be released on the Effective Date. All actions taken at the Escrow
Closing shall be deemed to have been taken simultaneously at the time the
last of any such actions is taken or completed.
(b) The consummation of the Merger shall occur promptly upon the
occurrence of the delivery of joint written instructions given by RSI and
CNI to the Co-Escrow Agents to effect the filing of the Articles of Merger
as described in Section 2.3(b). The day on which such joint written
instructions are delivered to the Co-Escrow Agents is referred to herein as
the "Closing Date."
ARTICLE 2
CONVERSION OF SHARES; TREATMENT OF OPTIONS
2.1. CONVERSION OF SHARES. At the Effective Date, by virtue of the Merger
and without any action on the part of the holder thereof:
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(a) The outstanding shares of RSI common stock, no par value ("RSI
Common Stock"), and the options and warrants to acquire shares of RSI
Common Stock outstanding on the Effective Date (the "Options") shall, in
the aggregate at the Effective Date, by virtue of the Merger and without
any action on the part of the holders thereof, be converted into the sum
(the "Merger Consideration") of (i) $8,575,000 plus (ii) the "Adjustment
Amount."
(b) The Merger Consideration shall be allocated among the shares of
RSI Common Stock and Options on the basis set forth below:
(i) Each outstanding share of RSI Common Stock shall be converted
into an amount in cash (the "Net Price Per Share") equal to the result
after the following calculation: (X) the Merger Consideration plus the
total Option Consideration, divided by (Y) the total number of RSI
Common Stock Equivalents outstanding on the Effective Date.
(ii) Each Outstanding Option, other than Out of the Money
Options, shall be canceled and converted into an amount in cash equal
to the product of (X) the number of shares of RSI Common Stock subject
to the canceled Option and (Y) the excess of the Net Price Per Share
over the exercise price subject to such Option;
(iii) Each Out of the Money Option shall be canceled without cost
or liability to RSI or the Surviving Corporation.
(c) Each share of Common Stock, $.01 par value, of Merger Corp. which
shall be outstanding immediately prior to the Effective Date shall at the
Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of newly issued RSI
Common Stock.
(d) For purposes of this provision,
(i) "Adjustment Amount" means the amount, if any, by which the
Merger Consideration has been increased as described in Section 2.3(c)
hereof.
(ii) "Option Consideration" means the total dollar amount that
would be paid to RSI upon the exercise of all outstanding Options on
the Effective Date, other than Out of the Money Options;
(iii) "Out of the Money Options" means all Options which have an
exercise price per share equal to or greater than the Net Price Per
Share; and
(iv) "RSI Common Stock Equivalents" means the number of shares of
RSI Common Stock outstanding on the Effective Date plus the number of
shares of RSI Common Stock that could be issued upon the exercise of
all Options, other than Out of the Money Options, outstanding on the
Effective Date.
It is understood that for all purposes the warrants issued to CNI to purchase
230,000 shares of RSI Common Stock (the "CNI Warrants"), which are not
exercisable until the termination of this Agreement under certain conditions,
shall not be deemed to be outstanding and shall not be included in the
computation of Option Consideration or RSI Common Stock Equivalents.
2.2. DISSENTING SHARES. Shares of RSI Common Stock held by any shareholder
entitled to relief as a dissenter under Sections 10-1301 through 10-1331 of the
BCA ("Dissenting Shares") shall not be converted into the right to receive the
consideration in accordance with Section 2.1, but shall be canceled and
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converted into such consideration as may be due with respect to such Shares
pursuant to the applicable provisions of the BCA unless and until the right of
such shareholder to receive fair value for such Dissenting Shares terminates in
accordance with Sections 10-1301 through 10-1331 of the BCA.
2.3. EXCHANGE AGENT.
(a) CNI shall authorize Harris Trust & Savings Bank, or such other
firm as is reasonably acceptable to RSI, to serve as exchange agent
hereunder (the "Exchange Agent"). On the Escrow Closing Date, CNI shall
deposit or shall cause to be deposited in trust with the Exchange Agent,
the sum of $8,575,000, less any amounts required to be reserved for
Dissenting Shares (such deposited cash amount being hereinafter referred to
as the "Exchange Fund").
(b) The Exchange Agent shall hold the Exchange Fund in escrow until
the earliest of (i) receipt by the Exchange Agent of a copy of the joint
written instructions of RSI and CNI to the Co-Escrow Agents pursuant to
Section 2.4(d) to cause the Articles of Merger to be filed, whereupon the
Exchange Agent shall use the Exchange Fund solely for the purposes set
forth in subsections 2.3(d) through (g) below; (ii) receipt by the Exchange
Agent of a notice from CNI pursuant to Section 2.4(d) that it is entitled,
and so elects, to terminate this Agreement, whereupon the Exchange Agent
shall promptly deliver the Exchange Fund to CNI; or (iii) the failure of
the Exchange Agent to receive the notices under clause (i) or (ii) above
prior to May 15, 1999, whereupon the Exchange Agent shall promptly deliver
the Exchange Fund to CNI.
(c) The Exchange Fund may be invested by the Exchange Agent as
directed by CNI only in direct obligations of the United States,
obligations for which the full faith and credit of the United States is
pledged to provide for the payment of principal and interest, commercial
paper rated of the highest quality by Moody's Investors Services, Inc. or
Standard & Poor's Corporation or certificates of deposit, bank repurchase
agreements or bankers' acceptances of a commercial bank having at least
$100,000,000 in assets (collectively, "Permitted Investments") or in money
market funds which are invested in Permitted Investments. Of the net
earnings which are generated on the Exchange Fund, 50% of all net earnings
generated from the Escrow Closing Date through the Closing Date shall be
segregated from the Exchange Fund, reserved for CNI and paid to CNI as and
when requested by CNI; and the remaining 50% of such net earnings generated
for such period (such remaining 50% portion, net of the Cure Amount
referenced in Section 2.4(d), is referred to herein as the "Adjustment
Amount") shall be retained in the Exchange Fund and shall become a part of
the Merger Consideration. If applicable, the Exchange Agent shall also
deduct from the Adjustment Amount, and pay to CNI, the Cure Amount in
accordance with the provisions of Section 2.4.
(d) The Exchange Agent shall pay the Merger Consideration as provided
for in this Section 2.3 out of the Exchange Fund. As soon as practicable
after the Effective Date, the Exchange Agent shall mail and otherwise make
available to each record holder (other than holders of Dissenting Shares)
who, as of the Effective Date, was a holder of either (i) an outstanding
certificate or certificates which immediately prior to the Effective Date
represented shares of RSI Common Stock (the " Certificates") or (ii)
Options, a form of letter of transmittal and instructions for use in
effecting the surrender of the Certificates or Options for payment therefor
and conversion thereof.
(e) Delivery of Certificates or Options shall be effected, and risk of
loss and title to the Certificates or Options shall pass, only upon proper
delivery of the Certificates or Options to the Exchange Agent and the form
of letter of transmittal shall so reflect. Upon surrender to the Exchange
Agent of a Certificate or Option, together with such letter of transmittal
duly executed, the holder of such Certificate or Option shall be entitled
to receive in exchange therefor, as promptly as practicable after the
Effective Date, a check representing the Merger Consideration to which such
holder shall have become entitled pursuant to this Article 2, and the
Certificate or Option so surrendered shall forthwith be canceled.
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(f) If any portion of the consideration to be received pursuant to
this Article 2 upon exchange of a Certificate or Option is to be issued or
paid to a person other than the person in whose name the Certificate or
Option surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate or Option so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such exchange shall pay in advance
any transfer or other taxes required by reason of the issuance of a check
representing cash to such other person, or establish to the satisfaction of
the Exchange Agent that such tax has been paid or that no such tax is
applicable.
(g) In the case of any lost, mislaid, stolen or destroyed
Certificates, the holder thereof may be required, as a condition precedent
to the delivery to such holder of the consideration described in this
Article 2, to deliver to CNI a bond in such reasonable sum as CNI may
direct as indemnity against any claim that may be made against the Exchange
Agent, CNI or the Surviving Corporation with respect to the Certificate
alleged to have been lost, mislaid, stolen or destroyed.
(h) After the Effective Date, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of RSI Common
Stock that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for the
consideration described in this Article 2.
(i) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of RSI for six months after the Effective Date shall be
returned to CNI, upon demand, and any holder of RSI Common Stock who has
not theretofore complied with Section 2.3(d) shall thereafter look only to
CNI for issuance of the consideration to which such holder has become
entitled pursuant to this Article 2; provided, however, that neither the
Exchange Agent nor any party hereto shall be liable to a holder of shares
of RSI Common Stock for any amount required to be paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.4. COMPUTATION OF ADJUSTMENT AMOUNT.
(a) No later than 30 days after the Escrow Closing Date, CNI shall
prepare and deliver to the Board of Directors of RSI an unaudited statement
of the current assets and current liabilities of the Company as of the
Escrow Closing Date (the "Closing Balance Sheet"), prepared in accordance
with generally accepted accounting principles. CNI shall promptly make
available to RSI and its accountants all work papers and other pertinent
information used in connection therewith.
(b) Within five days after the Closing Balance Sheet is delivered to
RSI pursuant to subsection (a) above, RSI shall complete its examination
thereof and shall deliver to CNI either (i) a written acknowledgment
accepting the Closing Balance Sheet or (ii) a written report (the
"Objection Report") setting forth in reasonable detail any proposed
objections to the Closing Balance Sheet. A failure by RSI to deliver the
Objection Report within the required five-day period shall constitute its
acceptance of the calculations set forth in the Closing Balance Sheet.
(c) During a period of 10 days following the receipt by CNI of the
Objection Report, RSI and CNI shall attempt to resolve any differences they
may have with respect to the matters raised in the Objection Report. In the
event RSI and CNI fail to agree on any of CNI's proposed adjustments
contained in the Objection Report within such 10-day period, then the
parties will submit such dispute to the Phoenix office of Arthur Andersen,
L.L.P., certified public accountants ("Independent Auditors"), to make the
final determination, prior to the 60th day after the Escrow Closing Date,
with respect to the Closing Balance Sheet. The decision of the Independent
Auditors shall be final and binding on the parties. The costs and expenses
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of the Independent Auditors and their services rendered pursuant to this
subsection shall be borne equally by CNI and RSI.
(d) If, after finalization of the Closing Balance Sheet (which shall
be deemed to mean either the acceptance by RSI of the Closing Balance Sheet
in accordance with Section 2.4(b) above or, if RSI delivers an Objection
Report, upon the resolution of the matters raised in the Objection Report
pursuant to Section 2.4(c) above, but which shall in no event occur prior
to February 28, 1999), the Closing Balance sheet shall reveal that RSI
shall not have been in compliance with the financial covenants set forth in
Section 2.4(e) below (all computed in accordance with GAAP as of the Escrow
Closing Date), then
(i) if the Cure Amount (defined below) is equal to or less than
the Adjustment Amount, the Cure Amount will be segregated from the
Exchange Fund and will be paid over to CNI, whereupon CNI and RSI
shall furnish joint written instructions to the Co-Escrow Agents (and
a copy to the Exchange Agent) to file the Articles of Merger with the
Corporation Commission of the State of Arizona;
(ii) if the Cure Amount is greater than the Adjustment Amount,
then CNI shall elect either to (X) waive its right to receive any Cure
Amount in excess of the Adjustment Earnings (whereupon CNI and RSI
shall furnish the joint written instructions described in the
preceding clause (i)) or (Y) terminate this Agreement (whereupon CNI
shall provide notice of such termination to the Co-Escrow Agents and
the Exchange Agent); or
(iii) For purposes of this Section 2.4(d)(i) and (ii), the "Cure
Amount" shall mean the smallest dollar amount that would cure any and
all deficiencies in the financial covenants listed in Section 2.4(e)
below, it being understood that such amount may be applied to cure
multiple covenants.
(e) For purposes of this Section 2.4, RSI shall be required to be in
compliance with the following financial covenants as of the Escrow Closing
Date:
(i) Cash and cash equivalents, plus net accounts receivable,
minus customer deposits, shall exceed $1,925,000;
(ii) Cash, plus net accounts receivable, plus inventory, minus
total liabilities, shall exceed $2,475,000;
(iii) Total liabilities shall be less than $800,000;
(iv) Accounts payable shall be less than $475,000;
(v) Inventory shall be at least $900,000;
(vi) Total assets, minus intangible assets, plus the value of
intangible assets listed on Schedule 2.4 ($45,078.37), plus $800,000,
minus total liabilities, shall be greater than $3,725,000; and
(vii) Shareholders' equity shall be at least $2,925,000.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF RSI
RSI hereby represents and warrants to CNI and Merger Corp. as follows:
3.1. ORGANIZATION AND GOOD STANDING OF RSI. RSI is a corporation duly
organized, validly existing and in good standing under the laws of Arizona. RSI
does not own any equity interest in any other corporation, partnership or
similar entity.
3.2. FOREIGN QUALIFICATION. RSI is duly qualified or licensed to do
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect on (i) its
business, operations, assets or financial condition (an "RSI Material Adverse
Effect") or (ii) the validity or enforceability of, or the ability of RSI to
perform its obligations under, this Agreement.
