<PAGE>
As filed with the Securities and Exchange Commission on February 14, 1997
File No.: 333-18663
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
California 5013 95-2920557
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
700 East Bonita Avenue
Pomona, California 91767
(909) 624-8041
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Charles J. Hogarty
President
700 East Bonita Avenue
Pomona, California 91767
(909) 624-8041
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Paul H. Irving, Esq. John A. Grimstad, Esq.
Peter M. Menard, Esq. David C. Grorud, Esq.
Manatt, Phelps & Phillips, LLP Daniel A. Yarano, Esq.
11355 West Olympic Boulevard Fredrikson & Byron, P.A.
Los Angeles, California 90064 1100 International Centre
(310) 312-4196 900 2nd Avenue South
Minneapolis, Minnesota 55402
(612) 347-7000
Approximate date of commencement of proposed sale to the public: Upon
consummation of the Merger, as described in the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
_______________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
[Logo] KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
February __, 1997
Dear Shareholders:
You are cordially invited to attend a special meeting of the
shareholders of Keystone Automotive Industries, Inc. ("Keystone") to be held on
___________, February ___, 1997 commencing at 10:00 a.m., Pacific Standard Time,
at Keystone's principal executive offices, 700 East Bonita Avenue, Pomona,
California, and any adjournment or postponement thereof (the "Keystone
Meeting").
At the Keystone Meeting, you will be asked (i) to consider and to vote
upon a proposal to approve an Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 6, 1996, by and among Keystone, North Star
Acquisition, Inc., a newly formed subsidiary of Keystone (the "Subsidiary"),
North Star Plating Company ("North Star") and Ronald G. Brown and Kim D. Wood
(collectively, the "Principal Shareholders") and (ii) to transact such other
business as properly may come before the Keystone Meeting. The Merger Agreement
provides, among other things, that (i) the Subsidiary will be merged with and
into North Star (the "Merger"), (ii) all shares of the capital stock of North
Star issued and outstanding immediately prior to the Merger will be converted
into the right to receive an aggregate of 2,450,000 shares of the Common Stock
of Keystone (or approximately 25.1% of the shares of the Common Stock of
Keystone to be issued and outstanding immediately after the Merger) and
(iii) Ronald G. Brown, a director, officer and principal shareholder of North
Star, will become a director of Keystone. As a result of the Merger, North Star
will become a wholly owned subsidiary of Keystone.
A summary of the Merger Agreement and the Merger are set forth in the
accompanying Proxy Statement/Information Statement/Prospectus, and a copy of the
Merger Agreement is attached thereto as Appendix A. See "The Merger" and The
Merger Agreement." You are strongly urged to carefully consider this
information, and the other information contained elsewhere in the Proxy
Statement/Information Statement/Prospectus concerning Keystone and North Star,
before voting on the Merger Agreement.
After careful consideration, the Board of Directors of Keystone has
determined that the transactions contemplated by the Merger Agreement are in the
best interests of Keystone and its shareholders. Accordingly, the Board of
Directors has unanimously approved the Merger Agreement and recommends that all
shareholders of Keystone vote FOR its approval. The Board of Directors believes
that the Merger, among other things, will (i) expand the geographic scope of
Keystone's distribution network in the Midwest and the mid-Atlantic states,
(ii) provide Keystone with a stable supply of new and recycled chrome bumpers,
(iii) enhance Keystone's position as the nation's leading distributor of
aftermarket collision replacement parts, (iv) enable Keystone to leverage North
Star's distribution system and (v) enhance Keystone's operating efficiencies.
See "The Merger -- Reasons for the Merger" and "The Merger -- Recommendation of
the Board of Directors." The Board of Directors also has reviewed the opinion
of FMV Opinions, Inc., a business valuation firm retained by Keystone, that the
terms of the transactions contemplated by the Merger Agreement are fair to
Keystone and its shareholders from a financial point of view. A copy of this
opinion is attached to the accompanying Proxy Statement/Information Statement/
Prospectus as Appendix B. See "The Merger -- Opinion of Financial Advisor."
The Merger Agreement must be approved by the holders of a majority of
the issued and outstanding shares of the Common Stock of Keystone entitled to
vote thereon. YOUR VOTE IS IMPORTANT. FAILURE TO VOTE OR TO RETURN YOUR PROXY
CARD WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE KEYSTONE MEETING IN PERSON AND
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, I URGE
<PAGE>
YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED, PREPAID ENVELOPE AS SOON AS POSSIBLE. You may, of course, attend
the Keystone Meeting and vote in person, even if you have previously returned
your proxy card.
Sincerely yours,
Virgil K. Benton II
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
[Logo] KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY __, 1997
____________________
A special meeting (the "Keystone Meeting") of the shareholders of
Keystone Automotive Industries, Inc., a California corporation ("Keystone"),
will be held on ____, February __, 1997 commencing at 10:00 a.m., Pacific
Standard Time, at Keystone's principal executive offices, 700 East Bonita
Avenue, Pomona, California for the following purposes:
1. APPROVAL OF MERGER AGREEMENT. To consider and to vote upon a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement")
dated as of December 6, 1996, by and among Keystone, North Star Acquisition,
Inc., a newly formed subsidiary of Keystone (the "Subsidiary"), North Star
Plating Company ("North Star") and Ronald G. Brown and Kim D. Wood
(collectively, the "Principal Shareholders"), pursuant to which, among other
things, (i) the Subsidiary will be merged with and into North Star (the
"Merger"), (ii) all shares of the capital stock of North Star issued and
outstanding immediately prior to the Merger will be converted into the right to
receive an aggregate of 2,450,000 shares of the Common Stock of Keystone (or
approximately 25.1% of the shares of the Common Stock of Keystone to be issued
and outstanding immediately after the Merger) and (iii) Ronald G. Brown, a
director, officer and principal shareholder of North Star, will become a
director of Keystone. As a result of the Merger, North Star will become a
wholly owned subsidiary of Keystone.
2. OTHER BUSINESS. To transact such other business as properly may
come before the Keystone Meeting or any adjournment or postponement thereof.
Only persons who are shareholders of record of Keystone (the "Keystone
Shareholders") at the close of business on February __, 1997 (the "Record Date")
are entitled to notice of and to vote, in person or by proxy, at the Keystone
Meeting or any adjournment or postponement thereof.
The Merger Agreement must be approved by the holders of a majority of
the issued and outstanding shares of the Common Stock of Keystone entitled to
vote thereon. As of the Record Date, 2,284,162 shares of Common Stock (or
approximately 31.3% of the issued and outstanding shares of Common Stock) were
owned by certain officers, directors and shareholders of Keystone who have
entered into a voting agreement with North Star pursuant to which they are
obligated to vote for the Merger Agreement.
A summary of the Merger Agreement and the Merger are set forth in the
accompanying Proxy Statement/Information Statement/Prospectus, and a copy of the
Merger Agreement is attached thereto as Appendix A. See "The Merger" and "The
Merger Agreement." YOU ARE STRONGLY URGED TO CAREFULLY CONSIDER THIS
INFORMATION, AND THE OTHER INFORMATION CONTAINED ELSEWHERE IN THE PROXY
STATEMENT/INFORMATION STATEMENT/PROSPECTUS CONCERNING KEYSTONE AND NORTH STAR,
BEFORE VOTING ON THE MERGER AGREEMENT.
By Order of the Board of Directors
Virgil K. Benton II
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
February __, 1997
Pomona, California
<PAGE>
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. WE URGE YOU TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED, PREPAID ENVELOPE
AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE KEYSTONE MEETING IN
PERSON. IF YOU DO ATTEND THE KEYSTONE MEETING, YOU THEN MAY WITHDRAW YOUR PROXY
AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
IN ORDER TO FACILITATE THE PROVISION OF ADEQUATE ACCOMMODATIONS AT THE KEYSTONE
MEETING, PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE
KEYSTONE MEETING.
<PAGE>
[Logo] NORTH STAR PLATING COMPANY
February ___, 1997
Dear Shareholders:
You are cordially invited to attend a special meeting of the
shareholders of North Star Plating Company ("North Star") to be held on
____________, February __, 1997 commencing at ___ a.m., Central Standard Time,
at _________________, ________________, ________________, Minnesota and any
adjournment or postponement thereof (the "North Star Meeting").
At the North Star Meeting, you will be asked (i) to consider and to
vote upon a proposal to approve an Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 6, 1996, by and among North Star, Keystone
Automotive Industries, Inc. ("Keystone"), a California corporation and North
Star Acquisition, Inc., a newly formed subsidiary of Keystone (the
"Subsidiary"), and Ronald G. Brown and Kim D. Wood (collectively, the "Principal
Shareholders") and (ii) to transact such other business as properly may come
before the North Star Meeting. The Merger Agreement provides, among other
things, that (i) the Subsidiary will be merged with and into North Star (the
"Merger"), (ii) all shares of the capital stock of North Star issued and
outstanding immediately prior to the Merger will be converted into the right to
receive an aggregate of 2,450,000 shares of Common Stock of Keystone (or
approximately 25.1% of the shares of the Common Stock of Keystone to be issued
and outstanding immediately after the Merger) and (iii) Ronald G. Brown, a
director, officer and principal shareholder of North Star, will become a
director of Keystone. As a result of the Merger, North Star will become a
wholly owned subsidiary of Keystone.
