Zones, Inc. (NASDAQ: ZONS) announced today that it has entered into
an amendment to the merger agreement that it previously entered
into with Zones Acquisition Corp. ("ZAC"), which is owned by Firoz
H. Lalji, Zones' Chairman of the Board, Chief Executive Officer and
majority shareholder. The amended merger agreement provides that
each share of Zones common stock (other than those held by Mr.
Lalji and certain of his related parties) will be converted into
the right to receive $7.00 in cash, without interest and less any
applicable withholding taxes. Following the closing of the merger,
Zones will become a private company wholly owned by Mr. Lalji and
certain of his related parties.
Zones previously announced that, in order to reflect changed
general economic conditions, it had updated its financial
projections for 2009 to assume an 11.1% decline from Zones'
projected 2008 sales, which is an approximately 21% decrease
compared to previously projected 2009 sales. In light of the
updated 2009 financial projections, Mr. Lalji, on behalf of ZAC,
had indicated to the special committee, consisting of independent
members of Zones' board of directors, that he believed the
surviving corporation would find it difficult to remain within the
lender's financial covenants if it borrowed the amount of debt
financing required to consummate the merger at the previously
agreed price of $8.65 per share.
In order to reduce the risks associated with the transaction,
ZAC and Zones have amended the merger agreement and have revised
other terms of the transaction. In addition to reducing the
per-share price in the merger, the amendment also (i) eliminates
certain conditions to ZAC's obligation to close the merger, (ii)
eliminates the break-up fees and expenses that had been potentially
payable by Zones to ZAC, (iii) increases the reverse break-up fee
potentially payable by ZAC to Zones from $750,000 to $5 million,
and (iv) allows Zones to seek specific performance of ZAC's
obligations to pursue financing for the merger in the event the
currently specified financing becomes unavailable. In connection
with the execution of the amendment, Mr. Lalji and his wife
(together owning a majority of Zones' outstanding stock) have
agreed to vote their shares in favor of the amended merger
agreement. In addition, Mr. Lalji has personally guaranteed the
increased reverse break-up fee of $5 million.
The merger is expected to close on or before December 31, 2008.
Mr. Lalji has informed Zones that he intends to provide
approximately $20 million of the merger consideration at or prior
to closing. Another $15 million of the merger consideration is
expected to be funded at or prior to closing from a credit facility
expected to be entered into with GE Capital. The remaining
approximately $19 million of merger consideration is expected to be
funded on January 2, 2009 from the GE Capital credit facility and
other sources that are available to the surviving company. Mr.
Lalji has also agreed to personally guarantee the funding of this
approximately $19 million of consideration on January 2, 2009 if it
is not otherwise funded in a timely manner. There can be no
assurance that the GE Capital credit facility will be available to
finance the merger. Although Zones may seek specific performance of
ZAC's obligations to pursue financing for the merger, it may be
difficult, or impossible, for Mr. Lalji and ZAC to obtain
alternative financing on acceptable terms and conditions.
The Zones board of directors, acting upon the unanimous
recommendation of the special committee, and by a unanimous vote of
the directors (without the participation of Mr. Lalji in
deliberations or voting), has determined that the merger and the
amended merger agreement are fair to, advisable to and in the best
interest of Zones' unaffiliated shareholders, and has approved the
merger and approved and adopted the amended merger agreement and
the other transactions contemplated thereby. The Zones board of
directors (with Mr. Lalji abstaining) has also unanimously
recommended that the Zones shareholders vote in favor of the merger
and the amended merger agreement.
Under the amended merger agreement, there is a new "go-shop"
provision whereby the special committee, with the assistance of its
independent advisors, is permitted to solicit superior acquisition
proposals from third parties until November 28, 2008. There can be
no assurance that the go-shop process will result in an alternative
transaction.
Zones will send supplemental proxy materials to shareholders,
and expects to convene the previously scheduled special
shareholders meeting on November 19, 2008 but immediately adjourn
it until a later meeting date in December 2008. The merger requires
the approval of a majority of the outstanding shares of Zones
common stock and the approval of a majority of the number of shares
of Zones common stock present in person or by proxy and voting at
the special meeting (other than shares held by Mr. Lalji and
certain of his related parties). As previously announced, the
record date for the special shareholders meeting remains October 6,
2008.
About Zones, Inc.
Zones, Inc. is a single-source direct marketing reseller of
name-brand information technology products to the
small-to-medium-sized business market, enterprise accounts and
public sector accounts. Zones sells these products through outbound
and inbound account executives, a national field sales force,
catalogs and the Internet. Zones offers more than 150,000 products
from leading manufacturers including Adobe, Apple, Avaya, Cisco,
HP, IBM, Kingston, Lenovo, Microsoft, NEC, Nortel Networks, Sony,
Symantec and Toshiba.
Incorporated in 1988, Zones, Inc. is headquartered in Auburn,
Washington. Buying information is available at
http://www.zones.com, or by calling 800-258-2088. The Company's
investor relations information can be accessed online at
www.zones.com/IR.
Forward Looking Statements
This press release may contain statements that are
forward-looking. These statements are made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of
1995. These statements are based on current expectations that are
subject to risks and uncertainties that could cause actual results
to differ materially from historical results or those anticipated.
These risk factors include, without limitation, the effect of
fluctuating or unfavorable economic conditions on IT purchasing
trends and price competition, and Zones' ability to appropriately
react to those changing conditions; the inherent uncertainties
involved in projections of financial results, which are, at best,
estimations of future performance and are significantly more
unreliable in times of economic turbulence; future growth; account
executive hiring and productivity; increased expenses of being a
public company; pressure on margin; competition; state tax
uncertainties; rapid technological change and inventory
obsolescence; reliance on vendor relationships; dependence on
personnel; potential disruption of business from information
systems failure; reliance on outsourced distribution; variations in
gross profit margin percentages due to vendor programs and credits,
product and customer mix, pricing strategies, and economic
conditions; the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement for the going-private transaction; the inability to
complete the going-private transaction due to the failure to obtain
the company shareholder approval or the special shareholder
approval described in the proxy statement or the failure to satisfy
other conditions to consummation of the going-private transaction;
the failure to obtain the necessary debt and equity financing for
the going-private transaction; the failure of the going-private
transaction to close for any other reason; and other risks and
uncertainties detailed in the Company's filings with the SEC.
Information about the Previously Announced Merger and Where to
Find It
In connection with the proposed merger, Zones has filed, or will
file, a definitive proxy statement, a proxy statement supplement
and related materials with the Securities and Exchange Commission.
INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE
DEFINITIVE PROXY STATEMENT AND, WHEN AVAILABLE, THE PROXY STATEMENT
SUPPLEMENT, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED MERGER AND THE PARTIES THERETO. Investors and security
holders may obtain a free copy of the definitive proxy statement,
proxy statement supplement (after it is filed) and other documents
filed by Zones at the Securities and Exchange Commission's website
at http://www.sec.gov. The definitive proxy statement, proxy
statement supplement (after it is filed) and such other documents
may also be obtained for free from Zones by directing such request
to Zones, Inc., 1102 15th Street SW, Suite 102, Auburn, Washington
98001, Attention: Investor Relations; Telephone (253) 205-3000.
Zones and its directors, executive officers and certain other
members of its management and employees may be deemed to be
participants in the solicitation of proxies from its stockholders
in connection with the proposed merger. Information regarding the
interests of Zones' participants in the solicitation is included in
the definitive proxy statement and proxy statement supplement.
Contact: Ronald McFadden Zones, Inc. Chief Financial Officer
253-205-3000
Zones (NASDAQ:ZONS)
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