3.3. CORPORATE POWER AND AUTHORITY. RSI has the corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as currently being conducted. RSI has the corporate power and
authority to execute and deliver this Agreement and, subject to the approval of
this Agreement and the Merger by its shareholders, to perform its obligations
under this Agreement and to consummate the Merger. The execution, delivery and
performance by RSI of this Agreement has been duly authorized by all necessary
corporate action (other than the approval of this Agreement and the Merger by
its shareholders).
3.4. BINDING EFFECT. This Agreement has been duly executed and delivered by
RSI and is the legal, valid and binding obligation of RSI enforceable in
accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
3.5. ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval of
the adoption of this Agreement and the Merger by RSI's shareholders and except
as set forth on SCHEDULE 3.5, the execution, delivery and performance of this
Agreement and the consummation of the Merger and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss of any
material benefit under, or permit the acceleration of any obligation under, (i)
any term or provision of the Articles of Incorporation or Bylaws of RSI, (ii)
any "Material Contract" (as defined herein), (iii) any judgment, decree or order
of any court or governmental authority or agency to which RSI is a party or by
which RSI or its properties is bound, or (iv) any statute, law, regulation or
rule applicable to RSI other than such violations, conflicts, breaches or
defaults which would not have an RSI Material Adverse Effect. Except for the
filing of the Articles of Merger with the Arizona Corporation Commission and
publication thereof as required by the BCA, and compliance with the applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act of 1933, as amended (the "Securities Act"), applicable
state securities laws and the rules and regulations of the Nasdaq Stock Market,
no consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental agency or public or regulatory unit, agency, body
or authority with respect to RSI is required in connection with the execution,
delivery or performance of this Agreement by RSI or the consummation of the
transactions contemplated hereby.
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3.6. CAPITALIZATION OF RSI.
(a) The authorized capital stock of RSI consists of 20,000,000 shares
of common stock, no par value. As of the date hereof, there were (i)
1,473,834 shares of RSI Common Stock issued and outstanding, (ii) 300,000
shares of RSI Common Stock reserved for issuance upon the exercise of
outstanding Options, and (iii) no shares of RSI Common Stock held as
treasury shares.
(b) All of the issued and outstanding shares of RSI Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(c) To RSI's knowledge, other than as set forth on SCHEDULE 3.6, there
are no voting trusts, stockholder agreements or other voting arrangements
by the shareholders of RSI.
(d) Except as set forth in subsection (a) above and in SCHEDULE 3.6,
and except for the CNI Warrants, there is no outstanding subscription,
contract, convertible or exchangeable security, option, warrant, call or
other right obligating RSI to issue, sell, exchange, or otherwise dispose
of, or to purchase, redeem or otherwise acquire, shares of, or securities
convertible into or exchangeable for, capital stock of RSI.
3.7. RSI SEC REPORTS. RSI has made available to CNI and Merger Corp. (i)
RSI's Annual Report on Form 10-KSB for the year ended March 31, 1998, including
all exhibits filed thereto and items incorporated therein by reference, (ii)
RSI's Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30,
1998, including all exhibits thereto and items incorporated therein by
reference, (iii) the proxy statement relating to RSI's meeting of shareholders
held on August 14, 1998 and (iv) all other reports or registration statements
(as amended or supplemented prior to the date hereof), filed by RSI with the
Securities and Exchange Commission (the "SEC") since April 1, 1996, including
all exhibits thereto and items incorporated therein by reference (items (i)
through (iv) being referred to as the "RSI SEC Reports"). As of their respective
dates, the RSI SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Since April 1, 1996, RSI has filed all material
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, each
of which complied as to form, at the time such form, report or document was
filed, in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the applicable rules and regulations
thereunder.
3.8. FINANCIAL STATEMENTS AND RECORDS OF RSI. RSI has made available to CNI
and Merger Corp. true, correct and complete copies of the following financial
statements (the "RSI Financial Statements"):
(a) the financial statements of RSI of March 31, 1997 and 1998, and
for the years then ended, including the notes thereto, in each case
examined by and accompanied by the report of Semple & Cooper, LLP
(collectively, the "RSI Year-End Statements"); and
(b) the unaudited balance sheet of RSI as of June 30, 1998 (the "RSI
Balance Sheet"), with any notes thereto, and the related unaudited
statement of income for the three months then ended (collectively, the "RSI
Quarterly Statements").
The RSI Year-End Statements and the RSI Quarterly Statements present fairly, in
all material respects, the financial position of RSI as of the dates thereof and
the results of operations and cash flows thereof for the periods then ended, in
each case in conformity with generally accepted accounting principles ("GAAP"),
consistently applied, except as noted therein. Since March 31, 1998, there has
been no change in accounting principles or standards applicable to, or methods
of accounting (including valuation methods) utilized by, RSI, except as
specifically noted in the RSI Financial Statements. The books and records of RSI
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have been and are being maintained in accordance with good business practice,
reflect only valid transactions and are complete and correct in all material
respects.
3.9. ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, RSI has not, except
as otherwise set forth on SCHEDULE 3.9:
(a) suffered any adverse change in the business, operations, assets,
or financial condition, except as reflected on the RSI Quarterly
Statements;
(b) suffered any damage or destruction to or loss of the assets of
RSI, whether or not covered by insurance, which property or assets are
material to the operations or business of RSI taken as a whole, or lost the
business relationship of any significant customer of RSI;
(c) settled, forgiven, compromised, canceled, released, waived or
permitted to lapse any material rights or claims other than in the ordinary
course of business;
(d) entered into or terminated any material agreement, commitment or
transaction, or agreed to make or made any changes in material leases or
agreements, other than renewals or extensions thereof and leases,
agreements, transactions and commitments entered into or terminated in the
ordinary course of business;
(e) written up, written down or written off the book value of any
material amount of assets or changed any valuation methods or other
accounting standards;
(f) declared, paid or set aside for payment any dividend or
distribution with respect to RSI's capital stock or repurchased any such
capital stock;
(g) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of RSI's capital stock
or securities (other than shares issued upon exercise of the Options) or
any rights to acquire such capital stock or securities, or agreed to
changes in the terms and conditions of any such rights outstanding as of
the date of this Agreement;
(h) increased the compensation of, paid any bonuses to or made or
guaranteed any loan in excess of $1,000 in favor of any employees or
contributed to any employee benefit plan, other than in accordance with
accruals set forth on the RSI Quarterly Statements;
(i) entered into any employment, consulting or compensation agreement
with any person or group, providing for payment in excess of $5,000 by RSI;
(j) entered into any collective bargaining agreement with any person
or group;
(k) entered into, adopted or amended any employee benefit plan;
(l) created, incurred or assumed any debt for borrowed money
(including obligations in respect of capital leases);
(m) acquired or disposed of any material asset other than inventory in
the ordinary course of business;
(n) entered into any transaction outside the ordinary course of
business; or
(o) entered into any agreement to do any of the foregoing.
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3.10. NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of RSI of any nature, whether absolute, accrued, contingent, or
otherwise, other than the liabilities and obligations that are reflected,
accrued or reserved against on the RSI Balance Sheet, or incurred in the
ordinary course of business and consistent with past practices since March 31,
1998.
3.11. TAX RETURNS; TAXES. RSI has duly filed all U.S. federal and material
state, county, local and foreign tax returns and reports required to be filed by
it, including those with respect to income, payroll, property, withholding,
social security, unemployment, franchise, excise and sales taxes and all such
returns and reports are correct in all material respects; has either paid in
full all taxes that have become due as reflected on any return or report and any
interest and penalties with respect thereto or has fully accrued on its books or
has established adequate reserves for all taxes payable but not yet due; and has
made cash deposits with appropriate governmental authorities representing
estimated payments of taxes, including income taxes and employee withholding tax
obligations. No extension or waiver of any statute of limitations or time within
which to file any return has been granted to or requested by RSI with respect to
any tax. No unsatisfied deficiency, delinquency or default for any tax,
assessment or governmental charge has been claimed, proposed or assessed against
RSI, nor has RSI received notice of any such deficiency, delinquency or default.
RSI has no material tax liabilities other than those reflected on RSI Balance
Sheet and those arising in the ordinary course of business since the date
thereof. RSI will make available to CNI true, complete and correct copies of
RSI's U.S. federal tax returns for the last five years and make available such
other tax returns requested by CNI. The U.S. federal income tax liabilities of
RSI have been calculated in accordance the guidelines of the Internal Revenue
Service. The Internal Revenue Service has audited RSI for all fiscal years up to
and including the year ended March 31, 1995. At March 31, 1998, the net
operating loss carryforward of RSI was at least $2,100,000.
3.12. MATERIAL CONTRACTS. RSI has furnished or made available to CNI
accurate and complete copies of the Material Contracts (as defined herein)
applicable to RSI. Except as set forth on SCHEDULE 3.12, there is not under any
of the Material Contracts any existing breach, default or event of default by
RSI nor event that with notice or lapse of time or both would constitute a
breach, default or event of default by RSI other than breaches, defaults or
events of default which would not have an RSI Material Adverse Effect, nor does
RSI know of, and RSI has not received notice of, or made a claim with respect
to, any breach or default by any other party thereto which would, severally or
in the aggregate, have an RSI Material Adverse Effect. As used herein, the term
"Material Contracts" shall mean the following:
(i) contracts with any labor union; employee benefit plans or
contracts; and employment, consulting or similar contracts, including
confidentiality agreements;
(ii) leases, whether as lessor or lessee; loan agreements, mortgages,
indentures, instruments of indebtedness or commitments in each case
involving indebtedness for borrowed money or money loaned to others; and
guaranty or suretyship, performance bond, indemnification or contribution
agreements involving obligations;
(iii) contracts with third parties that involve aggregate payments by
RSI after the date hereof of more than $25,000 per annum;
(iv) insurance policies material to the business of RSI; and
(v) other contracts that are material to the operations, business or
financial condition of RSI.
3.13. LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed on SCHEDULE
3.13, there is no pending suit, claim, action or litigation, or administrative,
arbitration or other proceeding or governmental investigation or inquiry against
RSI. To the knowledge of RSI, there are no such proceedings threatened or
contemplated. RSI is not subject to any judgment, decree, injunction, rule or
order of any court, or, to the knowledge of RSI, any governmental restriction
applicable to RSI which is reasonably likely (i) to have an RSI Material Adverse
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Effect or (ii) to cause a material limitation on CNI's ability to operate the
business of RSI (as it is currently operated) after the Effective Date.
3.14. COMPLIANCE WITH LAWS. RSI has all material authorizations, approvals,
licenses and orders to carry on its business as it is now being conducted, to
own or hold under lease the properties and assets it owns or holds under lease
and to perform all of its obligations under the agreements to which it is a
party. RSI has been and is, to the knowledge of RSI, in compliance with all
applicable laws, regulations and administrative orders of any country, state or
municipality or of any subdivision of any thereof to which its business and its
employment of labor or its use or occupancy of properties or any part hereof are
subject in any material respect.
3.15. EMPLOYEE BENEFIT PLANS. Each employee benefit plan, as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of RSI (collectively the "Employee Plans") complies in all
material respects with all applicable requirements of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), and other applicable laws. None
of the Employee Plans is an employee pension benefit plan or a multiemployer
plan, as such terms are defined in ERISA. Neither RSI nor any of its directors,
officers, employees or agents has, with respect to any Employee Plan, engaged in
any "prohibited transaction," as such term is defined in the Code or ERISA, nor
has any Employee Plan engaged in such prohibited transaction which could result
in any taxes or penalties or other prohibited transactions.
3.16. EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) SCHEDULE 3.16 sets forth a complete and accurate list of all
material employee benefit or compensation plans, agreements and
arrangements to which RSI is a party and which is not disclosed in the RSI
SEC Reports, including without limitation (i) all severance, employment,
consulting or similar contracts, (ii) all material agreements and contracts
with "change of control" provisions or similar provisions and (iii) all
indemnification agreements or arrangements with directors or officers.
(b) RSI is in compliance in all material respects with all laws
(including Federal and state laws) respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. There is no
unlawful employment practice discrimination charge pending before the EEOC
or EEOC recognized state "referral agency." There is no unfair labor
practice charge or complaint against RSI pending before the National Labor
Review Board. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of RSI, threatened against or
involving or affecting RSI and no National Labor Review Board
representation question exists respecting its employees. Except as set
forth on SCHEDULE 3.16, no grievance or arbitration proceeding is pending
and no written claim therefor has been delivered to RSI. There is no
collective bargaining agreement that is binding on RSI.
3.17. INTELLECTUAL PROPERTY. RSI owns or has valid, binding and enforceable
rights to use all material patents, trademarks, trade names, service marks,
service names, copyrights, applications therefor and licenses or other rights in
respect thereof ("Intellectual Property") used or held for use in connection
with the business of RSI, without any known conflict with the rights of others.
RSI has not received any notice from any other person pertaining to or
challenging the right of RSI to use any Intellectual Property or any trade
secrets, proprietary information, inventions, know-how, processes and procedures
owned or used or licensed to RSI.