A summary of the Merger Agreement and the Merger are set forth in the
accompanying Proxy Statement/Information Statement/Prospectus, and a copy of the
Merger Agreement is attached thereto as Appendix A. See "The Merger" and "The
Merger Agreement." You are strongly urged to carefully consider this
information, and the other information contained elsewhere in the Proxy
Statement/Information Statement/Prospectus concerning North Star and Keystone,
before voting on the Merger Agreement.
After careful consideration, the Board of Directors of North Star has
determined that the transactions contemplated by the Merger Agreement are in the
best interests of North Star and its shareholders. Accordingly, the Board of
Directors has unanimously approved the Merger Agreement and recommends that all
shareholders of North Star vote FOR its approval. The Board of Directors
believes that the Merger, among other things, will (i) provide liquidity to
North Star's shareholders through the exchange of North Star's non-publicly
traded stock for Keystone's publicly traded stock, (ii) provide an opportunity
for North Star's shareholders to continue equity participation in a comparable
company with a larger distribution network, and (iii) allow North Star's
shareholders to benefit from the anticipated growth of the combined companies.
See "The Merger -- Reasons for the Merger" and "The Merger -- Recommendation of
the Board of Directors."
The Merger Agreement must be approved by the holders of at least 66 %
of the issued and outstanding shares of the Common Stock of North Star entitled
to vote thereon. YOUR VOTE IS IMPORTANT. FAILURE TO VOTE WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. THEREFORE, YOU ARE STRONGLY
ENCOURAGED TO ATTEND THE NORTH STAR MEETING.
Sincerely yours,
Ronald G. Brown
PRESIDENT
<PAGE>
[Logo] NORTH STAR PLATING COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY __, 1997
A special meeting (the "North Star Meeting") of the shareholders of
North Star Plating Company, a Minnesota corporation ("North Star"), will be held
on _________, February ___, 1997 commencing at ___ a.m., Central Standard Time,
at _________________, ___________________, ________________, Minnesota for the
following purposes:
1. APPROVAL OF MERGER AGREEMENT. To consider and to vote upon a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement")
dated as of December 6, 1996, by and among North Star, Keystone Automotive
Industries, Inc. ("Keystone"), a California corporation and North Star
Acquisition, Inc., a newly formed subsidiary of Keystone (the "Subsidiary"), and
Ronald G. Brown and Kim D. Wood (collectively, the "Principal Shareholders"),
and to transact such other business as properly may come before the North Star
Meeting. The Merger Agreement provides, among other things, that (i) the
Subsidiary will be merged with and into North Star (the "Merger"), (ii) all
shares of the capital stock of North Star issued and outstanding immediately
prior to the Merger will be converted into the right to receive an aggregate of
2,450,000 shares of Common Stock of Keystone (or approximately 25.1% of the
shares of the Common Stock of Keystone issued and outstanding immediately after
the Merger) and (iii) Ronald G. Brown, a director, officer and principal
shareholder of North Star, will become a director of Keystone. As a result of
the Merger, North Star will become a wholly owned subsidiary of Keystone.
2. OTHER BUSINESS. To transact such other business as properly may
come before the North Star Meeting or any adjournment or postponement thereof.
NORTH STAR IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND NORTH STAR A PROXY.
Only persons who are shareholders of record of North Star (the "North
Star Shareholders") at the close of business on February ___, 1997 (the "North
Star Record Date") are entitled to notice of and to vote, in person or by proxy,
at the North Star Meeting or any adjournment or postponement thereof.
The Merger Agreement must be approved by the holders of at least
66 2/3% of the issued and outstanding shares of the Common Stock of North Star
entitled to vote thereon. As of the North Star Record Date, 4,968.26 shares
of Common Stock (or approximately 73.5% of the issued and outstanding shares
of Common Stock) were owned by the Principal Shareholders who have entered
into an affiliate agreement with Keystone pursuant to which they have granted
Keystone an irrevocable proxy and appointed Keystone as attorney-in-fact to
vote such Principal Shareholders' shares of North Star's Common Stock held by
them in favor of the Merger.
A summary of the Merger Agreement and the Merger are set forth in the
accompanying Proxy Statement/Information Statement/Prospectus, and a copy of the
Merger Agreement is attached thereto as Appendix A. See "The Merger" and "The
Merger Agreement." YOU ARE STRONGLY URGED TO CAREFULLY CONSIDER THIS
INFORMATION, AND THE OTHER INFORMATION CONTAINED ELSEWHERE IN THE PROXY
STATEMENT/INFORMATION STATEMENT/PROSPECTUS CONCERNING NORTH STAR AND KEYSTONE
BEFORE VOTING ON THE MERGER AGREEMENT.
By Order of the Board of Directors
Ronald G. Brown
PRESIDENT
February ___, 1997
Minneapolis, Minnesota
IT IS IMPORTANT THAT ALL SHAREHOLDERS ATTEND THE NORTH STAR MEETING
AND VOTE.
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
PROXY STATEMENT
AND
NORTH STAR PLATING COMPANY
INFORMATION STATEMENT
FOR
SPECIAL MEETINGS OF SHAREHOLDERS
FEBRUARY __, 1997
---------------------------------
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
PROSPECTUS
2,450,000 SHARES OF COMMON STOCK
---------------------------------
This Proxy Statement/Information Statement/Prospectus is being furnished to
the shareholders of record of the Common Stock (the "Keystone Shareholders") of
Keystone Automotive Industries, Inc., a California corporation ("Keystone"), as
of the close of business on February __, 1997 (the "Keystone Record Date") in
connection with the solicitation of proxies by the Board of Directors of
Keystone for use at a special meeting of the Keystone Shareholders to be held on
___, February __, 1997, or any adjournment or postponement thereof (the
"Keystone Meeting"), and to the shareholders of record of the Common Stock (the
"North Star Shareholders") of North Star Plating Company, a Minnesota
corporation ("North Star"), as of the close of business on February ___, 1997
(the "North Star Record Date") in connection with the matters to be considered
and voted upon at a special meeting of the North Star Shareholders to be held on
February ___, 1997, or any adjournment or postponement thereof (the "North Star
Meeting"). The Board of Directors of North Star believes that the transactions
contemplated by the Merger Agreement are in the best interests of North Star and
its shareholders and are fair to the North Star Shareholders from a financial
point of view. The Board of Directors of North Star could not reach a
conclusion that the Merger is "fair" to each individual Shareholder because each
shareholder has unique expectations and goals relating to the Merger, including
expectations and goals relating to a shareholder's employment relationship with
North Star. As a result, the North Star Board of Directors determined that it
was in the best interest of the North Star Shareholders to present the Merger
Agreement to the shareholders for a vote. Each North Star Shareholder is urged
to carefully consider these transactions in light of his or her own unique
expectations concerning North Star and the Merger. See "The Merger --
Recommendation of the Boards of Directors -- North Star."
At the Keystone Meeting and the North Star Meeting (the "Meetings"), the
Keystone Shareholders and the North Star Shareholders will be asked (i) to
consider and to vote upon a proposal to approve an Agreement and Plan of Merger
(the "Merger Agreement") dated as of December 6, 1996, by and among Keystone,
North Star Acquisition, Inc., a newly formed subsidiary of Keystone (the
"Subsidiary"), North Star and Ronald G. Brown and Kim D. Wood (collectively, the
"Principal Shareholders") and (ii) to transact such other business as properly
may come before the Meetings. The Merger Agreement provides, among other
things, that (i) the Subsidiary will be merged with and into North Star (the
"Merger"), (ii) each share of the capital stock of North Star issued and
outstanding immediately prior to the Merger will be converted into the right to
receive 362.3088 shares of the Common Stock of Keystone and (iii) Ronald G.
Brown, a director, officer and principal shareholder of North Star, will become
a director of Keystone. As a result of the Merger, North Star will become a
wholly owned subsidiary of Keystone and the North Star Shareholders will own an
aggregate of 2,450,000 shares of the Common Stock of Keystone (or approximately
25.1% of the shares of the Common Stock of Keystone issued and outstanding
immediately after the Merger).
This Proxy Statement/Information Statement/Prospectus also serves as a
prospectus of Keystone under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the issuance of the 2,450,000 shares of the
Common Stock of Keystone into which the outstanding capital stock of North Star
will be converted upon the consummation of the Merger.
SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER AND THE ACQUISITION
OF THE SECURITIES TO BE ISSUED IN CONNECTION THEREWITH.
This Proxy Statement/Information Statement/Prospectus is first being mailed
to the Keystone Shareholders and the North Star Shareholders on or about
February __, 1997.
On February __, 1997, the last reported sale price of the Common Stock of
Keystone on the Nasdaq National Market was $________ per share.
--------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/INFORMATION
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/INFORMATION STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------
The date of this Proxy Statement/Information Statement/Prospectus is February
__, 1997.
<PAGE>
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION..........................................................5
SUMMARY........................................................................6
Keystone..................................................................6
North Star................................................................7
The Meetings..............................................................7
The Merger................................................................8
Reasons for the Merger and Recommendation of the Boards of Directors......8
Opinion of Financial Advisor..............................................9
Interests of Certain Persons in the Merger................................9
The Merger Agreement......................................................9
Costs of Transaction.....................................................11
Certain Federal Income Tax Consequences..................................11
Accounting Treatment.....................................................11
Rights of Dissenting Shareholders........................................12
Keystone Summary Financial and Operating Data............................13
Summary Combined Historical Unaudited Pro Forma Financial and Operating
Data.....................................................................15
Comparative Unaudited Per Share Data.....................................17
RISK FACTORS..................................................................18
Risk Factors Relating to the Merger......................................18
Risk Factors Relating to the Industry....................................19
Risk Factors Relating to Keystone........................................19
Risk Factors Relating to North Star......................................21
THE MEETINGS..................................................................23
Date, Time and Place.....................................................23
Matters to be Considered.................................................23
Record Dates.............................................................23
Votes Required for Approval..............................................23
Voting of Proxies........................................................24
Solicitation of Proxies..................................................25
Security Ownership of Principal Shareholders, Directors and Executive
Officers.................................................................25
THE MERGER....................................................................26
General..................................................................26
Background of the Merger.................................................26
Reasons for the Merger...................................................28
Recommendation of the Boards of Directors................................30
Opinion of Financial Advisor.............................................32
Interests of Certain Persons in the Merger...............................37
Resale of Shares Issued in the Merger....................................38
Certain Federal Income Tax Consequences..................................38
Accounting Treatment.....................................................39
Rights of Dissenting Shareholders........................................40
2
<PAGE>
Page
----
Regulatory Approvals.....................................................43
Nasdaq Listing...........................................................44
Comparison of Rights of Shareholders of Keystone and North Star..........44
THE MERGER AGREEMENT.....................................................50
The Merger...............................................................50
Conversion of North Star Common Stock....................................50
Representations and Warranties...........................................51
Conduct of Business Pending the Merger...................................51
Conditions to Consummation of the Merger.................................52
Solicitation of Alternative Transactions.................................53
Indemnification..........................................................54
Termination, Amendment and Waiver........................................55
Voting Agreement.........................................................56
Registration Rights Agreement............................................56
Affiliate Agreement......................................................57
INFORMATION CONCERNING KEYSTONE............................................57
General..................................................................57
Industry Overview........................................................57
Competitive Strengths....................................................59
Growth Strategy..........................................................60
Business.................................................................61
Dividend Policy..........................................................65
Price Range of Common Stock..............................................65
Selected Financial Data..................................................65
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................68
Directors, Executive Officers and Key Personnel..........................74
Executive Compensation...................................................75
Compensation Committee Interlocks and Insider Participation..............77
Employee Benefit Plans...................................................77
Ownership of Keystone Common Stock.......................................81
Certain Transactions.....................................................82
Limitation on Liability and Indemnification..............................83
Description of Capital Stock.............................................83
INFORMATION CONCERNING NORTH STAR........................................84
General..................................................................84
Business.................................................................84
Selected Financial Data..................................................88
Management's Discussion and Analysis of Financial Condition and Results of
Operations...............................................................89
Directors and Executive Officers.........................................92
Executive Compensation...................................................93
Ownership of North Star Common Stock.....................................94
Certain Transactions.....................................................94
COMBINED UNAUDITED PRO FORMA FINANCIAL STATEMENTS........................95
3
<PAGE>
Page
----
LEGAL MATTERS...........................................................101
EXPERTS.................................................................101
SHAREHOLDER PROPOSALS...................................................102
INDEX TO FINANCIAL STATEMENTS...........................................F-1
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
Report of Independent Auditors..........................................F-2
Balance Sheets at March 31, 1995 and March 29, 1996.....................F-3
Statements of Income for years ended March 25, 1994, March 31, 1995
and March 29, 1996......................................................F-4
Statements of Shareholders' Equity for the years ended March 25, 1994,
March 31, 1995 and March 29, 1996.......................................F-5
Statements of Cash Flows for the years ended March 25, 1994, March
31, 1995 and March 29, 1996.............................................F-6
Notes to Financial Statements...........................................F-7
Balance Sheet (Unaudited) at December 27, 1996.........................F-14
Statements of Income (Unaudited) for the nine-month periods ended
December, 29, 1995 and December 27, 1996...............................F-15
Statements of Cash Flows (Unaudited) for the nine-month periods ended
December 29, 1995 and December 27, 1996................................F-16
Notes to Financial Statements (Unaudited)..............................F-17
NORTH STAR PLATING COMPANY
Report of Independent Auditors.........................................F-19
Balance Sheets at September 30, 1995 and September 30, 1996............F-20
Statements of Income and Shareholders' Equity for years ended
September 30, 1994, September 30, 1995 and September 30, 1996..........F-22
Statements of Cash Flows for years ended September 30, 1994,
September 30, 1995 and September 30, 1996..............................F-23
Notes to Financial Statements..........................................F-24
Balance Sheet (Unaudited) at December 31, 1996.........................F-31
Statements of Income (Unaudited) for the three-month periods ended
December 31, 1996 and 1995.............................................F-33
Statements of Cash Flows (Unaudited) for the three-month periods ended
December 31, 1996 and 1995.............................................F-34
Notes to Financial Statements (Unaudited)..............................F-35
4
<PAGE>
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Opinion of FMV Opinions, Inc
APPENDIX C - Voting Agreement
APPENDIX D - Registration Rights Agreement
APPENDIX E - Affiliate Agreement
APPENDIX F - Selected Provisions of the California General Corporation Law
Regarding Dissenters' Rights
APPENDIX G - Selected Provisions of the Minnesota Business Corporation Act
Regarding Dissenters' Rights
5
<PAGE>
AVAILABLE INFORMATION
Keystone is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Keystone with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the regional offices of the Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Electronic reports, proxy statements and other information filed through the
Commission's Electronic Gathering Analysis and Retrieval System are publicly
available through the Commission's Web Site (http://www.sec.gov). The Common
Stock of Keystone is traded on the Nasdaq National Market. Reports, proxy
statements and other information concerning Keystone can be inspected at the
offices of National Association of Securities Dealers, Inc., Market Listing
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Keystone has filed with the Commission a Registration Statement on
Form S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act, relating to the shares of
the Common Stock of Keystone into which the outstanding capital stock of North
Star will be converted upon the consummation of the Merger. This Proxy
Statement/Information Statement/Prospectus, which constitutes part of the
Registration Statement, does not contain all the information set forth or
incorporated by reference in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. The Registration Statement is available for inspection and copying
at the offices of the Commission set forth above. Statements contained in this
Proxy Statement/Information Statement/Prospectus, or in any document
incorporated herein by reference, as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
All information contained or incorporated by reference in this Proxy
Statement/Information Statement/Prospectus relating to Keystone has been
supplied by Keystone, and all information herein relating to North Star has been
supplied by North Star.
No person has been authorized to give any information or to make any
representation with respect to the matters described herein other than those
contained herein or in the documents incorporated by reference herein, and, if
given or made, such information or representation must not be relied upon as
having been authorized by Keystone or North Star. This Proxy Statement/
Information Statement/Prospectus does not constitute an offer to sell or an
offer to buy any securities, or a solicitation of an offer to sell or a
solicitation of an offer to buy any securities, other than those to which it
relates or an offer to sell or an offer to buy any securities, or a solicitation
of an offer to sell or a solicitation of an offer to buy any securities, or a
solicitation of a proxy, in any jurisdiction in which, or to any person to whom,
it is unlawful to make such offer or solicitation. Neither the delivery of this
Proxy Statement/Information Statement/Prospectus nor the sale of any securities
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of Keystone or North Star since the date hereof or
that the information herein or in the documents incorporated by reference herein
is correct as of any time subsequent to its date.
This Proxy Statement/Information Statement/Prospectus describes
certain documents that are not presented herein or delivered herewith. Copies
of these documents (other than exhibits to such documents unless such exhibits
are specifically described herein) are available, without charge, upon oral or
written request by any person, including any beneficial owner, to whom this
Proxy Statement/Information Statement/Prospectus has been delivered, in the case
of documents relating to Keystone or North Star, from Keystone Automotive
Industries, Inc., 700 East Bonita Avenue, Pomona, California 91767, Attention:
Secretary, telephone number (909) 624-8041. In order to ensure timely delivery
of the requested documents prior to the Meetings, any such request should be
made by February __, 1997.
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<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/INFORMATION
STATEMENT/PROSPECTUS CONCERNING KEYSTONE, NORTH STAR, THE MERGER AGREEMENT
AND THE MERGER. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION SET FORTH
ELSEWHERE IN THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS, THE
APPENDICES HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE
REFERRED TO HEREIN. SHAREHOLDERS OF KEYSTONE AND NORTH STAR ARE URGED TO READ
THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS AND THE ACCOMPANYING
APPENDICES AND SUCH OTHER DOCUMENTS IN THEIR ENTIRETY, AND IN PARTICULAR THE
MATTERS REFERRED TO UNDER "RISK FACTORS."