3.18. REAL ESTATE; ENVIRONMENTAL LAWS.
(a) (i) Applicable zoning ordinances permit the operation of RSI's
business at its 444 West Fairmont, Tempe, Arizona leased site (the "Real
Estate"); (ii) RSI has all easements and rights, including easements for
all utilities, services, roadways and other means of ingress and egress,
necessary to operate the business; and (iii) neither the whole nor any
portion of the Real Estate has been condemned, requisitioned or otherwise
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taken by any public authority, and no notice of any such condemnation,
requisition or taking has been received. No such condemnation, requisition
or taking is threatened or contemplated, and there are no pending public
improvements which may result in special assessments against or which may
otherwise materially and adversely affect the Real Estate. To the knowledge
of RSI, (i) the Real Estate has not been used for deposit or disposal of
hazardous wastes or substances in violation of any past or current law in
any material respect and (ii) there is no material liability under past or
current law with respect to any hazardous wastes or substances which have
been disposed of on or in the Real Estate.
(b) RSI has not received any notice of, and has no actual knowledge
of, any material violation of any zoning, building, health, fire, water use
or similar statute, ordinance, law, regulation or code in connection with
the Real Estate.
(c) RSI has complied with all environmental, health and safety laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand has been filed or commenced against RSI alleging any
failure so to comply. RSI has obtained and is in compliance with all
permits, licenses and other authorizations which are required under
environmental, health and safety laws. No hazardous or toxic material
exists in any structure located on, or exists on or under the surface of,
the Real Estate which is, in any case, in material violation of applicable
environmental, health or safety laws. For purposes of this Section,
"hazardous or toxic material" shall mean waste, substance, materials or
particulate matter regulated as hazardous or toxic under any environmental,
health or safety law. For purposes of this Section, "environmental, health
and safety laws" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976 and the Occupational Safety and Health Act of 1970,
each as amended, together with all other laws of federal, state and local
governments (and all agencies thereof) concerning pollution or protection
of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or chemical, industrial,
hazardous or toxic materials or wastes into ambient air, surface water,
ground water or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or chemical, industrial, hazardous or toxic
materials or wastes.
3.19. CONDITION OF ASSETS. All of the assets (other than inventory) of RSI
viewed as a whole and not on an asset by asset basis are in good condition and
working order, ordinary wear and tear excepted, and are reasonably suitable for
the uses for which intended, free from any defects known to RSI, except such
minor defects, as do not substantially interfere with the continued use thereof.
RSI has in force such insurance of its properties and operations as is set forth
on SCHEDULE 3.19.
3.20. ACCOUNTS RECEIVABLE. The accounts receivable set forth on the RSI
Quarterly Statements are reflected thereon in accordance with GAAP. The
allowance for collection losses on the RSI Quarterly Statements has been
determined in accordance with GAAP consistent with past practice. The accounts
receivable arising since the date of the RSI Quarterly Statements are valid and
genuine subject to no setoffs or counterclaims and are collectible in the
ordinary course of business, subject to RSI's recorded reserve for doubtful
accounts.
3.21. INVENTORY. All inventory used in the conduct of the operations of the
business reflected on the RSI Quarterly Statements or acquired since the date
thereof, was acquired and has been maintained in the ordinary course of
business, consists substantially of good and merchantable quality and, other
than after acquired inventory, has been recorded on the RSI Quarterly Statements
in accordance with GAAP.
3.22. YEAR 2000. All operating system, application and other computer
software owned by or licensed to RSI, and all computer hardware and related
equipment leased or owned by RSI, is currently Year 2000 compliant, or to the
extent that such software or hardware is not currently Year 2000 compliant, RSI
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has in place and is implementing detailed plans to ensure that such software and
hardware will be Year 2000 compliant no later than June 30, 1999.
3.23. BROKERS AND FINDERS. None of RSI or its officers or directors has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby. RSI is not aware
of any claim for payment of any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CNI AND MERGER CORP.
CNI and Merger Corp. hereby represent and warrant to RSI as follows:
4.1. ORGANIZATION AND GOOD STANDING. Each of CNI and Merger Corp. is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation.
4.2. CORPORATE POWER AND AUTHORITY. Each of CNI and Merger Corp. has the
corporate power and authority to own, lease and operate their respective
properties and assets and to carry on their respective businesses as currently
being conducted. Each of CNI and Merger Corp. has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and to consummate the Merger. The execution, delivery and
performance by CNI and Merger Corp. of this Agreement have been duly authorized
by all necessary corporate action.
4.3. BINDING EFFECT. This Agreement has been duly executed and delivered by
CNI and Merger Corp. and is the legal, valid and binding obligation of CNI and
Merger Corp., enforceable in accordance with its terms except that:
(a) enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification may be limited by considerations of
public policy.
4.4 ABSENCE OF RESTRICTIONS AND CONFLICTS. Subject only to the approval of
the adoption of this Agreement, the Merger and the Warrant by each of CNI's and
Merger Corp.'s shareholders, the execution, delivery and performance of this
Agreement and the Warrant and the consummation of the Merger and the fulfillment
of and compliance with the terms and conditions of this Agreement and the
Warrant do not and will not, with the passing of time or the giving of notice or
both, violate or conflict with, constitute a breach of or default under, result
in the loss of any material benefit under, or permit the acceleration of any
obligation under, (i) any term or provision of the Articles of Incorporation or
Bylaws of each of CNI and Merger Corp., (ii) any judgment, decree or order of
any court or governmental authority or agency to which either CNI or Merger
Corp. is a party or by which either CNI or Merger Corp. or its properties are
bound, or (iii) any statute, law, regulation or rule applicable to each of CNI
and Merger Corp. other than such violations, conflicts, breaches or defaults
which would not have a material adverse effect on the business, operations,
assets or financial condition of either CNI or Merger Corp. Except for the
filing of the Articles of Merger with the Arizona Corporation Commission and
publication thereof as required by the BCA, compliance with the applicable
requirements of the Securities Act, the Exchange Act and applicable state
securities laws, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental agency or public or
regulatory unit, agency, body or authority with respect to each of CNI and
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Merger Corp. is required in connection with the execution, delivery or
performance of this Agreement and the Warrant by each of CNI and Merger Corp. or
the consummation of the transactions contemplated hereby.
4.5 BROKERS AND FINDERS. Except for ECDI Capital Corp. (the fees of which
shall be paid by CNI), none of CNI or its officers or directors has employed any
broker, finder or investment bank or incurred any liability for any investment
banking fees, financial advisory fees, brokerage fees or finders' fees in
connection with the transactions contemplated hereby. CNI is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
5.1. CONDUCT OF BUSINESS BY RSI. From the date hereof to the Escrow Closing
Date, RSI will, except as required in connection with the Merger and the other
transactions contemplated by this Agreement and except as otherwise disclosed on
the schedules hereto or consented to in writing by CNI:
(a) carry on its business in the ordinary and regular course in
substantially the same manner as heretofore conducted and not engage in any
new line of business or enter into any material agreement, transaction or
activity or make any material commitment except those in the ordinary and
regular course of business and not otherwise prohibited under this Section
5.1;
(b) neither change nor amend its Articles of Incorporation or Bylaws;
(c) other than pursuant to the exercise of the Options outstanding on
the date hereof, not issue, sell or grant options, warrants or rights to
purchase or subscribe to, or enter into any arrangement or contract with
respect to the issuance or sale of any of the capital stock of RSI or
rights or obligations convertible into or exchangeable for any shares of
the capital stock of RSI and not alter the terms of any presently
outstanding options or option plans or make any changes (by split-up,
combination, reorganization or otherwise) in the capital structure of RSI;
(d) not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
RSI and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of RSI or rights or obligations convertible into
or exchangeable for any shares of the capital stock or other securities of
RSI or obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(e) not acquire or enter into any agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity, or
dispose of any material asset other than the sale of inventory in the
ordinary course of business;
(f) use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of RSI, to keep the officers
and employees of RSI available to RSI and to preserve the relationships of
RSI with suppliers, customers and others having business relations with any
of them;
(g) not (i) create, incur or assume any debt (including obligations in
respect of capital leases) or, except in the ordinary course of business
under existing lines of credit, create, incur or assume any short-term debt
for borrowed money, (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person, (iii) make any loans or advances in excess
of $1,000 to any other person, or (iv) make any capital contributions to,
or investments in, any person;
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(h) not (i) enter into, modify or extend in any manner the terms of
any employment, severance or similar agreements with officers and
directors, (ii) grant any increase in the compensation of officers or
directors, whether now or hereafter payable, or (iii) grant any increase in
the compensation of any other employees except for compensation increases
in the ordinary course of business and consistent with past practice (it
being understood by the parties hereto that for the purposes of (ii) and
(iii) above increases in compensation shall include any increase pursuant
to any option, bonus, stock purchase, pension, profit-sharing, deferred
compensation, retirement or other plan, arrangement, contract or
commitment);
(i) not make or incur any individual capital expenditure in excess of
$5,000 or capital expenditures in the aggregate in excess of $10,000 except
as disclosed on Schedule 5.1(i) for purposes of becoming Year 2000
compliant (as used herein, "capital expenditure" shall mean all payments in
respect of the cost of any fixed asset or improvement or replacement,
substitution or addition thereto which is deemed a long-term asset under
GAAP, including those costs arising in connection with the acquisition of
such assets by way of increased product or service charges or offset items
or in connection with capital leases);
(j) perform all of its obligations under all Material Contracts
(except those being contested in good faith) and not enter into, assume or
amend any contract or commitment that would be a Material Contract other
than contracts to provide services entered into in the ordinary course of
business; and
(k) prepare and file all federal, state, local and foreign returns for
taxes and other tax reports, filings and amendments thereto required to be
filed by it, and allow CNI, at its request, to review all such returns,
reports, filings and amendments at RSI's offices prior to the filing
thereof, which review shall not interfere with the timely filing of such
returns.
In connection with the continued operation of the business of RSI between
the date of this Agreement and the Escrow Closing Date, RSI shall confer in good
faith and on a regular and frequent basis with one or more representatives of
CNI designated in writing to report operational matters of materiality and the
general status of ongoing operations. In addition, upon reasonable notice not
less than 24 hours in advance, RSI will allow CNI employees and agents to be
present at RSI's business locations during normal business hours to observe the
business and operations of RSI. Between the Escrow Closing Date and the
Effective Date, RSI will allow CNI employees and agents to be present at RSI's
business locations without the requirement of advance notice, and RSI shall not
take any action which CNI reasonably asserts would constitute a violation of
Section 5.1 hereof. RSI acknowledges that CNI does not and will not waive any
rights it may have prior to the Escrow Closing Date under this Agreement as a
result of such consultations, nor shall CNI be responsible for any decisions
made by RSI's officers and directors with respect to matters which are the
subject of such consultation.
5.2. NOTICE OF ANY MATERIAL CHANGE. RSI shall, promptly after the first
notice or occurrence thereof, advise CNI in writing of any event or the
existence of any state of facts that would make any of its representations and
warranties in this Agreement untrue in any material respect.
5.3. INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Escrow Closing Date,
RSI will provide to CNI and its accountants, counsel and other authorized
representatives reasonable access, during normal business hours to its
premises, properties, contracts, commitments, books, records and other
information (including tax returns filed and those in preparation) and will
cause its officers to furnish to CNI and its authorized representatives
such financial, technical and operating data and other information
pertaining to its business, as CNI shall from time to time reasonably
request.
(b) CNI and its representatives shall maintain the confidentiality of
all information (other than information which is generally available to the
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public) concerning RSI acquired pursuant to the transactions contemplated
hereby in the event that the Merger is not consummated. All files, records,
documents, information, data and similar items relating to the confidential
information of RSI, whether prepared by CNI or otherwise coming into its
possession (other than information which (i) is or becomes generally
available to the public other than as a result of a disclosure by CNI or
its representatives, (ii) is or becomes available to CNI from a source
other than RSI, its subsidiaries or RSI's representatives, provided that
such source is not, and was not, bound by a confidentiality agreement with
RSI or any of its affiliates or representatives or (iii) RSI agrees in
writing was available to CNI on a nonconfidential basis prior to
disclosure), shall remain the exclusive property of RSI and shall be
promptly delivered to RSI upon termination of this Agreement.
5.4. SHAREHOLDERS' MEETING; PROXY STATEMENT.
(a) RSI shall call a meeting of its shareholders to be held as soon as
practicable after the date hereof for the purpose of voting upon the Merger
and this Agreement (the "Special Meeting").
(b) RSI will use its reasonable efforts to hold the Special Meeting as
promptly as practicable and will, through its Board of Directors, recommend
to its shareholders approval of the Merger and this Agreement at the
Special Meeting; provided, however, that such recommendation is subject to
any action taken by, or upon the authority of, the Board of Directors of
RSI in a response to an Acquisition Proposal (as defined hereinafter) and
in the exercise of its good faith judgment as to its fiduciary duties to
the shareholders of RSI, which such judgment is based upon the advice of
independent, outside legal counsel that a failure of the Board to withdraw,
modify or change its recommendation due to an Acquisition Proposal would be
likely to constitute a breach of its fiduciary duties to such shareholders.