KEYSTONE
Keystone is the nation s leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone's product lines consist of automotive body parts,
bumpers, autoglass and remanufactured alloy wheels, as well as the paint and
other material used in repairing a damaged vehicle. Founded in Southern
California in 1947, Keystone now operates a "hub and spoke" distribution system
consisting of seven regional hubs and 47 service centers located in 26 states in
the West, Midwest, Northeast and South, as well as Tijuana, Mexico. Keystone
sells approximately 13,000 stock keeping units to over 17,000 collision repair
shops, out of an estimated 48,000 shops nationwide. In addition, Keystone has
five facilities which remanufacture collision damaged alloy wheels and one
facility which recycles chrome bumpers.
Based upon industry estimates, Keystone and North Star believe that
85% of collision parts for automobiles and light trucks are supplied by original
equipment manufacturers ("OEMs"), compared with approximately 10% by
distributors of aftermarket collision parts and an additional 5% by distributors
of salvage parts. The distribution industry for aftermarket collision parts is
highly fragmented and is consolidating. Keystone's competitors generally are
independently owned distributors having from one to three service centers. As a
result of the increasing number of aftermarket collision parts and makes and
models of automobiles, there is increasing pressure on distributors to maintain
larger inventories. In addition, the trend towards larger, more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and value-added services, including
training, that collision repair shops require in their increasingly complex and
competitive industry. As a result of its competitive strengths, Keystone
believes that it is better positioned than its generally smaller competitors to
meet the demands of its customers.
Keystone believes that its competitive strengths include its leading
market position, relationship with insurance companies, experienced management,
entrepreneurial corporate culture, superior customer service and management
information and other systems.
Keystone intends to continue increasing its market share through an
integrated strategy of acquisitions, the introduction of new product lines and
the expansion of its existing product lines. Although there can be no assurance
that Keystone will be successful in its strategy, since April 1992, Keystone has
acquired 31 service centers, of which nine have been consolidated with existing
locations and four have been closed, and has opened three additional service
centers. Keystone seeks to acquire well-established local distributors with
strong management and significant market share either to expand into new
geographic markets or to increase its penetration in existing markets. Keystone
has continually expanded its product lines as additional aftermarket collision
parts have become available. Since April 1992, Keystone has introduced such
additional products as paint and related supplies and equipment, radiators and
condensers, head and tail light assemblies, autoglass and remanufactured alloy
wheels.
Keystone was incorporated in California in 1974 for the purpose of
reacquiring the automotive bumper recycling business originally founded in 1947
by Virgil K. Benton, Sr. and sold by him in 1969. Keystone's principal
executive offices are located at 700 East Bonita Avenue, Pomona, California
91767, and its telephone number is (909) 624-8041.
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<PAGE>
NORTH STAR
North Star is a leading regional distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks and is one of the nation's largest recyclers and producers of non-
original equipment manufacturers ("OEMs") chrome plated and plastic bumpers.
North Star distributes automotive body parts, bumpers and automotive paint, as
well as other materials used in repairing damaged vehicles. North Star sells
approximately 24,000 different stock keeping units to over 7,000 collision
repair shops located in twelve states in the Midwest and the mid-Atlantic
region. Like Keystone, North Star distributes replacement parts using a "hub
and spoke" distribution system consisting of four regional distribution hubs and
20 service centers. In addition to its use of the "hub and spoke" distribution
system, North Star distributes chrome plated bumpers to wholesale bumper
distributors and directly to a manufacturer of truck accessories.
North Star was incorporated under the laws of the State of Minnesota
in 1968. North Star's executive offices are located at 3621 Marshall Street
N.E., Minneapolis, Minnesota 55418 and its telephone number is (612) 789-1919.
THE MEETINGS
KEYSTONE. The Keystone Meeting will be held on __________,
February __, 1997 commencing at 10:00 a.m., Pacific Standard Time, at Keystone's
principal executive offices, 700 East Bonita Avenue, Pomona, California.
At the Keystone Meeting, the Keystone Shareholders will be asked (i)
to consider and to vote upon a proposal to approve the Merger Agreement and (ii)
to transact such other business as properly may come before the Keystone
Meeting.
Only persons who are shareholders of record of Keystone (the "Keystone
Shareholders") at the close of business on January __, 1997 (the "Keystone
Record Date") are entitled to notice of and to vote, in person, or by proxy, at
the Keystone Meeting.
Each Keystone Shareholder is entitled to one vote, in person or by
proxy, for each share of the Common Stock of Keystone standing in his name on
the books of Keystone as of the Keystone Record Date on any matter submitted to
the Keystone Shareholders. The Merger Agreement must be approved by the holders
of a majority of the issued and outstanding shares of the Common Stock of
Keystone entitled to vote thereon. As of the Keystone Record Date, 2,284,162
shares of Common Stock (or approximately 31.3% of the issued and outstanding
shares of Common Stock) were owned by certain officers, directors and
shareholders of Keystone who have entered into a voting agreement with North
Star pursuant to which they are obligated to vote for the Merger Agreement.
NORTH STAR. The North Star Meeting will be held on ___________, 1997
commencing at ___ a.m., local time, at _____________________.
At the North Star Meeting, the North Star Shareholders will be asked
(i) to consider and vote upon a proposal to approve the Merger Agreement, and
(ii) to transact such other business as properly may come before the North Star
Meeting.
NORTH STAR IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND NORTH STAR A PROXY
Only persons who are shareholders of record of North Star (the "North
Star Shareholders") at the close of business on January ___, 1997 (the "North
Star Record Date") are entitled to notice of and to vote, in person or by proxy,
at the North Star Meeting.
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<PAGE>
Each North Star Shareholder is entitled to one vote, in person or by
proxy, for each share of North Star's Common Stock held by such North Star
Shareholder on the North Star Record Date on any matter submitted to the North
Star Shareholders. The affirmative vote of at least 66 % of the outstanding
shares of North Star's Common Stock as of the North Star Record Date is required
to approve and adopt the Merger Agreement. As of the North Star Record Date,
4,968.26 shares of Common Stock (or approximately 73.5% of the issued and
outstanding shares of Common Stock were owned by the Principal Shareholders who
have entered into an affiliate agreement with Keystone pursuant to which they
have granted Keystone an irrevocable proxy and appointed Keystone as attorney-
in-fact to vote such Principal Shareholders' shares of North Star's Common
Stock in favor of the Merger.
THE MERGER
GENERAL. The Merger Agreement provides, among other things that:
(i) the Subsidiary will be merged with and into North Star; (ii) all shares of
the capital stock of North Star issued and outstanding immediately prior to the
Merger will be converted into the right to receive an aggregate of 2,450,000
shares of the Common Stock of Keystone (or approximately 25.1% of the shares of
the Common Stock of Keystone issued and outstanding immediately after the
Merger); and (iii) Ronald G. Brown, a director, officer and principal
shareholder of North Star, will become a director of Keystone. As a result of
the Merger, North Star will become a wholly owned subsidiary of Keystone.
EFFECTIVE TIME. The Merger will become effective upon the filing of
Articles of Merger with the Secretary of State of Minnesota (the "Effective
Time"), which is expected to occur as promptly as practicable after approval of
the Merger Agreement by the Keystone Shareholders and the North Star
Shareholders and the satisfaction or waiver of the other conditions to the
Merger contained in the Merger Agreement.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARDS OF DIRECTORS
KEYSTONE. The Board of Directors of Keystone has determined that the
transactions contemplated by the Merger Agreement are in the best interests of
Keystone and its shareholders. Accordingly, the Board of Directors has
unanimously approved the Merger Agreement and recommends that all Keystone
Shareholders vote FOR its approval. The Board of Directors believes that the
Merger, among other things, will: (i) expand the geographic scope of Keystone's
distribution network in the Midwest and the mid-Atlantic states; (ii) provide
Keystone with a stable supply of new and recycled chrome bumpers; (iii) enhance
Keystone's position as the nation's leading distributor of aftermarket collision
replacement parts; (iv) enable Keystone to leverage North Star's distribution
system; and (v) enhance Keystone's operating efficiencies. The Board of
Directors of Keystone also has reviewed the opinion of FMV Opinions, Inc.
("FMV"), a business valuation firm retained by Keystone that the terms of the
transactions contemplated by the Merger Agreement are fair to Keystone and its
shareholders from a financial point of view. See "The Merger -- Reasons for the
Merger," "The Merger -- Recommendation of the Boards of Directors -- Keystone"
and "The Merger -- Opinion of Financial Advisor."
NORTH STAR. The Board of Directors of North Star believes that the
transactions contemplated by the Merger Agreement are in the best interests of
North Star and its shareholders and fair to North Star Shareholders from a
financial point of view. Accordingly, the Board of Directors has unanimously
approved the Merger Agreement, and recommends that the North Star Shareholders
vote "FOR" its approval. The Board of Directors of North Star could not reach a
conclusion that the Merger is "fair" to each individual shareholder because each
shareholder has unique expectations and goals relating to the Merger, including
expectations and goals relating to a shareholder's employment relationship with
North Star. As a result, the North Star Board of Directors determined that it
was in the best interest of the North Star Shareholders to present the Merger
Agreement to the Shareholders for a vote. Each North Star Shareholder is urged
to carefully consider these transactions in light of his or her own unique
expectations concerning North Star and the Merger. See "The Merger --
Recommendation of the Boards of Directors -- North Star."
North Star's Board of Directors believes that the Merger with Keystone
will achieve the following objectives. First, the Merger will provide liquidity
to North Star shareholders' investment through a tax-free exchange of North Star
shares of Common Stock for Keystone Common Stock. Second, North Star
shareholders can retain their
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<PAGE>
equity ownership in Keystone and maintain an investment in the same industry.