(c) As promptly as practicable but in no event later than 30 days
after the execution of this Agreement, RSI shall promptly prepare and file
with the SEC a proxy statement with respect to the Special Meeting (the
"Proxy Statement"). Each of CNI and RSI agrees to provide as promptly as
practicable to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
other party, may be required or appropriate or is customary for inclusion
in the Proxy Statement, and to cause its counsel and auditors to cooperate
with the other's counsel and auditors in the preparation of the Proxy
Statement. The information provided by CNI and RSI for use in the Proxy
Statement shall be true and correct in all material respects without
omission of any material fact which is required to make such information
not false or misleading.
(d) At the time the Proxy Statement is mailed to RSI's shareholders,
the Proxy Statement will (i) not contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein as
necessary, in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary and
(ii) comply in all material respects with the provisions of the Exchange
Act, as applicable, and the rules and regulations thereunder; provided,
however, no representation is made by RSI with respect to statements made
in the Proxy Statement based on information supplied by CNI expressly for
inclusion or incorporation by reference in the Proxy Statement or
information omitted with respect to CNI.
5.5. REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof and shall cooperate fully with
each other and their respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required to be
taken as a part of their respective obligations under this Agreement, including
without limitation:
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(a) RSI and CNI shall promptly make their respective filings and
submissions and shall take, or cause to be taken, all actions and do, or
cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to obtain any required approval of
any federal, state or local governmental agency or regulatory body with
jurisdiction over the transactions contemplated by this Agreement.
(b) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Merger or any of the other
transactions contemplated hereby or seeks damages in connection therewith,
the parties agree to cooperate and use all reasonable efforts to defend
against such claim, action, suit, investigation or other proceeding and, if
an injunction or other order is issued in any such action, suit or other
proceeding, to use all reasonable efforts to have such injunction or other
order lifted, and to cooperate reasonably regarding any other impediment to
the consummation of the transactions contemplated by this Agreement.
(c) Each party shall give prompt written notice to the other of (i)
the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of RSI or
CNI, as the case may be, contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Escrow Closing Date or that will or may result in the failure to satisfy
any of the conditions specified in Article 6 or 7 and (ii) any failure of
RSI or CNI, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
5.6. PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless CNI or RSI is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable Nasdaq Stock Market rule and then only after
making a reasonable attempt to comply with the provisions of this Section).
5.7. NO SOLICITATIONS. From the date hereof until the Escrow Closing Date
or until this Agreement is terminated or abandoned as provided in this
Agreement, RSI shall not directly or indirectly (i) solicit or initiate
discussion with or (ii) enter into negotiations or agreements with, or furnish
any information to, any corporation, partnership, person or other entity or
group (other than CNI, an affiliate of CNI or their authorized representatives
pursuant to this Agreement) concerning any proposal for a merger, sale of
substantial assets, sale of shares of stock or securities or other takeover or
business combination transaction (the "Acquisition Proposal") involving RSI, and
RSI will instruct its officers, directors, advisors and its financial and legal
representatives and consultants not to take any action contrary to the foregoing
provisions of this sentence; provided, however, that RSI, its officers,
directors, advisors and its financial and legal representatives and consultants
shall not be prohibited prior to the Escrow Closing Date from taking any action
described in (ii) above to the extent such action is taken by, or upon the
authority of, the Board of Directors of RSI in the exercise of good faith
judgment as to its fiduciary duties to the shareholders of RSI, which judgment
is based upon the advice of independent, outside legal counsel that a failure of
the Board of Directors of RSI to take such action would be likely to constitute
a breach of its fiduciary duties to such shareholders; PROVIDED FURTHER, that
nothing in this Section 5.7 shall prevent RSI or the Board of Directors from
taking, and disclosing to RSI's shareholders, a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender
offer or from making such disclosure to RSI's shareholders which, as advised in
an opinion of counsel, is required under applicable law. RSI will notify CNI
promptly if RSI becomes aware that any inquiries or proposals are received by,
any information is requested from or any negotiations or discussions are sought
to be initiated with, RSI with respect to an Acquisition Proposal, and RSI shall
promptly deliver to CNI any written inquiries or proposals received by RSI
relating to an Acquisition Proposal, except, in each case, when RSI has been
advised by independent outside counsel for RSI that providing such information
to CNI would be likely to result in a breach of the fiduciary duties of RSI's
Board of Directors to RSI's shareholders. Each time, if any, that the Board of
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Directors of RSI determines, upon advice of such legal counsel and in the
exercise of its good faith judgment as to its fiduciary duties to shareholders,
that it must enter into negotiations with, or furnish any information to, any
corporation, partnership, person or other entity or group (other than CNI, an
affiliate of CNI or their authorized representatives) concerning any Acquisition
Proposal, RSI will give CNI prompt notice of such determination, except in
instances where RSI receives the advice of independent, outside legal counsel
for RSI that providing such information to CNI would be a breach of the
fiduciary duties of RSI's Board of Directors.
5.8 SURVIVAL OF COVENANTS AND AGREEMENTS. All of the covenants and
agreements contained in this Article 5, except those contained in Section 5.4,
shall survive from the Escrow Closing Date to the Effective Date.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF RSI
Except as may be waived by RSI, the obligations of RSI to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Escrow Closing Date of each of the following conditions:
6.1. COMPLIANCE. CNI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants and
conditions of this Agreement to be complied with or performed by CNI on or
before the Escrow Closing Date.
6.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by CNI in this Agreement shall be true and correct in all
material respects at and as of the Escrow Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Escrow Closing Date, except for changes permitted or contemplated by this
Agreement.
6.3. CERTIFICATES. RSI shall have received a certificate or certificates,
executed on behalf of CNI by an executive officer of CNI, to the effect that the
conditions contained in Sections 6.1 and 6.2 hereof have been satisfied.
6.4. SHAREHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of all of the
outstanding shares (as of the "record date" set forth in the Proxy Statement) of
RSI Common Stock.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF CNI AND MERGER CORP.
Except as may be waived by CNI and Merger Corp., the obligations of CNI and
Merger Corp. to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Escrow Closing Date, of each of
the following conditions:
7.1. COMPLIANCE. RSI shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by it on or before
the Escrow Closing Date.
7.2. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by RSI in this Agreement shall be true and correct in all
material respects at and as of the Escrow Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Escrow Closing Date, except for changes permitted or contemplated by this
Agreement.
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7.3. CERTIFICATES. CNI shall have received a certificate or certificates,
executed on behalf of RSI by an executive officer of RSI, to the effect that the
conditions in Sections 7.1 and 7.2 hereof have been satisfied.
7.4. DUE DILIGENCE. The due diligence review of RSI's business conducted by
CNI shall not have revealed any item which in CNI's reasonable judgment would
constitute a material adverse change or a prospect of a material adverse change
in a particular balance sheet or statement of income item of RSI.
7.5 EMPLOYMENT AGREEMENTS. CNI shall have entered into employment
agreements with the executive management of RSI in the form attached hereto as
EXHIBIT 7.5.
ARTICLE 8
MISCELLANEOUS
8.1. TERMINATION. In addition to the provisions regarding termination set
forth elsewhere herein, this Agreement and the transactions contemplated hereby
may be terminated at any time:
(a) on or before the Effective Date, by mutual consent of RSI and CNI;
(b) on or before the Escrow Closing Date, by CNI if there has been a
material misrepresentation or breach of warranty in the representations and
warranties of RSI set forth herein or a failure to perform in any material
respect a covenant on the part of RSI with respect to its representations,
warranties and covenants set forth in this Agreement;
(c) on or before the Escrow Closing Date, by RSI if there has been a
material misrepresentation or breach of warranty in the representations and
warranties of CNI set forth herein or a failure to perform in any material
respect a covenant on the part of CNI with respect to its representations,
warranties and covenants set forth in this Agreement;
(d) by either of CNI or RSI if the Escrow Closing Date has not
occurred by March 31, 1999, unless such failure of consummation is due to
the failure of the terminating party to perform or observe the covenants,
agreements, and conditions hereof to be performed or observed by it;
(e) on or before the Escrow Closing Date, by either of RSI or CNI if
the transactions contemplated hereby violate any nonappealable final order,
decree, or judgment of any court or governmental body or agency having
competent jurisdiction;
(f) on or before the Escrow Closing Date, by RSI if in the exercise of
the good faith judgment of its Board of Directors (which judgment is based
upon the advice of independent, outside legal counsel) as to its fiduciary
duties to its shareholders such termination is required by reason of an
Acquisition Proposal or, if the Board of Directors of RSI withdraws or
materially modifies or changes its recommendation to its shareholders to
approve this Agreement and the Merger if there exists at such time an
Acquisition Proposal for RSI and such change in recommendation is based
upon the advice of independent, outside legal counsel;
(g) on or before the Escrow Closing Date, by CNI if the RSI Board of
Directors withdraws or materially modifies or changes its recommendation to
the shareholders of RSI to approve this Agreement and the Merger if there
exists at such time an Acquisition Proposal; and
(h) by CNI in accordance with clause (ii)(Y) of Section 2.4(d).
A-20
8.2. EXPENSES. If the transactions contemplated by this Agreement are not
consummated, each party hereto shall pay its own expenses incurred in connection
with this Agreement and the transactions contemplated hereby.
8.3. ENTIRE AGREEMENT. This Agreement and the exhibits hereto contain the
complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. The parties hereto have not made
any representation or warranty except as expressly set forth in this Agreement
or in any certificate or schedule delivered pursuant hereto. The obligations of
any party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
8.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each party contained herein or in any exhibit, certificate,
document or instrument delivered pursuant to this Agreement shall not survive
the occurrence of the Merger.
8.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
8.6. NOTICES. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
hand delivery, addressed as follows:
(i) If to RSI:
444 West Fairmont
Tempe, Arizona 85282
Attn: Scott W. Ryan, Chairman
Telephone: 602-968-1772
Fax: 602-894-1907
with a copy (which shall not constitute notice) to:
Fennemore Craig
3003 N. Central, Suite 2600
Phoenix, Arizona 85012-2913
Attn: Karen McConnell
Telephone: 602-916-5307
Fax: 602-916-5507
(ii) If to CNI or Merger Corp.:
10390 Brockwood Road
Dallas, Texas 75238
Attn: Michael O'Neal, CEO
Telephone: 214-340-6400
Fax: 214-340-8269
A-21
with a copy (which shall not constitute notice) to:
Crouch & Hallett, L.L.P.
717 North Harwood Street, Suite 1400
Dallas, Texas 75201
Attention: Bruce H. Hallett
Telephone: 214-922-4120
Fax: 214-953-0576
Each party may designate by notice in writing a new address to which any notice,
demand, request, or communication may thereafter be so given, served, or sent.
Each notice, demand, request, or communication that is mailed, delivered, or
transmitted in the manner described above shall be deemed sufficiently given,
served, sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the affidavit of
messenger being deemed conclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
8.7. SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests, and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
8.8. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Arizona (except the choice of law rules
thereof).
8.9. WAIVER AND OTHER ACTION. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification or supplement is sought.
8.10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
8.11. NO THIRD PARTY BENEFICIARIES. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm or corporation other than the parties hereto and their shareholders, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement or result in such person, firm or corporation being deemed a third
party beneficiary of this Agreement.
8.12. MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel
have mutually contributed to its drafting. Consequently, no provision of this
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted or the provision contains a
covenant of such party.
8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
8.14. MEDIATION. If within 10 days of the receipt of notice of a
controversy or dispute among the parties, the controversy or dispute is not
settled through negotiation, then any party may refer the controversy or dispute
A-22
to mediation under the Commercial Mediation Rules of the American Arbitration
Association. The mediator shall be appointed within 10 days of the initiation of
the mediation. The mediation shall be held in Dallas, Texas. If the controversy
or dispute is not settled within 30 days after the appointment of the mediator,
then any party may refer the controversy or dispute to arbitration in accordance
with Section 8.15 hereof. Notwithstanding the foregoing, CNI's failure to
deposit the required cash amount to the Exchange Fund in accordance with Section
2.3(a) shall not constitute a controversy or dispute that is subject to
mediation. In the event CNI fails to comply with its obligations pursuant to
said Section 2.3(a), it (a) consents to submit itself to personal jurisdiction
of any federal or state court in the State of Arizona and (b) agrees that it
will not attempt to deny such personal jurisdiction by motion or other request
for leave from any such court.
8.15. ARBITRATION. Any controversy or dispute among the parties arising in
connection with this Agreement shall first be submitted for mediation in
accordance with Section 8.14 hereof. Failing settlement through such mediation,
the dispute shall be submitted to a panel of three arbitrators and finally
settled by arbitration in accordance with the commercial arbitration rules of
the American Arbitration Association. Each of the disputing parties shall
appoint one arbitrator, and these two arbitrators shall independently select a
third arbitrator. Arbitration shall take place in Dallas, Texas. Fees incurred
by each party in such arbitration shall be borne by the party incurring such
fees. Any award for monetary damages resulting from nonpayment of sums due
hereunder shall bear interest from the date on which such sums were originally
due and payable. Judgment upon the award rendered may be entered in any court
having jurisdiction or application may be made to such court for judicial
acceptance of the award and an order of enforcement, as the case may be.
Notwithstanding the foregoing, CNI's failure to deposit the required cash amount
to the Exchange Fund in accordance with Section 2.3(a) shall not constitute a
controversy or dispute that is subject to arbitration. In the event CNI fails to
comply with its obligations pursuant to said Section 2.3(a), it (a) consents to
submit itself to personal jurisdiction of any federal or state court in the
State of Arizona and (b) agrees that it will not attempt to deny such personal
jurisdiction by motion or other request for leave from any such court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CORT INVESTMENT GROUP, INC.
By: /s/ Michelle Swanger, President
-------------------------------
RSI ACQUISITION CORP.
By: /s/ Michelle Swanger, President
-------------------------------
RECONDITIONED SYSTEMS, INC.
By: /s/ Scott W. Ryan
-------------------------------
A-23
ANNEX B
ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SECTION 10-1320. NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under Section
10-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and shall be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section 10-1302 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and shall send them the dissenters' notice described in Section 10-1322.
SECTION 10-1321. NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under Section
10-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for the shares under this article.
SECTION 10-1322. DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters rights under Section
10-1302 is authorized at a shareholders' meeting, the corporation shall deliver
a written dissenters' notice to all shareholders who satisfied the requirements
of Section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
1. State where the payment demand must be sent and where and when
certificates for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date.
4. Set a date by which the corporation must receive the payment demand,
which date shall be at least thirty but not more than sixty days after the date
the notice provided by subsection A of this section is delivered.
5. Be accompanied by a copy of this article.
B-1
SECTION 10-1323. DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in Section 10-1322
shall demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to Section 10-1322, subsection B, paragraph 3 and
deposit the shareholder's certificates in accordance with the terms of the
notice.
B. A shareholder who demands payment and deposits the shareholder's
certificates under subsection A of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
article.
SECTION 10-1324. SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions are released under Section 10-1326.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
SECTION 10-1325. PAYMENT
A. Except as provided in Section 10-1327, as soon as the proposed corporate
action is taken, or if such action is taken without a shareholder vote, on
receipt of a payment demand, the corporation shall pay each dissenter who
complied with Section 10-1323 the amount the corporation estimates to be the
fair value of the dissenter's shares plus accrued interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the
shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under Section
10-1328.
5. A copy of this article.
SECTION 10-1326. FAILURE TO TAKE ACTION
A. If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under Section 10-1322 and shall repeat the payment demand
procedure.
B-2
SECTION 10-1327. AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by Section 10-1325
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenter's notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenters' right to demand payment under
Section 10-1328.
SECTION 10-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due
and either demand payment of the dissenter's estimate, less any payment under
Section 10-1325, or reject the corporation's offer under Section 10-1327 and
demand payment of the fair value of the dissenter's shares and interest due, if
either:
1. The dissenter believes that the amount paid under Section 10-1325 or
offered under Section 10-1327 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated.
2. The corporation fails to make payment under Section 10-1325 within sixty
days after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does not
return the deposited certificates or does not release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
B. A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection A of this section within thirty days after the corporation made
or offered payment for the dissenter's shares.
B-3
ANNEX C
FORM OF EMPLOYMENT AGREEMENT BETWEEN CNI AND WAYNE R. COLLIGNON
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is dated as of ___________,
1999, by and between Cort Investment Group, Inc. (the "Company"), and Wayne R.
Collignon, a resident of Arizona ("Employee").
RECITALS:
The Company through its wholly owned subsidiary, Reconditioned Systems,
Inc., an Arizona corporation ("RSI") is engaged in the business of
reconditioning pre-owned office furniture for retail resale, and has offered
employment to Employee for what the Company believes to be reasonable
compensation for Employee's duties, responsibilities and restrictions described
in this Agreement.
In consideration of the mutual agreements, promises and undertakings set
forth in this Agreement, and intending to be legally bound by this Agreement,
the parties agree as follows:
1. POSITION. Employee will serve as President for RSI commencing no later
than the effective date of the merger of the Company and RSI (the "Merger"), or
such earlier date as is provided in this Agreement. Employee shall serve in any
additional position to which he is hereafter appointed by the Board of Directors
of the Company.
2. DUTIES. As the President of RSI, Employee will perform the duties that
the Board of Directors of the Company (the "Board of Directors") and the
President of the Company may from time to time reasonably direct. Employee will
devote Employee's full productive time, ability and attention to the business of
the Company during the term of this Agreement and shall not directly or
indirectly render services of a business, commercial or professional nature to
any other person or organization, whether for compensation or not, without the
prior written consent of the Company. Employee will report directly to the
President of the Company.
3. TERM. This Employment Agreement shall begin on the effective date of the
Merger and shall continue until the earliest of (a) the date the Company
terminates the Employee's employment for cause or not for cause pursuant to
Sections 7 and 8, respectively, (b) the resignation, death, disability or
retirement of Employee pursuant to Sections 9,10 and 11, respectively, or (c)
the one year anniversary of the effective date of the Merger.
4. COMPENSATION. Subject to Sections 7, 8, 9 and 10, as compensation for
Employee's services, and as compensation for Employee's covenants set forth in
this Agreement, the Company agrees as follows:
(A) BASE SALARY. The Company will pay Employee a base salary ("Base
Salary") at the rate of $100,000 per year. The payment of Base Salary will
be in accordance with the Company's regular payroll practices and will be
pro rated for any partial week. Employee's Base Salary will be reviewed at
the end of the twelve month period ended on the twelve month anniversary
date of the Merger. Nothing contained herein shall require the Company to
increase Employee's salary or other compensation.
(B) PERFORMANCE BONUS. The Employee shall be entitled to an annual
bonus in an amount to be determined by the Board of Directors of the
Company, which amount shall not be less than $50,000.
This bonus will be paid within 45 days after the applicable period to
which it relates. For purposes of all bonus calculations, all accounting
measures shall be determined in accordance with generally accepted
accounting principles, consistently applied ("GAAP").
C-1
5. VACATION; PERSONAL DAYS. The Employee shall be entitled to an annual
paid vacation of 14 business days with full pay. Such vacation shall be taken at
a time or times selected by the Employee and approved by the Company. Employee
shall also be entitled to five (5) personal days per year.
6. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; CAR ALLOWANCE.
The Employee shall be entitled to participate to the same extent as other
similarly situated employees in all plans of the Company relating to pension,
thrift, profit sharing, life insurance, hospitalization and medical coverage,
disability, travel or accident insurance, education or other retirement or
employee benefits that the Company has adopted or may adopt for the benefit its
employees.
7. TERMINATION BY COMPANY FOR CAUSE. The Company retains the right to
terminate Employee's employment at any time for "Cause" immediately upon written
notice to Employee. The Company's termination of Employee's employment will be
for "Cause" if and only if both of the following conditions are met: (i) the
Board of Directors of the Company reasonably determines that Employee has,
during the term of Employee's employment, (1) been habitually negligent in the
performance of Employee's duties under this Agreement, (2) breached or failed to
perform any reasonable and proper duty or obligation imposed upon him in
connection with his employment or this Agreement, or breached any fiduciary duty
to the Company, as to which the Company has given him ten (10) days written
notice, and which breach or failure has not been cured within any such period,
(3) committed acts of personal dishonesty that would have a reasonable
likelihood of sustaining a claim made by the Company for damages in a court of
competent jurisdiction, (4) pled guilty or no contest or been convicted of a
crime involving moral turpitude, whether or not committed during the term of
employment, (5) violated the provisions of Sections 12, 13 or 14 of this
Agreement, or (6) engaged in any conduct inimical to the best interests of the
Company (in the reasonable opinion of the Board of Directors of the Company) or
committed any dishonest, unethical, fraudulent, disloyal or felonious act in
respect of his duties to the Company, and (ii) the Board of Directors gives
Employee written notice of such termination for Cause stating specifically the
facts upon which the determination of Cause was made.
If the Company terminates Employee's employment for Cause:
(a) the Company will pay the Base Salary through the date of
termination, prorated for any partial payroll period,
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, that Employee has earned or qualified for under Section 4(b)
prior to the date of such termination, and
(c) the Company will pay the Employee for any accrued and unused
vacation, if any, that Employee was eligible for at the date of
termination.
8. TERMINATION BY COMPANY NOT FOR CAUSE. The Company retains the right to
terminate Employee's employment for any reason other than for Cause by giving
Employee thirty (30) days advance written notice. In the event of such
termination,
(a) the Company will continue to pay Employee's Base Salary through
the date of termination and for a period of six (6) months thereafter,
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, qualified for under Section 4(b) prior to the date of such
termination, and
(c) the Company will pay the Employee for any accrued or unused
vacation, if any, that Employee was eligible for at the date of
termination.
C-2
9. RESIGNATION. Employee has the right to terminate Employee's employment
by giving the Company thirty (30) days advance written notice (a "Resignation").
The effect of Employee's Resignation will be the same as if the Company had
terminated Employee's employment for Cause, the date of termination being the
last day of the thirty (30) day notice period. An employee who resigns without
at least thirty (30) days advance written notice is in material default of this
Agreement.
10. DEATH. If Employee's employment is terminated by Employee's death,
(a) the Company will pay Employee's Base Salary through the date of
Employee's death, prorated for any partial payroll period, and
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, that Employee qualified for under Section 4(b) prior to the
date of death.
11. DISABILITY OR RETIREMENT OF EMPLOYEE. If Employee's employment is
terminated by "Disability" or "Retirement," the effect of such termination will
be the same as if Employee's employment had been terminated by Employee's death.
For purposes of this Agreement, "Disability" means a disability by reason of the
occurrence of an injury or disease (including mental illness) or a physical or
mental condition that, in the opinion of an appropriate physician chosen by the
Board of Directors of the Company, (i) results in Employee becoming unable
adequately to perform his customary duties for the Company and (ii) such
disability is expected to last more than ninety (90) days of which Employee will
be unable to perform a minimum of forty (40) hours per week of the type of work
described in Section 2 of this Agreement. For purposes of this Agreement,
"Retirement" means a severance from the Company's employment by the Employee (i)
who has attained his sixty-second birthday and/or (ii) who has completed twenty
(20) consecutive years as an employee.
12. NONCOMPETITION AGREEMENT. Employee agrees that prior to the termination
of this Agreement and for a period of two (2) years after Employee's termination
of employment for whatever reason, other than a termination by the Company not
for cause, and whether a breach of contract is alleged or not, Employee shall
not, without the prior written consent of the Company, which consent may be
withheld in the Company's sole discretion, engage, whether for compensation or
not, as an individual proprietor, owner, partner, stockholder, officer,
director, employee, agent, investor, consultant, sales representative or in any
other capacity whatsoever in any activity or endeavor that competes directly or
indirectly with the business of the Company and shall not solicit or make sales
of any products or services similar to those products or services sold or
provided by the Company at the time of Employee's termination. Such restriction
applies to within 100 miles of the Company's facilities.
Employee further agrees, during Employee's employment and for a period of
three (3) years after Employee's termination for whatever reason, other than a
termination by the Company not for cause, notwithstanding any allegation of
breach of this Agreement, not to solicit, hire, influence or attempt to
influence any employee of the Company to terminate his or her employment or
other contractual relationship with the Company for any reason including,
without limitation, working for a competitor. Additionally, Employee agrees that
during the same time period Employee will not directly or indirectly attempt to
solicit or conduct business with any person or entity that is a client, customer
or active prospect of the Company at the time of Employee's termination if such
business would be in competition with the Company's business.
The terms "client," "customer" and "active prospect" include, but are not
limited to, any person or entity solicited or contacted by Employee or the
Company or any person or entity to whom services have been rendered by Employee
or the Company directly or indirectly during the two (2) years preceding
Employee's termination. Employee acknowledges Employee's duty, both by contract
and common law, not to interfere with contractual relationships and not to use
proprietary and confidential information about customers or clients of the
Company for the advantage of any person or entity other than the Company.
C-3
As separate consideration for Employee's agreement to be bound to the terms
of this Section 12, the Company shall pay the sum of $25,000. The covenants of
the Employee contained in this Section 12 will be construed as independent of
any other provision in this Agreement; and the existence of any claim or cause
of action by the Employee against the Company will not constitute a defense to
the enforcement by the Company of said covenants. The Employee understands that
the covenants contained in Section 12 are essential elements of the transaction
contemplated by this Agreement and, but for the agreement of the Employee to
Section 12, the Company would not have agreed to enter into such transaction.