Third, North Star's Board of Directors believes that the combined company of
North Star and Keystone will be positioned well in the industry to compete in
the future as a result of the combined company's greater financial resources,
geographic diversity of the service centers and complementary operations.
Fourth, following the Merger, North Star will operate as a separate wholly
owned subsidiary and retain North Star's management and employees. Fifth,
Ron Brown will be elected to Keystone's Board of Directors following the
Merger. Finally, based solely on the Board of Directors' experience with
acquiring companies within the industry and anecdotal information gathered
while serving as a director of various industry associations and discussions
with competitors, North Star's Board of Directors believes that the Merger is
fair from a financial point of view to North Star Shareholders. See "Merger
- -- Reasons for the Merger" and "The Merger --Recommendation of the Boards of
Directors."
OPINION OF FINANCIAL ADVISOR
FMV has delivered its written opinion to the Board of Directors of
Keystone that, based upon the considerations set forth therein, as of the date
thereof, the terms of the transactions contemplated by the Merger Agreement are
fair to Keystone and its shareholders from a financial point of view. A copy of
the opinion is attached to this Proxy Statement/Information Statement/Prospectus
as Appendix B and should be read carefully in its entirety for a description of
the procedures followed, assumptions made, matters considered and scope and
limitations on the review undertaken by FMV in connection with rendering such
opinion. See "The Merger -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Boards of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
shareholders of Keystone and North Star should be aware that certain members of
the management of North Star, the Board of Directors of North Star and the Board
of Directors of Keystone have certain interests in the Merger that are in
addition to the interests of the shareholders of Keystone and North Star
generally. Upon the consummation of the Merger: (i) Crowell, Weedon & Co., of
which Timothy C. McQuay, a member of Keystone's Board of Directors, is a
Managing Director -- Corporate Finance, will be entitled to receive $125,000 in
consideration of certain financial advisory services in connection with the
Merger; (ii) immediately following the Effective Time, Keystone will cause North
Star to enter into employment agreements with Ronald G. Brown and Kim D. Wood,
pursuant to which Mr. Brown will be entitled to receive, among other things, an
annual base salary for the twelve months commencing March 1, 1997, 1998, 1999,
2000 and 2001 of $325,000, $300,000, $275,000, $225,000 and $150,000,
respectively, and Mr. Wood will be entitled to receive, among other things, an
annual base salary of $175,000; (iii) Keystone and certain shareholders will use
their best efforts to cause to elect and maintain Ronald G. Brown as a director
of Keystone; (iv) Keystone will enter into a Registration Rights Agreement with
certain shareholders of North Star; (v) Kim Wood and Richard Monson, an officer
and employee of North Star, respectively, will serve as members of North Star's
Board of Directors following the Merger; and (vi) Ronald G. Brown will be
released from a personal guarantee whereby he guaranteed certain obligations of
North Star to First Bank, N.A. (approximately $3,552,000 at December 31, 1996).
See "The Merger -- Interests of Certain Persons in the Merger."
THE MERGER AGREEMENT
THE MERGER. The Merger Agreement provides that, at the Effective
Time, subject to approval by the Keystone Shareholders and the North Star
Shareholders and the satisfaction or waiver of certain other conditions, the
Subsidiary will be merged with and into North Star. The separate corporate
existence of the Subsidiary will cease and North Star will survive as a wholly
owned subsidiary of Keystone (the "Surviving Corporation").
At the Effective Time, and pursuant to the Merger Agreement, (i) each
issued and outstanding share of the Common Stock of North Star will be converted
into the right to receive 362.3088 shares of the Common Stock of Keystone, and
(ii) each share of the Subsidiary's Common Stock shall be converted into one
share of the Common Stock of the Surviving Corporation. It is intended that
upon the Effective Time, the persons who formerly held shares of North Star's
Common Stock will hold, in the aggregate, 2,450,000 shares of Keystone's Common
Stock.
REPRESENTATIONS, WARRANTIES AND COVENANTS. The Merger Agreement
contains representations and warranties on the part of Keystone, North Star and
the Principal Shareholders, as well as covenants concerning the
10
<PAGE>
business and operations of Keystone and North Star pending the Effective Time
and other customary provisions, including indemnities. See "The Merger
Agreement --Representations and Warranties," "The Merger Agreement --
Indemnification" and "The Merger Agreement -- Conduct of Business Pending the
Merger."
CONDITIONS TO CONSUMMATION OF THE MERGER. The respective obligations
of Keystone and North Star to consummate the Merger are subject to satisfaction
of the following conditions at or before the Effective Time: (i) Keystone and
North Star each shall have received an opinion from their respective independent
auditors concurring with the conclusion of Keystone's management as to the
appropriateness of pooling-of-interests accounting for the Merger; (ii) approval
of the Merger Agreement shall have been obtained by the requisite vote of the
outstanding shares of North Star and Keystone entitled to vote; (iii) all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expiration of waiting periods imposed by any governmental entity
necessary for the consummation of the transactions contemplated by the Merger
Agreement, shall have been filed, expired or obtained; (iv) the Registration
Statement of which this Proxy Statement/Information Statement/Prospectus is a
part shall have become effective and shall not be the subject of any stop order
or proceeding seeking a stop order, and this Proxy Statement/Information
Statement/Prospectus shall not at the Effective Time be subject to any
proceedings commenced or threatened by the Commission; (v) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any governmental entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Merger or any other transaction
contemplated by the Merger Agreement shall be in effect; (vi) no action shall
have been taken, and no statute, rule, regulation or order shall have been
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would (A) make the consummation of the Merger illegal,
or (B) render Keystone or North Star unable to consummate the Merger except for
any waiting period provisions; (vii) the Resale Agreement shall have been
entered into (see "Other Conditions" below); and (viii) since the date of the
Merger Agreement no Material Adverse Effect (as defined in the Merger Agreement)
shall have occurred that is the result of conditions or factors affecting the
economy generally or the industry in which Keystone or North Star operates or
the result of the announcement of the Merger or actions taken in contemplation
thereof. The separate obligations of Keystone and North Star are subject to the
satisfaction of certain further conditions at or prior to the Effective Time, as
more fully described in the Merger Agreement. See "The Merger Agreement --
Conditions to Consummation of the Merger."
SOLICITATION OF ALTERNATIVE TRANSACTIONS. North Star has agreed to
direct and use its commercially reasonable efforts to cause its officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it) not to initiate,
solicit or knowingly encourage, directly or indirectly (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any "Competing
Transaction" (as defined in the Merger Agreement), or enter into or continue
discussions or negotiations with any person in furtherance of such inquiries to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize any of its officers, directors or employees or any
investment banker, financial adviser, attorney, accountant or other
representative retained by it to take any such action, and North Star has agreed
to notify Keystone of all inquiries or proposals which such party may receive
relating to any of such matters and if such inquiry or proposal is in writing,
shall deliver to the other party a copy of such inquiry or proposal. See "The
Merger Agreement - Solicitation of Alternative Transactions."
TERMINATION OF THE MERGER. The Merger Agreement is subject to
termination: (i) by mutual written consent of Keystone and North Star; (ii) if
the Merger is not consummated on or before March 28, 1997 (subject to certain
limitations); (iii) in the event of certain circumstances, including but not
limited to the failure of North Star or Keystone to satisfy certain conditions;
or (iv) by Keystone if the Board of Directors of Keystone determine in good
faith that failure to withdraw or modify its recommendation would be a breach of
its fiduciary duty to the Keystone shareholders. See "The Merger Agreement --
Termination, Amendment and Waiver."
OTHER AGREEMENTS. Other agreements entered into in connection with
the Merger Agreement include (i) a Voting Agreement between North Star and
certain officers, directors and shareholders of Keystone, pursuant to which such
officers, directors and shareholders have agreed to vote the shares of
Keystone's Common Stock held by them in favor of the transactions contemplated
by the Merger Agreement at the Keystone Meeting; (ii) a Registration Rights
Agreement between Keystone and certain shareholders of North Star, pursuant to
which the North Star Shareholders will be entitled, subject to certain
limitations, to have up to 600,000 shares of Keystone's Common Stock
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issued in connection with the Merger registered under the Securities Act in
connection with the next public offering of Keystone's Common Stock; (iii) an
Affiliate Agreement between Keystone and the Principal Shareholders, pursuant
to which the Principal Shareholders have agreed to vote the shares of North
Star's Common Stock held by them in favor of the transactions contemplated by
the Merger Agreement at the North Star Meeting; and (iv) an Employment
Agreement between Keystone and each of the Principal Shareholders. See "The
Merger Agreement --Voting Agreement," "The Merger Agreement -- Registration
Rights Agreement," "The Merger Agreement -- Affiliate Agreement," and "The
Merger -- Interests of Certain Persons in the Merger."