The Employee has been advised to consult with counsel in order to be informed in
all respects concerning the reasonableness and propriety of Section 12 and its
provisions with specific regard to the nature of the business conducted by the
Company. Employee further agrees and acknowledges that this Agreement (1) is
reasonable as to length of time, scope and geographic area for purposes of
protecting the commercial advantages enjoyed by the Company, (2) will not
interfere with Employee's ability to pursue a proper livelihood in the event of
termination of Employee's employment with the Company, (3) does not impose a
greater restraint than is necessary to protect the goodwill or business
interests of the Company and (4) is more than adequately paid for in the
consideration derived by Employee under this Agreement. Employee further agrees
that notwithstanding any other alleged breach of this Agreement, the provisions
of this Section 12 will be valid and binding upon Employee. The Company and
Employee also agree that the court under Section 25(a) or arbitrators under
Section 25(b) have jurisdiction to modify any provisions of this covenant of
noncompetition in accordance with the court's or arbitrators' respective ruling
as to reasonableness or scope of application and that, consistent with Section
20 of this Agreement, this Agreement shall remain enforceable as modified or
amended in the jurisdiction where this Agreement is so modified or amended.
13. NONDISCLOSURE OF PROPRIETARY CONFIDENTIAL INFORMATION. Employee
acknowledges that, during the term of employment with the Company, Employee will
obtain special training and will have access to and become familiar with various
trade secrets and confidential information consisting of, among other items:
trade secrets, methods of operation, patents, techniques, designs, processes,
technologies, compilations of information, past, present and prospective
customer lists, records, copyrights, and specifications that are owned and
commercially beneficial to the Company, including any compilation of various
trade secrets or data derived from such information (collectively, the
"Proprietary Information"). The Proprietary Information does not include
information which (i) at the time it is disclosed by the Employee was already in
the public domain or (ii) is required to be disclosed by court order.
Employee agrees that Employee will not disclose, either during Employee's
employment with the Company or after Employee's termination for whatever reason,
any Proprietary Information to any person or entity, except in the course of
Employee's duties on behalf of the Company, and that, similarly, Employee will
not use such information for the benefit of any person or entity other than the
Company at any time. Employee agrees that upon Employee's termination, Employee
will deposit with or return to the Company all copies (in any media, including,
without limitation, electronic storage media) of documents, records, notebooks
or any other information or documentation of the Company's Proprietary
Information, and all derivatives thereof, whether the Proprietary Information or
documentation was developed or prepared by Employee or by others. Employee
acknowledges that this covenant of nondisclosure is an integral term of this
Agreement and is given in consideration of Employee's employment and the other
consideration granted in this Agreement.
14. ASSIGNMENT OF INVENTIONS. Employee agrees to disclose promptly,
completely and in writing to the Company, and Employee by this Agreement hereby
assigns and agrees to assign and bind Employee, the Employee's heirs, legal
representatives, executors or administrators, to assign to the Company, or its
assigns or successors, all right, title and interest in and to any and all
inventions or any improvements therein (the "Inventions") of whatever kind or
character, discovered, conceived and/or developed either individually by
Employee or jointly with others, during the course of Employee's employment with
the Company, or using the Company's time, data, facilities and/or materials,
provided the subject matter of the Invention is within the general scope of the
duties and responsibilities of one in Employee's position of employment with the
C-4
Company, or occurs as a result of Employee's knowledge of a particular interest
of the Company in the subject matter of the Invention. Employee's obligations
under this Section 14 apply without regard to whether or not an Invention or
solution to a problem occurs to Employee on the job, at home or anywhere else.
Employee further agrees that all Inventions are the Company's exclusive
property. Employee agrees to assist the Company at any time during Employee's
employment, or after Employee's termination, at the Company's expense, in the
preparation, execution and delivery of any and all Inventions, disclosures,
patent applications or any improvements related to such Inventions, disclosures
or patent applications within the scope and intent of this Agreement that are
required to obtain patents in the United States, or for such other proceedings
as may be necessary to vest title of such items in the Company, its assigns and
successors.
Nothing contained in this Agreement may be construed as impairing the shop
rights of the Company in any Inventions that are not assigned exclusively to the
Company.
15. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that he is
free to enter into this Agreement and to perform each of the terms and covenants
contained herein. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
16. LIMITATIONS. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
17. ATTORNEYS' FEES AND COSTS. If any action in arbitration or at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party will be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it may be
entitled.
18. WAIVER OF BREACH. The actual or apparent waiver by either party to this
Agreement of a breach of any provision of this Agreement will not operate or be
construed as an actual or constructive waiver of that breach or any subsequent
breach by any party. Waivers are not effective unless in writing and signed by
the party granting the waiver.
19. MULTIPLE COUNTERPARTS. This Agreement may be executed in counterparts,
each of which for all purposes is to be deemed an original, and all of which
constitute, collectively, one agreement. In making proof of this Agreement, it
will not be necessary to produce or account for more than one counterpart of
this Agreement. Furthermore, a photocopy of any counterpart will be valid and
have the same effect as an original.
20. SEVERABILITY AND SAVINGS CLAUSE. If any one or more of the provisions
or subjects contained in this Agreement is for any reason held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect the validity and enforceability of any other
provisions or subjects of this Agreement, and it is the intention of the parties
that there shall be substituted for such invalid, illegal or unenforceable
provision a provision as similar to such provision as may be possible and yet be
valid, legal and enforceable. Further, should any provisions of this Agreement
ever be reformed or rewritten by a judicial body, those provisions as rewritten
will be binding, but only in that jurisdiction, on Employee and the Company as
if contained in the original Agreement.
21. SUCCESSORS; SURVIVAL; AFFILIATES. This Agreement and the rights and
obligations under this Agreement will be binding upon and inure to the benefit
of the parties to this Agreement and their respective legal representatives, and
will also bind and inure to the benefit of any successor of the Company by
merger or consolidation or any assignee of all or substantially all of the
Company's assets. Except to any such successor or assignee of the Company,
neither this Agreement nor any rights or benefits under this Agreement may be
assigned by either party to this Agreement. Each covenant on the part of
Employee contained in Section 12, 13 and 14 shall be construed as an agreement
C-5
independent of any other provision of this Agreement and shall survive the
termination of this Agreement. The existence of any claim or cause of action of
Employee against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of any such
covenant. The protective covenants in Sections 12, 13 and 14 shall also inure to
the benefit of the Company's affiliates (as hereinafter defined) and these
covenants shall be enforceable against Employee by each of such affiliates as
third party beneficiaries. An "affiliate" of the Company is any person or entity
that directly, or indirectly through one or many intermediaries, controls or is
controlled by, or is under common control with, the Company.
22. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to
Employee's employment by the Company and contains all of the covenants and
agreements between the parties with respect to such employment. This Agreement
can only be changed by the parties in writing, executed by the party against
whom enforcement of any modifications may be sought.
23. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the substantive laws of the State of Texas without regard to
conflict of law provisions.
24. NOTICES. Any notice under this Agreement will be in writing and will be
deemed to have been duly given when delivered personally or three (3) days after
such notice is deposited in the United States mail, registered, postage prepaid,
and addressed, to the Company, at its principal office, or to Employee at
Employee's last permanent address as shown on the Company's records.
25. REMEDIES.
(a) INJUNCTIVE RELIEF. Employee agrees that a breach or threatened
breach, based on reasonable and good faith evidence of a breach on
Employee's part, of any covenant contained in Section 12, Section 13 or
Section 14 will cause irreparable damage to the Company. For that reason,
Employee further agrees that the Company is entitled as a matter of right
to an injunction from any court of competent jurisdiction, restraining any
further violation of any of such covenants by Employee, Employee's future
employers, employees, partners, agents or any person or entity related,
directly or indirectly, to Employee. The right to an injunction is in
addition to whatever other remedies the Company may have, including
specifically the recovery of damages.
(b) ARBITRATION. Except to the extent provided in Section 25(a) above,
any controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes, between the parties to this Agreement
(including their directors, officers, employees, agents, successors,
assigns, heirs, executors and beneficiaries) relating to the formation,
execution, interpretation, breach or enforcement of this Agreement, shall
be submitted to arbitration before the American Arbitration Association
("AAA"), in accordance with their rules then in effect and the substantive
law of the State of Texas and the United States. Each of the parties to
this Agreement shall appoint one person as an arbitrator to hear and
determine such disputes, and if they should be unable to agree, then the
two arbitrators shall choose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the AAA and,
once chosen, the third arbitrator's decision shall be final, binding and
conclusive upon the parties to this Agreement. The arbitrators may not
award punitive or exemplary damages, but will have the power to award
prejudgment interest and attorneys' fees to the prevailing party. The award
of the arbitration panel may be confirmed by any state or federal court of
competent jurisdiction, and may be challenged only upon the grounds
provided in Section 10 of the Federal Arbitration Act, Title 9, United
States Code. This agreement to arbitrate shall survive the execution of
this Agreement. THE RIGHT TO ARBITRATE IS INTEGRAL TO AND NOT SEVERABLE
FROM THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS
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ARBITRATION AGREEMENT AND KNOWINGLY CONSENT TO ITS CONSEQUENCES, INCLUDING
THE WAIVER OF THE RIGHT TO LITIGATE CERTAIN DISPUTES. The expenses of such
arbitration will be borne by the losing party or in such proportion as the
arbitrators will decide. A material or anticipatory breach of any section
of this Agreement will not release either party from the obligations of
this Section 25.
The parties hereto have executed the Agreement as of the date first
mentioned above.
COMPANY:
By:
---------------------------------
Its:
---------------------------------
EMPLOYEE:
--------------------------------------
Wayne R. Collignon
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ANNEX D
FORM OF EMPLOYMENT AGREEMENT BETWEEN CNI AND DIRK D. ANDERSON
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is dated as of ___________,
1999, by and between Cort Investment Group, Inc. (the "Company"), and Dirk D.
Anderson, a resident of Arizona ("Employee").
RECITALS:
The Company through its wholly owned subsidiary, Reconditioned Systems,
Inc., an Arizona corporation ("RSI") is engaged in the business of
reconditioning pre-owned office furniture for retail resale, and has offered
employment to Employee for what the Company believes to be reasonable
compensation for Employee's duties, responsibilities and restrictions described
in this Agreement.
In consideration of the mutual agreements, promises and undertakings set
forth in this Agreement, and intending to be legally bound by this Agreement,
the parties agree as follows:
1. POSITION. Employee will serve as Chief Financial Officer for RSI
commencing no later than the effective date of the merger of the Company and RSI
(the "Merger"), or such earlier date as is provided in this Agreement. Employee
shall serve in any additional position to which he is hereafter appointed by the
Board of Directors of the Company.
2. DUTIES. As the Chief Financial Officer of RSI, Employee will perform the
duties that the Board of Directors of the Company (the "Board of Directors") and
the President of the Company may from time to time reasonably direct. Employee
will devote Employee's full productive time, ability and attention to the
business of the Company during the term of this Agreement and shall not directly
or indirectly render services of a business, commercial or professional nature
to any other person or organization, whether for compensation or not, without
the prior written consent of the Company. Employee will report directly to the
President of the Company.
3. TERM. This Employment Agreement shall begin on the effective date of the
Merger and shall continue until the earliest of (a) the date the Company
terminates the Employee's employment for cause or not for cause pursuant to
Sections 7 and 8, respectively, (b) the resignation, death, disability or
retirement of Employee pursuant to Sections 9,10 and 11, respectively, or (c)
the one year anniversary of the effective date of the Merger.
4. COMPENSATION. Subject to Sections 7, 8, 9 and 10, as compensation for
Employee's services, and as compensation for Employee's covenants set forth in
this Agreement, the Company agrees as follows:
(a) BASE SALARY. The Company will pay Employee a base salary ("Base
Salary") at the rate of $100,000 per year. The payment of Base Salary will
be in accordance with the Company's regular payroll practices and will be
pro rated for any partial week. Employee's Base Salary will be reviewed at
the end of the twelve month period ended on the twelve month anniversary
date of the Merger. Nothing contained herein shall require the Company to
increase Employee's salary or other compensation.
(b) PERFORMANCE BONUS. The Employee shall be entitled to an annual
bonus in an amount to be determined by the Board of Directors of the
Company, which amount shall not be less than $50,000.
This bonus will be paid within 45 days after the applicable period to
which it relates. For purposes of all bonus calculations, all accounting
measures shall be determined in accordance with generally accepted
accounting principles, consistently applied ("GAAP").
D-1
5. VACATION; PERSONAL DAYS. The Employee shall be entitled to an annual
paid vacation of 14 business days with full pay. Such vacation shall be taken at
a time or times selected by the Employee and approved by the Company. Employee
shall also be entitled to five (5) personal days per year.
6. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS; CAR ALLOWANCE.
The Employee shall be entitled to participate to the same extent as other
similarly situated employees in all plans of the Company relating to pension,
thrift, profit sharing, life insurance, hospitalization and medical coverage,
disability, travel or accident insurance, education or other retirement or
employee benefits that the Company has adopted or may adopt for the benefit its
employees.
7. TERMINATION BY COMPANY FOR CAUSE. The Company retains the right to
terminate Employee's employment at any time for "Cause" immediately upon written
notice to Employee. The Company's termination of Employee's employment will be
for "Cause" if and only if both of the following conditions are met: (i) the
Board of Directors of the Company reasonably determines that Employee has,
during the term of Employee's employment, (1) been habitually negligent in the
performance of Employee's duties under this Agreement, (2) breached or failed to
perform any reasonable and proper duty or obligation imposed upon him in
connection with his employment or this Agreement, or breached any fiduciary duty
to the Company, as to which the Company has given him ten (10) days written
notice, and which breach or failure has not been cured within any such period,
(3) committed acts of personal dishonesty that would have a reasonable
likelihood of sustaining a claim made by the Company for damages in a court of
competent jurisdiction, (4) pled guilty or no contest or been convicted of a
crime involving moral turpitude, whether or not committed during the term of
employment, (5) violated the provisions of Sections 12, 13 or 14 of this
Agreement, or (6) engaged in any conduct inimical to the best interests of the
Company (in the reasonable opinion of the Board of Directors of the Company) or
committed any dishonest, unethical, fraudulent, disloyal or felonious act in
respect of his duties to the Company, and (ii) the Board of Directors gives
Employee written notice of such termination for Cause stating specifically the
facts upon which the determination of Cause was made.
If the Company terminates Employee's employment for Cause:
(a) the Company will pay the Base Salary through the date of
termination, prorated for any partial payroll period,
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, that Employee has earned or qualified for under Section 4(b)
prior to the date of such termination, and
(c) the Company will pay the Employee for any accrued and unused
vacation, if any, that Employee was eligible for at the date of
termination.
8. TERMINATION BY COMPANY NOT FOR CAUSE. The Company retains the right to
terminate Employee's employment for any reason other than for Cause by giving
Employee thirty (30) days advance written notice. In the event of such
termination,
(a) the Company will continue to pay Employee's Base Salary through
the date of termination and for a period of six (6) months thereafter,
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, qualified for under Section 4(b) prior to the date of such
termination, and
(c) the Company will pay the Employee for any accrued or unused
vacation, if any, that Employee was eligible for at the date of
termination.
D-2
9. RESIGNATION. Employee has the right to terminate Employee's employment
by giving the Company thirty (30) days advance written notice (a "Resignation").
The effect of Employee's Resignation will be the same as if the Company had
terminated Employee's employment for Cause, the date of termination being the
last day of the thirty (30) day notice period. An employee who resigns without
at least thirty (30) days advance written notice is in material default of this
Agreement.
10. DEATH. If Employee's employment is terminated by Employee's death,
(a) the Company will pay Employee's Base Salary through the date of
Employee's death, prorated for any partial payroll period, and
(b) the Company will pay the unpaid portion of Employee's Performance
Bonus, if any, that Employee qualified for under Section 4(b) prior to the
date of death.
11. DISABILITY OR RETIREMENT OF EMPLOYEE. If Employee's employment is
terminated by "Disability" or "Retirement," the effect of such termination will
be the same as if Employee's employment had been terminated by Employee's death.
For purposes of this Agreement, "Disability" means a disability by reason of the
occurrence of an injury or disease (including mental illness) or a physical or
mental condition that, in the opinion of an appropriate physician chosen by the
Board of Directors of the Company, (i) results in Employee becoming unable
adequately to perform his customary duties for the Company and (ii) such
disability is expected to last more than ninety (90) days of which Employee will
be unable to perform a minimum of forty (40) hours per week of the type of work
described in Section 2 of this Agreement. For purposes of this Agreement,
"Retirement" means a severance from the Company's employment by the Employee (i)
who has attained his sixty-second birthday and/or (ii) who has completed twenty
(20) consecutive years as an employee.
12. NONCOMPETITION AGREEMENT. Employee agrees that prior to the termination
of this Agreement and for a period of two (2) years after Employee's termination
of employment for whatever reason, other than a termination by the Company not
for cause, and whether a breach of contract is alleged or not, Employee shall
not, without the prior written consent of the Company, which consent may be
withheld in the Company's sole discretion, engage, whether for compensation or
not, as an individual proprietor, owner, partner, stockholder, officer,
director, employee, agent, investor, consultant, sales representative or in any
other capacity whatsoever in any activity or endeavor that competes directly or
indirectly with the business of the Company and shall not solicit or make sales
of any products or services similar to those products or services sold or
provided by the Company at the time of Employee's termination. Such restriction
applies to within 100 miles of the Company's facilities.
Employee further agrees, during Employee's employment and for a period of
three (3) years after Employee's termination for whatever reason, other than a
termination by the Company not for cause, notwithstanding any allegation of
breach of this Agreement, not to solicit, hire, influence or attempt to
influence any employee of the Company to terminate his or her employment or
other contractual relationship with the Company for any reason including,
without limitation, working for a competitor. Additionally, Employee agrees that
during the same time period Employee will not directly or indirectly attempt to
solicit or conduct business with any person or entity that is a client, customer
or active prospect of the Company at the time of Employee's termination if such
business would be in competition with the Company's business.
The terms "client," "customer" and "active prospect" include, but are not
limited to, any person or entity solicited or contacted by Employee or the
Company or any person or entity to whom services have been rendered by Employee
or the Company directly or indirectly during the two (2) years preceding
Employee's termination. Employee acknowledges Employee's duty, both by contract
and common law, not to interfere with contractual relationships and not to use
proprietary and confidential information about customers or clients of the
Company for the advantage of any person or entity other than the Company.
D-3
As separate consideration for Employee's agreement to be bound to the terms
of this Section 12, the Company shall pay the sum of $25,000. The covenants of
the Employee contained in this Section 12 will be construed as independent of
any other provision in this Agreement; and the existence of any claim or cause
of action by the Employee against the Company will not constitute a defense to
the enforcement by the Company of said covenants. The Employee understands that
the covenants contained in Section 12 are essential elements of the transaction
contemplated by this Agreement and, but for the agreement of the Employee to
Section 12, the Company would not have agreed to enter into such transaction.
The Employee has been advised to consult with counsel in order to be informed in
all respects concerning the reasonableness and propriety of Section 12 and its
provisions with specific regard to the nature of the business conducted by the
Company. Employee further agrees and acknowledges that this Agreement (1) is
reasonable as to length of time, scope and geographic area for purposes of
protecting the commercial advantages enjoyed by the Company, (2) will not
interfere with Employee's ability to pursue a proper livelihood in the event of
termination of Employee's employment with the Company, (3) does not impose a
greater restraint than is necessary to protect the goodwill or business
interests of the Company and (4) is more than adequately paid for in the
consideration derived by Employee under this Agreement. Employee further agrees
that notwithstanding any other alleged breach of this Agreement, the provisions
of this Section 12 will be valid and binding upon Employee. The Company and
Employee also agree that the court under Section 25(a) or arbitrators under
Section 25(b) have jurisdiction to modify any provisions of this covenant of
noncompetition in accordance with the court's or arbitrators' respective ruling
as to reasonableness or scope of application and that, consistent with Section
20 of this Agreement, this Agreement shall remain enforceable as modified or
amended in the jurisdiction where this Agreement is so modified or amended.
13. NONDISCLOSURE OF PROPRIETARY CONFIDENTIAL INFORMATION. Employee
acknowledges that, during the term of employment with the Company, Employee will
obtain special training and will have access to and become familiar with various
trade secrets and confidential information consisting of, among other items:
trade secrets, methods of operation, patents, techniques, designs, processes,
technologies, compilations of information, past, present and prospective
customer lists, records, copyrights, and specifications that are owned and
commercially beneficial to the Company, including any compilation of various
trade secrets or data derived from such information (collectively, the
"Proprietary Information"). The Proprietary Information does not include
information which (i) at the time it is disclosed by the Employee was already in
the public domain or (ii) is required to be disclosed by court order.
Employee agrees that Employee will not disclose, either during Employee's
employment with the Company or after Employee's termination for whatever reason,
any Proprietary Information to any person or entity, except in the course of
Employee's duties on behalf of the Company, and that, similarly, Employee will
not use such information for the benefit of any person or entity other than the
Company at any time. Employee agrees that upon Employee's termination, Employee
will deposit with or return to the Company all copies (in any media, including,
without limitation, electronic storage media) of documents, records, notebooks
or any other information or documentation of the Company's Proprietary
Information, and all derivatives thereof, whether the Proprietary Information or
documentation was developed or prepared by Employee or by others. Employee
acknowledges that this covenant of nondisclosure is an integral term of this
Agreement and is given in consideration of Employee's employment and the other
consideration granted in this Agreement.
14. ASSIGNMENT OF INVENTIONS. Employee agrees to disclose promptly,
completely and in writing to the Company, and Employee by this Agreement hereby
assigns and agrees to assign and bind Employee, the Employee's heirs, legal
representatives, executors or administrators, to assign to the Company, or its
assigns or successors, all right, title and interest in and to any and all
inventions or any improvements therein (the "Inventions") of whatever kind or
character, discovered, conceived and/or developed either individually by
Employee or jointly with others, during the course of Employee's employment with
the Company, or using the Company's time, data, facilities and/or materials,
provided the subject matter of the Invention is within the general scope of the
duties and responsibilities of one in Employee's position of employment with the
D-4
Company, or occurs as a result of Employee's knowledge of a particular interest
of the Company in the subject matter of the Invention. Employee's obligations
under this Section 14 apply without regard to whether or not an Invention or
solution to a problem occurs to Employee on the job, at home or anywhere else.
Employee further agrees that all Inventions are the Company's exclusive
property. Employee agrees to assist the Company at any time during Employee's
employment, or after Employee's termination, at the Company's expense, in the
preparation, execution and delivery of any and all Inventions, disclosures,
patent applications or any improvements related to such Inventions, disclosures
or patent applications within the scope and intent of this Agreement that are
required to obtain patents in the United States, or for such other proceedings
as may be necessary to vest title of such items in the Company, its assigns and
successors.
Nothing contained in this Agreement may be construed as impairing the shop
rights of the Company in any Inventions that are not assigned exclusively to the
Company.
15. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that he is
free to enter into this Agreement and to perform each of the terms and covenants
contained herein. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
16. LIMITATIONS. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
17. ATTORNEYS' FEES AND COSTS. If any action in arbitration or at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party will be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it may be
entitled.
18. WAIVER OF BREACH. The actual or apparent waiver by either party to this
Agreement of a breach of any provision of this Agreement will not operate or be
construed as an actual or constructive waiver of that breach or any subsequent
breach by any party. Waivers are not effective unless in writing and signed by
the party granting the waiver.
19. MULTIPLE COUNTERPARTS. This Agreement may be executed in counterparts,
each of which for all purposes is to be deemed an original, and all of which
constitute, collectively, one agreement. In making proof of this Agreement, it
will not be necessary to produce or account for more than one counterpart of
this Agreement. Furthermore, a photocopy of any counterpart will be valid and
have the same effect as an original.
20. SEVERABILITY AND SAVINGS CLAUSE. If any one or more of the provisions
or subjects contained in this Agreement is for any reason held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect the validity and enforceability of any other
provisions or subjects of this Agreement, and it is the intention of the parties
that there shall be substituted for such invalid, illegal or unenforceable
provision a provision as similar to such provision as may be possible and yet be
valid, legal and enforceable. Further, should any provisions of this Agreement
ever be reformed or rewritten by a judicial body, those provisions as rewritten
will be binding, but only in that jurisdiction, on Employee and the Company as
if contained in the original Agreement.
21. SUCCESSORS; SURVIVAL; AFFILIATES. This Agreement and the rights and
obligations under this Agreement will be binding upon and inure to the benefit
of the parties to this Agreement and their respective legal representatives, and
will also bind and inure to the benefit of any successor of the Company by
merger or consolidation or any assignee of all or substantially all of the
Company's assets. Except to any such successor or assignee of the Company,
neither this Agreement nor any rights or benefits under this Agreement may be
assigned by either party to this Agreement. Each covenant on the part of
Employee contained in Section 12, 13 and 14 shall be construed as an agreement
independent of any other provision of this Agreement and shall survive the
D-5
termination of this Agreement. The existence of any claim or cause of action of
Employee against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of any such
covenant. The protective covenants in Sections 12, 13 and 14 shall also inure to
the benefit of the Company's affiliates (as hereinafter defined) and these
covenants shall be enforceable against Employee by each of such affiliates as
third party beneficiaries. An "affiliate" of the Company is any person or entity
that directly, or indirectly through one or many intermediaries, controls or is
controlled by, or is under common control with, the Company.
22. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to
Employee's employment by the Company and contains all of the covenants and
agreements between the parties with respect to such employment. This Agreement
can only be changed by the parties in writing, executed by the party against
whom enforcement of any modifications may be sought.
23. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the substantive laws of the State of Texas without regard to
conflict of law provisions.
24. NOTICES. Any notice under this Agreement will be in writing and will be
deemed to have been duly given when delivered personally or three (3) days after
such notice is deposited in the United States mail, registered, postage prepaid,
and addressed, to the Company, at its principal office, or to Employee at
Employee's last permanent address as shown on the Company's records.
25. REMEDIES.
(a) INJUNCTIVE RELIEF. Employee agrees that a breach or threatened
breach, based on reasonable and good faith evidence of a breach on
Employee's part, of any covenant contained in Section 12, Section 13 or
Section 14 will cause irreparable damage to the Company. For that reason,
Employee further agrees that the Company is entitled as a matter of right
to an injunction from any court of competent jurisdiction, restraining any
further violation of any of such covenants by Employee, Employee's future
employers, employees, partners, agents or any person or entity related,
directly or indirectly, to Employee. The right to an injunction is in
addition to whatever other remedies the Company may have, including
specifically the recovery of damages.