COSTS OF TRANSACTION
Keystone and North Star expect to incur charges to operations
currently estimated to be $1,000,000, primarily in the quarter in which the
Merger is consummated, to reflect non-recurring costs resulting directly from
the Merger. Such costs include investment banking, legal, accounting, printing
and other related charges. Additional and unanticipated expenses may be
incurred relating to the integration of the businesses of Keystone and North
Star, including the integration of product lines and distribution and
administrative functions. Each party is responsible for its respective fees and
expenses in connection with the Merger. However, in the event the Effective
Time has not occurred on or before March 28, 1997 as a result of a material
breach of the Merger Agreement by Keystone, Keystone shall reimburse North Star
for its reasonable and documented fees and expenses (including reasonable
attorney's fees and costs) incurred in connection with the transactions
contemplated by the Merger Agreement, in an aggregate amount not to exceed
$100,000. In the event the Effective Time has not occurred on or before
March 28, 1997 as a result of a material breach of the Merger Agreement by North
Star or the Principal Shareholders, North Star shall reimburse Keystone for its
reasonable and documented fees and expenses (including reasonable attorney's
fees and costs) incurred in connection with the transactions contemplated by the
Merger Agreement, in an aggregate amount not to exceed $100,000.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
North Star has received an opinion from Fredrikson & Byron, P.A. that
the Merger will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended, and, accordingly, no gain or loss generally
should be recognized by the holders of shares of the Common Stock of North Star
upon the exchange of such shares for shares of the Common Stock of Keystone
pursuant to the Merger Agreement. The North Star Shareholders are urged to
consult their own tax advisors. See "The Merger -- Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for using the
"pooling of interests" method of accounting pursuant to Opinion No. 16 of the
Accounting Principles Board. The pooling of interests method of accounting
assumes that the combining companies have been merged from inception, and the
historical financial statements for periods prior to consummation of the Merger
are restated as though the companies had been combined from inception.
Consummation of the Merger is conditioned upon receipt by Keystone of (i) a
letter from Ernst & Young LLP, Keystone's independent auditors, regarding that
firm's concurrence with the conclusion of Keystone's management as to the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with the Merger Agreement, and (ii) a letter (addressed to North
Star) from Ernst & Young LLP, North Star's independent auditors, regarding that
firm's concurrence with the conclusion of North Star's management as to the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with the Merger Agreement. See "The Merger -- Accounting Treatment."
In order for a business combination to be accounted for as a pooling
of interests, no affiliate of Keystone or North Star can sell or in any other
way reduce his risk relative to any common shares received in the business
combination until such time as financial results covering at least 30 days of
post-merger combined operations have been published. This would include all
sales whether private or public. Affiliates of Keystone and North Star may not
reduce their risk relative to their common shareholder positions through
disposition of their shares within 30 days prior to the consummation of a
business combination accounted for as a pooling of interests.
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RIGHTS OF DISSENTING SHAREHOLDERS
KEYSTONE. Because Keystone's Common Stock is traded on the Nasdaq
National Market ("Nasdaq"), dissenters' rights will be available to the Keystone
Shareholders only if the holders of five percent (5%) or more of the shares of
Keystone's Common Stock entitled to vote at the Keystone Meeting make a written
demand on Keystone for the purchase of dissenting shares in accordance with
Chapter 13 of the California General Corporation Law. If this condition is
satisfied and the Merger is consummated, Keystone Shareholders who dissent from
the Merger by complying with the procedures set forth in Chapter 13 will be
entitled to receive from Keystone an amount equal to the fair market value of
the Common Stock of Keystone held by them as of December 2, 1996, the day before
the public announcement of the Merger. The procedure for perfecting dissenters'
rights is summarized under the caption "The Merger -- Rights of Dissenting
Shareholders -- Keystone," and the pertinent provisions of Chapter 13 of the
California General Corporation Law are included as Appendix F to this Proxy
Statement/Information Statement/Prospectus.
NORTH STAR. If the Merger Agreement is approved by the required vote
of the North Star Shareholders and is not abandoned or terminated, holders of
North Star's Common Stock who did not vote in favor of the Merger may, by
complying with Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act, a copy of which is attached hereto as Appendix G, assert
dissenter's rights as described therein, and the shares of North Star held by
such persons will be deemed to be "Dissenting Shares." See "The Merger --
Rights of Dissenting Shareholders."
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KEYSTONE SUMMARY FINANCIAL AND OPERATING DATA
(In thousands, except share and per share amounts and operating data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------------------------------- ---------------------------
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29, DECEMBER 29, DECEMBER 27,
1992 1993 1994 1995(1) 1996 1995 1996
----------- ---------- ---------- ---------- ---------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales.................................. $ 75,234 $ 77,320 $ 84,884 $ 101,596 $ 115,326 $ 82,188 $ 98,967
Gross profit............................... 28,706 30,062 33,688 40,064 45,080 32,178 39,689
Certain charges(2)......................... 1,726 958 1,092 1,790 393 525 --
Operating income .......................... 2,151 883 1,777 3,203 6,285 4,181 6,628
Net income................................. 789 78 516 1,406 3,106 1,995 3,581
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income per common share(3)............. $ 0.13 $ 0.01 $ 0.09 $ 0.24 $ 0.54 $ 0.34 $ 0.53
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Weighted average common shares
outstanding(3)(4)......................... 5,862,909 5,862,755 5,862,755 5,805,166 5,800,000 5,800,000 6,789,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATING DATA (UNAUDITED)
Number of service centers
Starting sites........................... 27 30 40 38 42 42 41
Sites acquired....................... -- 12 -- 5 2 2 9
Sites opened......................... 3 -- -- -- -- -- --
Sites consolidated................... -- 2 -- 1 2 2 3
Sites closed......................... -- -- 2 -- 1 1 1
Ending sites............................. 30 40 38 42 41 41 46
Comparable service center
sales increase (decrease)(5).............. 4% (8)% 8% 19% 10% 7% 17%
<CAPTION>
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29, DECEMBER 29, DECEMBER 27,
1992 1993 1994 1995(1) 1996 1995 1996
----------- ---------- ---------- ---------- ---------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............................ $ 6,307 $ 6,239 $ 7,004 $ 8,319 $ 10,319 $ 9,661 $ 20,616
Total assets .............................. 30,489 29,718 34,531 36,664 43,035 40,484 53,528
Total current liabilities................. 19,935 18,653 23,046 22,640 26,711 25,265 22,386
Long-term debt, less current maturities... 165 729 416 1,215 813 885 428
Shareholders' equity...................... 9,676 9,754 10,569 12,369 15,475 14,364 30,678
</TABLE>
__________________
(1) Fiscal 1995 contained 53 weeks.
(2) Certain charges represent certain general and administrative expenses
which are unusual or non-recurring in nature, consisting of compensation
pursuant to Keystone's expired Restricted Stock Option Plan, compensation
for the founding shareholders whose compensation terminated with their
retirement effective March 31, 1996, contributions to Keystone's Employee
Stock Ownership Plan (the "ESOP") and a payment made in settlement of
litigation. Operating income before certain charges was $3,877,000,
$1,841,000, $2,869,000, $4,993,000 and $6,678,000 in fiscal 1992, 1993,
1994, 1995 and 1996, respectively. See "Information Concerning Keystone
-- Selected Financial Information."
(3) All share and per share amounts have been adjusted for a 3.8467-for-1
stock split effected on April 16, 1996.
(4) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(5) Comparable service center sales have been computed using sales of service
centers that were open during both fiscal years being compared.
14
<PAGE>
NORTH STAR SUMMARY FINANCIAL AND OPERATING DATA
(In thousands, except share and per share amounts and operating data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales.......................................... $21,905 $25,899 $29,612 $34,838 $52,152 $10,468 $15,071
Gross profit....................................... 8,809 10,603 12,165 14,057 20,868 4,347 6,159
Certain charges(1) ................................ 134 137 161 180 230 -- --
Operating income .................................. 1,416 1,553 1,446 1,993 3,506 1,079 1,251
Net income......................................... 789 815 764 1,073 1,793 627 681
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income per common share(2)..................... $ 104 $ 122 $ 113 $ 159 $ 265 $ 93 $ 101
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average common shares outstanding(2)...... 7,553 6,662 6,737 6,762 6,762 6,762 6,762
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
OPERATING DATA (UNAUDITED)
Number of service centers
Starting sites................................... 5 7 9 11 11 11 20
Sites acquired............................... -- 2 2 -- 7 -- --
Sites opened................................. 2 -- -- 1 2 1 --
Sites consolidated........................... -- -- -- 1 -- -- --
Sites closed................................. -- -- -- -- -- -- --
Ending sites..................................... 7 9 11 11 20 12 20
Comparable service center
sales increase (decrease)(3)...................... -- 11% 10% 17% 26% 22% 17%
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
-------- ------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............................................ $ 3,915 $ 4,798 $ 4,642 $ 5,652 $ 7,371 $ 7,856
Total assets .............................................. 8,129 9,896 11,584 12,556 22,104 24,274
Total current liabilities.................................. 2,106 2,954 3,988 4,344 8,821 10,658
Long-term debt, less current maturities.................... 1,372 1,375 1,549 1,112 4,323 3,976
Shareholders' equity....................................... 4,411 5,308 5,758 6,831 8,624 9,305
</TABLE>
__________________
(1) Certain charges represent certain general and administrative expenses
which are unusual or non-recurring in nature, consisting of charitable
contributions. Operating income before certain charges was $1,550,000,
$1,690,000, $1,607,000, $2,173,000 and $3,736,000 in fiscal 1992, 1993,
1994, 1995 and 1996, respectively. See "Information Concerning North
Star -- Selected Financial Information."
(2) All shares of the capital stock of North Star issued and outstanding
immediately prior to the Merger will be converted into the right to
receive an aggregate of 2,450,000 shares of the Common Stock of Keystone.
(3) Comparable service center sales have been computed using sales of service
centers that were open during both fiscal years being compared.
15
<PAGE>
SUMMARY COMBINED HISTORICAL UNAUDITED PRO FORMA FINANCIAL AND OPERATING DATA
The following summary combined historical unaudited pro forma income
data and balance sheet data of Keystone and North Star gives effect to the
Merger under the "pooling of interests" method of accounting as if the Merger
had been consummated as of the beginning of the years presented. The pro forma
income data for the years ended March 25, 1994 and March 31, 1995 was prepared
based on the historical financial information of Keystone for such years and the
historical financial information of North Star for the years ended September 30,
1994 and 1995, respectively. The pro forma income data for the year ended March
29, 1996 was prepared based on the historical statement of income for Keystone
for such year and the historical statement of income for North Star for the
twelve months ended March 31, 1996 using the pro forma adjustments described in
the notes to the combined historical unaudited pro forma financial statements.
North Star's operating results for the six months ended September 30, 1995 were
included in both the combined historical unaudited pro forma statement of income
for its fiscal year ended September 30, 1995 and for the twelve months ended
March 31, 1996. North Star's sales and net income for the six months ended
September 30, 1995 were $17,318,000 and $172,000, respectively. The pro forma
income data and balance sheet data as of and for the nine-month period ended
December 27, 1996 was prepared based on the historical operations of Keystone
and North Star for such period after giving effect to the pro forma adjustments
described in the notes to the combined historical unaudited pro forma financial
statements. The unaudited pro forma operating data were derived from unaudited
information maintained by Keystone and North Star. The combined historical
unaudited pro forma financial and operating data are not necessarily indicative
of the results to be expected after the Merger is consummated. The pro forma
financial data should be read in connection with the separate audited and
unaudited financial statements and notes thereto included elsewhere in this
Proxy Statement/Information Statement/Prospectus.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 25, 1994 MARCH 31, 1995
(KEYSTONE) AND (KEYSTONE) AND TWELVE MONTHS
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 ENDED NINE MONTHS ENDED
(NORTH STAR) (NORTH STAR) MARCH 29, 1996 DECEMBER 27, 1996
------------------- ------------------ --------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
UNAUDITED PRO FORMA STATEMENT OF INCOME DATA
Net sales....................................... $ 113,131 $ 134,954 $ 156,186 $ 139,632
Gross profit.................................... 45,765 54,027 61,787 56,427
Certain charges(1).............................. 1,253 1,970 590 140
Operating income ............................... 3,132 5,130 8,553 9,212
Net income...................................... 1,361 2,420 4,197 4,866
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share(2).................. $ 0.16 $ 0.29 $ 0.51 $ 0.53
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding(2)... 8,313,000 8,255,000 8,250,000 9,239,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED,
-----------------------------------------------------------
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29,
1992 1993 1994 1995 1996
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA OPERATING DATA
Number of service centers
Starting sites........................ 32 37 49 49 53
Sites acquired...................... 0 14 2 5 9
Sites opened........................ 5 0 0 1 2
Sites consolidated.................. 0 (2) 0 (2) (2)
Sites closed........................ 0 0 (2) 0 (-1)
Ending sites.......................... 37 49 49 53 61
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27, 1996(3)
--------------------
<S> <C>
UNAUDITED PRO FORMA BALANCE SHEET DATA
Working capital................................................................. $28,420
Total assets ................................................................... 77,447
Total current liabilities....................................................... 32,741
Long-term debt, less current maturities......................................... 4,404
Shareholders' equity............................................................ 39,931
</TABLE>
__________________
(1) Certain charges represent certain general and administrative expenses
which are unusual or non-recurring in nature, consisting (i) in the case
of Keystone, of compensation pursuant to Keystone's expired Restricted
Stock Option Plan, compensation for the founding shareholders whose
compensation terminated with their retirement effective March 31, 1996,
contributions to Keystone's Employee Stock Ownership Plan (the "ESOP")
and a payment made in settlement of litigation and (ii) in the case of
North Star, these costs represent general and administrative expenses
which are non-recurring in nature and are comprised of charitable
contributions. Operating income before certain charges of Keystone was
$2,869,000, $4,993,000 and $6,678,000 in fiscal 1994, 1995 and 1996,
respectively, and of North Star was $1,607,000, $2,173,000 and
$3,736,000, respectively. See "Information Concerning Keystone --
Selected Financial Information" and "Information Concerning North Star --
Selected Financial Information."
(2) Gives effect to the conversion of all shares of the capital stock of
North Star issued and outstanding immediately prior to the Merger into
the right to receive an aggregate of 2,450,000 shares of the Common Stock
of Keystone.
(3) The pro forma income data and balance sheet data presented above reflect
$435,000 of non-recurring costs incurred in consummating the Merger. The
total amount of non-recurring costs expected to be incurred is estimated
to be $1,000,000. Keystone expenses these costs in the periods incurred.
Those costs incurred have been reflected in retained earnings in the pro
forma balance sheet in December 27, 1996.
17
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth (i) the net income per common share and
the book value per share of Keystone's Common Stock; (ii) the net income per
common share and the book value per share of North Star's Common Stock; (iii)
the combined historical unaudited pro forma net income per common share and
the unaudited pro forma book value per share data of Keystone's Common Stock
after giving effect to the Merger on a pooling of interests basis with North
Star; and (iv) the North Star equivalent combined historical unaudited pro
forma net income per common share and the unaudited pro forma book value per
share attributable to 362.3088 shares of Keystone's Common Stock that will be
received by North Star Shareholders for each share of North Star's Common
Stock. Neither Keystone nor North Star has ever paid cash dividends with
respect to its Common Stock. The information presented in the table should
be read in conjunction with the combined historical unaudited pro forma
financial statements and the separate historical consolidated financial
statements of Keystone and North Star and the notes thereto appearing
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
MARCH 25, MARCH 31, MARCH 29, NINE MONTHS ENDED
1994 1995 1996 DECEMBER 27, 1996
------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C>
HISTORICAL -- KEYSTONE
Net income per common share (4)..................... $ 0.11 $ 0.24 $ 0.54 $ 0.53
Book value per common share at period end (1)....... -- -- 2.67 4.20
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, TWELVE MONTHS
------------------------------- ENDED NINE MONTHS ENDED
1994 1995 MARCH 29, 1996 DECEMBER 31, 1996
------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
HISTORICAL -- NORTH STAR
Net income per common share......................... $ 113 $ 159 $ 170 $ 198
Book value per common share at period end (1)....... -- -- 1,160 1,376
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 25, 1994 MARCH 31, 1995
(KEYSTONE) AND (KEYSTONE) AND TWELVE MONTHS
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 ENDED NINE MONTHS ENDED
(NORTH STAR) (NORTH STAR) MARCH 29, 1996 DECEMBER 27, 1996
------------------ ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
PRO FORMA -- COMBINED (2)
Net income per common share........................ $ 0.16 $ 0.29 $ 0.51 $ 0.53
Book value per common share at period end.......... -- -- 2.82 4.09
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, TWELVE MONTHS
------------------------------- ENDED NINE MONTHS ENDED
1994 1995 MARCH 29, 1996 DECEMBER 27, 1996
------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
EQUIVALENT PRO FORMA -- NORTH STAR (3)
Net income per common share.......................... $ 58 $ 105 $ 185 $ 192
Book value per common share at period end............ -- -- 1,022 1,482
</TABLE>
__________________
(1) Historical book value per share is computed by dividing total
shareholders' equity by the number of shares of Common Stock outstanding
at the end of each respective period. All shares of the capital stock of
North Star issued and outstanding immediately prior to the Merger will be
converted into the right to receive an aggregate of 2,450,000 shares of
the Common Stock of Keystone.
(2) Gives effect to the conversion of all shares of the capital stock of
North Star issued and outstanding immediately prior to the Merger into
the right to receive an aggregate of 2,450,000 shares of the Common Stock
of Keystone.
(3) Equivalent pro forma net income per common share and equivalent pro forma
book value per share are computed by multiplying the pro forma combined
per common share values by the common stock exchange ratio.
(4) Net income per common share represents income per share before cumulative
effect of accounting change.
18
<PAGE>
RISK FACTORS
THE SHAREHOLDERS OF KEYSTONE AND NORTH STAR SHOULD CONSIDER CAREFULLY
THE FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/INFORMATION STATEMENT/
PROSPECTUS, IN EVALUATING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE ANTICIPATED BY KEYSTONE AND NORTH STAR.