(b) ARBITRATION. Except to the extent provided in Section 25(a) above,
any controversy of any nature whatsoever, including but not limited to tort
claims or contract disputes, between the parties to this Agreement
(including their directors, officers, employees, agents, successors,
assigns, heirs, executors and beneficiaries) relating to the formation,
execution, interpretation, breach or enforcement of this Agreement, shall
be submitted to arbitration before the American Arbitration Association
("AAA"), in accordance with their rules then in effect and the substantive
law of the State of Texas and the United States. Each of the parties to
this Agreement shall appoint one person as an arbitrator to hear and
determine such disputes, and if they should be unable to agree, then the
two arbitrators shall choose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the AAA and,
once chosen, the third arbitrator's decision shall be final, binding and
conclusive upon the parties to this Agreement. The arbitrators may not
award punitive or exemplary damages, but will have the power to award
prejudgment interest and attorneys' fees to the prevailing party. The award
of the arbitration panel may be confirmed by any state or federal court of
competent jurisdiction, and may be challenged only upon the grounds
provided in Section 10 of the Federal Arbitration Act, Title 9, United
States Code. This agreement to arbitrate shall survive the execution of
this Agreement. THE RIGHT TO ARBITRATE IS INTEGRAL TO AND NOT SEVERABLE
FROM THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS
ARBITRATION AGREEMENT AND KNOWINGLY CONSENT TO ITS CONSEQUENCES, INCLUDING
THE WAIVER OF THE RIGHT TO LITIGATE CERTAIN DISPUTES. The expenses of such
D-6
arbitration will be borne by the losing party or in such proportion as the
arbitrators will decide. A material or anticipatory breach of any section
of this Agreement will not release either party from the obligations of
this Section 25.
The parties hereto have executed the Agreement as of the date first
mentioned above.
COMPANY:
By:
---------------------------------
Its:
---------------------------------
EMPLOYEE:
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Dirk D. Anderson
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ANNEX E
CNI WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS
WARRANT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
RECONDITIONED SYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT
Reconditioned Systems, Inc., an Arizona corporation (the "Company"), hereby
certifies that for value received, Cort Investment Group, Inc. (the "Holder"),
is entitled, subject to the terms and conditions herein set forth, to purchase
from the Company, at any time on and after the Effective Date and prior to the
Expiration Date (as defined below), 230,000 shares of the Common Stock, no par
value (the "Common Stock"), of the Company, upon payment therefor of a purchase
price equal to [$3.75] per share of Common Stock, subject to adjustment as set
forth below (the "Exercise Price").
This Warrant is being issued in connection with certain transactions
described in that certain Agreement and Plan of Merger, to which the Company and
the Holder are parties (the "Merger Agreement"). Capitalized terms not otherwise
defined herein shall have the meaning set forth in the Merger Agreement.
SECTION 1: EFFECTIVE DATE; EXPIRATION DATE.
This Warrant shall become effective on such date (the "Effective Date") as
both of the following shall have occurred: (i) the termination of the Merger
Agreement by CNI pursuant to Section 8.1(b), (g) or (h) therein or the
termination of the Merger Agreement by RSI pursuant to Section 8.1(f) or (if as
a result of the failure of the condition in Section 6.4 to have been satisfied)
Section 8.1(d); and (ii) the entering by the Company of an Acquisition Proposal
within 24 months after such termination. The Holder shall be entitled to
purchase the Common Stock issuable upon exercise of this Warrant (the "Warrant
Shares") at the Exercise Price from the Company at any time prior to 5:00 p.m.
(Phoenix, Arizona time) on the date (the "Expiration Date") which is the later
of (i) the termination date set forth in the Acquisition Proposal or (ii) the
closing date of the Acquisition Proposal (provided that the Holder has received
at least 15 days' prior written notice of such closing date).
SECTION 2: MANNER OF EXERCISE.
The exercise (the "Exercise") of this Warrant shall be made by delivery by
the Holder of the form of the subscription attached as Schedule A hereto, duly
executed by Holder, to the Company at the address set forth opposite its
signature hereto, accompanied by payment of the Exercise Price, in cash or by
check to the order of the Company.
SECTION 3: EXERCISABLE IN WHOLE OR IN PART.
The purchase rights represented by this Warrant are exercisable at the
option of the Holder in whole or in part at any time prior to the Expiration
Date (but not as to fractional shares). In the case of the purchase of less than
all of the Warrant Shares, the Company shall cancel this Warrant upon the
surrender hereof and shall execute and deliver a new Warrant of like tenor for
the balance of the Warrant Shares.
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SECTION 4: DELIVERY OF STOCK CERTIFICATES, ETC.
As soon as practicable after the Exercise and payment of the Exercise
Price, and in any event within 10 days thereafter, the Company at its expense
(including the payment by it of all applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder, or as the Holder (upon
payment by the Holder of all applicable transfer taxes) may direct, a
certificate or certificates for the Warrant Shares, and shall cause to be
delivered (with appropriate instruments of assignment) to the Holder all of the
cash, or other property to which the Holder may be entitled by virtue of Section
9 hereof. All Warrant Shares will, upon issuance, as provided herein, be fully
paid and non-assessable and free from all taxes, liens, charges, pledges,
claims, encumbrances and security interests.
SECTION 5: CERTAIN COVENANTS.
5.1 The Company shall at all times reserve and keep available sufficient
shares of its Common Stock to satisfy the Warrant Shares.
5.2 The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, void or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
with all such action as may be necessary or appropriate in order to protect the
rights of Holder against dilution or other impairment. Without limiting the
foregoing, the Company will not authorize a par value of any Warrant Shares
above the amount payable therefor upon such Exercise, and at all times will take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable stock upon the Exercise
of this Warrant; and
5.3 The Company will give prompt written notice to Holder of any lawsuit
(including administrative hearings) known by the Company to have been instituted
by or against it in any federal or state court or before any commission or other
regulatory body, federal, state or local, which, if adversely determined, would
have a material adverse effect upon the value or the legality of issuance or
registration of the Company's Common Stock, or upon its business, assets or
condition, financial or otherwise.
SECTION 6: REPRESENTATIONS AND WARRANTIES.
By acceptance of this Warrant, the Holder hereof represents and warrants
that (i) it is an "accredited investor" within the meaning of Regulation D under
the Securities Act, (ii) it has acquired this Warrant for its own account for
investment and not with a present view to, or for resale in connection with, the
distribution thereof or the grant of any participation therein, and that it has
no present intention of distributing or reselling the same; (iii) it fully
understands the restrictions on the resale of this Warrant and the Warrant
Shares, specifically including the restrictions set forth in the legend on the
first page hereof; (iv) it fully understands that such a legend may limit or
eliminate the value of the Warrant or the Warrant Shares, including its value as
collateral security; and (v) it further understands that the Company has no
obligation to register this Warrant or the Warrant Shares under the Securities
Act or applicable state securities laws, and will not sell, assign or otherwise
transfer this Warrant or the Warrant Shares except in strict compliance with
such laws.
SECTION 7: LEGEND.
Until registered under the Securities Act, or until such time as such
registration may not be necessary for the lawful sale or other disposition
thereof, all certificates evidencing Warrant Shares shall contain an appropriate
legend notifying the Holder or any potential transferee of such securities of
the provisions of this Warrant, such legend to be substantially in the form of
the legend on the first page hereof.
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SECTION 8: NEGOTIABILITY.
This Warrant is issued upon the following terms, to all of which the Holder
consents and agrees:
A. Subject to the restrictions set forth in this Warrant, title to this
Warrant may be transferred by endorsement and delivery in the same manner as in
the case of a negotiable instrument transferable by endorsement and delivery,
and upon surrender for exchange of this Warrant (in negotiable form, if not
surrendered by the Holder named on the face hereof) to the Company, the Company
at its expense will issue and deliver upon the order of the Holder a new warrant
of like tenor, in such name as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct, calling for the aggregate number of
shares of Warrant Shares then called for by this Warrant;
B. Any person in possession of this Warrant properly endorsed is authorized
to represent himself as absolute owner thereof and is empowered to transfer
absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such BONA FIDE purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
C. Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
SECTION 9: ADJUSTMENT FOR DIVIDENDS, RECLASSIFICATION, ETC.
The Exercise Price and the total number of Warrant Shares shall be subject
to adjustment from time to time as follows:
A. CONSOLIDATION, MERGER, SALE, CONVEYANCE. If the Company at any time
shall consolidate or merge with, or sell or convey all or substantially all of
its assets to, any other corporation, this Warrant shall thereafter entitle the
Holder to purchase at the Exercise Price then in effect such number and kind of
securities as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance upon or with respect to the Warrant
Shares immediately prior to such consolidation, merger, sale or conveyance. The
Company shall take such steps in connection with such consolidation, merger,
sale or conveyance as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonable may be, in relation to
any securities or property thereafter deliverable upon the exercise of this
Warrant. The foregoing provisions shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the adjustment provisions hereof shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. STOCK DIVIDEND, RECLASSIFICATION, ETC. If the Company shall (i) pay a
dividend in or make a distribution of shares of its capital stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (iv)
issue any shares of its capital stock in a reclassification of its Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the number of shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder of this Warrant shall be entitled to receive the
kind and number of shares or other securities of the Company which such Holder
would have owned or would have been entitled to receive after the happening of
any of the events described above, had this Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this subparagraph (B) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
C. ADJUSTMENT OF PURCHASE PRICE. Whenever the number of Warrant Shares is
adjusted as herein provided, the Exercise Price payable upon exercise of this
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Warrant shall be adjusted by multiplying the Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares subject to this Warrant immediately prior to such adjustment, and
of which the denominator shall be the number of Warrant Shares subject to this
Warrant immediately thereafter.
D. WRITTEN NOTICE. On the occurrence of an event requiring an adjustment of
the Exercise Price or the number of Warrant Shares, the Company shall forthwith
give written notice to the Holder stating the adjusted Exercise Price and the
adjusted number and kind of securities purchasable hereunder resulting from the
event and setting forth the method of calculation. The Board of Directors of the
Company, acting in good faith, shall determine the calculation.
SECTION 10: REPLACEMENT OF WARRANT.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon delivery of indemnity reasonably
satisfactory in form and amount to the Company (it being understood and agreed
that in the case of any bank, insurance company or other institutional investor
its agreement to indemnify the Company against loss shall constitute
satisfactory indemnity) or in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
SECTION 11: NOTICES, ETC.
All notices and other communications under this Warrant shall be in writing
and given in the form and to the addresses set forth in the Merger Agreement.
SECTION 12: MISCELLANEOUS.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with and be governed by
the laws of the State of Arizona. If any provision of this Warrant is held
invalid or unenforceable according to law, the remaining provisions hereof shall
not be affected thereby and shall remain in full force and effect. The headings
in this Warrant are for reference only, and shall not limit or otherwise affect
any of the terms hereof.
IN WITNESS WHEREOF, this Warrant has been executed by the Company as of the
date first above written.
Reconditioned Systems, Inc.
By: /s/ Scott W. Ryan
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Its: Chairman
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SCHEDULE A
FORM OF SUBSCRIPTION
TO: Reconditioned Systems, Inc.
The undersigned, the holder of a Common Stock Purchase Warrant issued on
___________, 1998, hereby irrevocably elects to exercise the right to purchase
__________ Warrant Shares (as defined therein) and herewith makes payment of the
Exercise Price (as defined therein).
The undersigned represents and warrants that it is acquiring this stock for
its own account for investment and not with a present view to, or for resale in
connection with, the distribution thereof or the grant of any participation
therein, and that it has no present intention of distributing or reselling the
stock, or granting any participation therein, subject, nevertheless, to any
requirement of law that the disposition of its property shall at all times be
and remain within its control as owner thereof.
Dated:
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Sign here:
CORT INVESTMENT GROUP, INC.
By:
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RECONDITIONED SYSTEMS, INC. PROXY
444 WEST FAIRMONT, TEMPE, ARIZONA 85282
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned appoints Wayne Collignon and Dirk Anderson, and each of
them, as proxies, each with the power of substitution, and authorizes them to
represent and vote, as designated on the reverse side hereof, all shares of
Common Stock of Reconditioned Systems, Inc. held by the undersigned on December
28, 1998, at the Special Meeting of Stockholders to be held on January 25, 1999.
In their discretion, the proxies are authorized to vote such shares upon such
other business as may properly come before the Special Meeting and are
authorized to cumulate votes with respect to the election of directors.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR EACH OF THE LISTED PROPOSALS.
(Continued and to be SIGNED on the reverse side.)
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Please mark boxes X in blue or black ink. This Board of Directors recommends a
vote FOR each of the proposals listed below.
1. Approval of the Agreement and Plan of Merger among Reconditioned Systems,
Inc., Cort Investment Group and RSI Acquisition Corp. dated October 30,
1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as name appears at left. When
shares are held by joint tenants, both should
sign. When signing as an attorney, 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.
Date ________________________, 1999
Signature ______________________________
Signature if held jointly ________________________
(Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.)