REFERENCE IS MADE IN PARTICULAR TO THE DESCRIPTIONS OF THE PLANS AND
OBJECTIVES OF KEYSTONE AND NORTH STAR FOR FUTURE OPERATIONS, THE ASSUMPTIONS
UNDERLYING SUCH PLANS AND OBJECTIVES, POTENTIAL FUTURE CIRCUMSTANCES AND
DEVELOPMENTS AND OTHER STATEMENTS THAT DO NOT CONSIST OF HISTORICAL OR
CURRENT FACTS INCLUDED IN, AMONG OTHER SECTIONS, "SUMMARY," "RISK FACTORS,"
"COMBINED UNAUDITED PRO FORMA FINANCIAL STATEMENTS," "INFORMATION CONCERNING
KEYSTONE" AND "INFORMATION CONCERNING NORTH STAR." SUCH DISCUSSION IS
QUALIFIED BY THE INHERENT RISKS AND UNCERTAINTIES SURROUNDING FUTURE
EXPECTATIONS GENERALLY, AND ALSO MAY DIFFER MATERIALLY FROM THE ACTUAL FUTURE
OPERATIONS OF THE COMBINED COMPANY INVOLVING ANY ONE OR MORE OF SUCH MATTERS.
FACTORS WHICH COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS ALSO INCLUDE, BUT ARE NOT LIMITED
TO, THOSE RISK FACTORS SET FORTH BELOW.
RISK FACTORS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. Keystone and North Star have entered into
the Merger Agreement with the expectation that the Merger will result in
benefits to the combined company. There can be no assurance that the
integration of the two companies' businesses can be accomplished in an
efficient and effective manner. The combination of the two companies will
require, among other matters, integration of Keystone's and North Star's
respective purchasing, distribution, marketing and sales efforts, pricing and
employee benefits policies, liquidity and capital expenditure requirements,
acquisition strategies, management teams and management information and other
systems. The challenges of such integration may be increased by the
necessity of coordinating geographically separated organizations. In
addition, the integration of certain operations following the Merger will
require the dedication of management resources which may temporarily distract
attention from the day-to-day business of the combined company. The
inability of management to integrate the operations of the two companies
successfully could have a material adverse effect on the business and the
results of operations of Keystone following the Merger. See "The Merger --
Reasons for the Merger" and "The Merger -- Recommendation of the Board of
Directors."
EFFECT ON CONTROL. Upon the consummation of the Merger, (i) the
North Star Shareholders will receive an aggregate of 2,450,000 shares of the
Common Stock of Keystone (or approximately 25.1% of the shares of the Common
Stock of Keystone issued and outstanding immediately after the Merger), (ii)
Ronald G. Brown, a director, officer and principal shareholder of North Star,
will become a director of Keystone and Vice President -- Manufacturing of
North Star and will receive 1,547,877 shares of the Common Stock of Keystone
(or approximately 15.9% of the shares of the Common Stock of Keystone issued
and outstanding immediately after the Merger), (iii) Kim D. Wood, a director,
officer and principal shareholder of North Star will become the President of
North Star and will receive 252,167 shares of the Common Stock of Keystone
(or approximately 2.59% of the shares of the Common Stock of Keystone to be
issued and outstanding immediately after the Merger) and (iv) the existing
officers and directors of Keystone will hold an aggregate of 2,284,162
shares, or approximately 23.4% of the shares of the Common Stock of Keystone
issued and outstanding immediately after the Merger. Accordingly, although
the existing shareholders of Keystone will remain in a position to elect a
majority of the directors and to approve or disapprove any matter submitted
to a vote of the shareholders, the North Star Shareholders may be able to
significantly affect the policies and operations of Keystone. In addition,
at the Effective Time, North Star will enter into employment agreements with
the Principal Shareholders whereby Messrs. Brown and Wood would continue to
serve as officers of North Star. As a result, Messrs. Brown and Wood will be
in a position to affect the policies and operations of North Star. See "The
Meetings -- Security Ownership of Principal Shareholders, Directors and
Executive Officers."
FIXED EXCHANGE RATIO. Upon the consummation of the Merger, each
outstanding share of the Common Stock of North Star will be converted into
the right to receive 362.3088 shares of the Common Stock of Keystone. The
Merger Agreement does not provide for adjustment of the exchange ratio based
on fluctuations in the price of the Common Stock of Keystone. Accordingly,
the value of the consideration to be received by the North Star Shareholders
19
<PAGE>
upon consummation of the Merger will increase or decrease based on the market
price of the Common Stock of Keystone at the Effective Time. The closing
price for the Common Stock of Keystone on Nasdaq on December 2, 1996, the
last trading day prior to the public announcement of the Merger, was $15 and
on January __, 1997, the latest practicable trading day before the mailing of
this Proxy Statement/Information Statement/Prospectus, was $____. There can
be no assurance that the market price of the Common Stock of Keystone on and
after the Effective Time will not be materially different from such prices.
See "Risk Factors -- Risk Factors Relating to Keystone -- Volatility of Stock
Price" and "Information Concerning Keystone -- Price Range of Common Stock."
TRANSACTION AND RESTRUCTURING CHARGES. Keystone and North Star
expect to incur charges to operations currently estimated to be $1,000,000,
primarily in the quarter in which the Merger is consummated, to reflect
non-recurring costs resulting directly from the Merger. Such costs include
investment banking, legal, accounting, printing and other related charges.
These amounts are preliminary estimates and are subject to change.
Additional and unanticipated expenses may be incurred relating to the
integration of the businesses of Keystone and North Star, including the
integration of product lines and distribution and administrative functions.
Although Keystone and North Star expect that the elimination of duplicative
expenses as well as other efficiencies related to the integration of their
respective businesses may offset additional expenses over time, there can be
no assurance that such net benefit will be achieved in the near term or at
all.
RISK FACTORS RELATING TO THE INDUSTRY
COMPETITION. Based upon industry estimates, Keystone and North Star
believe that 85% of collision parts for automobiles and light trucks are
supplied by original equipment manufacturers ("OEMs"), compared with
approximately 10% by distributors of aftermarket collision parts and an
additional 5% by distributors of salvage parts. Keystone and North Star
encounter intense competition from OEMs, all of which have substantially
greater financial, distribution, marketing and other resources, including
greater brand recognition and a broader selection of collision parts, than
Keystone and North Star. Accordingly, OEMs will be in a position to exert
pricing and other competitive pressures on the combined company. The
distribution industry for aftermarket collision parts is highly fragmented.
Keystone's and North Star's competitors generally are independently owned
distributors having from one to three distribution centers. The combined
company will encounter significant competition in the future, including
competition from OEMs, automobile dealerships, distributors of salvage parts,
buying groups and other large distributors. See "Information Concerning
Keystone -- Competition."
ACCEPTANCE OF AFTERMARKET COLLISION PARTS. Although the market for
aftermarket collision parts is estimated to have grown since its inception in
the early 1980s to between $800 million and $1.2 billion in 1995, Keystone's
and North Star's businesses are highly dependent upon the continued
acceptance of such parts by insurers, collision repair shops, consumers and
governmental agencies. See "Information Concerning Keystone -- Industry
Overview" and "Information Concerning Keystone -- Ford Litigation."
CONSOLIDATION OF COLLISION REPAIR SHOPS. The collision repair shop
industry is in the process of consolidation. The trend towards larger, more
efficient repair shops will increase the competition among distributors for
the remaining accounts and the pressure on distributors to provide price
concessions, just-in-time delivery, larger inventories and training and other
value-added services, which may have a material adverse effect on Keystone's
and North Star's sales and profitability. See "Information Concerning
Keystone --Industry Overview."
REDUCTION IN NUMBER OF COLLISION REPAIR JOBS. The number of
collision repair jobs has declined significantly, and may continue to do so,
due to, among other things, automotive safety improvements, more rigorous
enforcement of stricter drunk driving laws resulting in fewer accidents and
the increase in unit body construction and higher collision repair costs
resulting in a larger number of automobiles being declared a total loss in
lieu of being repaired. The continuation of such decline may have a material
adverse effect on Keystone and North Star. See "Information Concerning
Keystone -- Industry Overview --Consolidation."
RISK FACTORS RELATING TO KEYSTONE
ACQUISITION STRATEGY AND INTEGRATION OF ADDITIONAL SERVICE CENTERS.
A principal component of Keystone's growth strategy is to acquire smaller
distributors operating in markets in which Keystone currently operates, as
well as in new geographic markets. Since April 1992, Keystone has made
twelve acquisitions of a total of 31 service
20
<PAGE>
centers, of which five have been consolidated with existing locations and
three have been closed, and has opened three additional service centers, in
the Northeast, Midwest, South and Mexico. Keystone's ability to maintain or
exceed its historical growth rate will depend in large part on its ability to
successfully execute its acquisition strategy. The successful execution of
this strategy will depend on Keystone's ability to identify and to compete
for appropriate acquisition candidates, to consummate such acquisitions on
terms favorable to Keystone (including obtaining acquisition financing, if
necessary), to retain and expand the sales and profitability of the acquired
centers and to integrate acquired centers into, and to anticipate the changes
that continued growth would impose on, its financial and reporting control
systems, data processing systems and management. There can be no assurance
that Keystone will be successful in executing its strategy. Although
Keystone regularly evaluates new geographic markets and potential acquisition
candidates, and believes that numerous acquisition opportunities exist due to
the preponderance of small local and regional competitors, as of the date of
this Proxy Statement/Information Statement/Prospectus, there are no existing
commitments or agreements with respect to any acquisition, other than the
Merger. See "Information Concerning Keystone -- Growth Strategy --
Acquisitions."
DEPENDENCE ON KEY AND FOREIGN SUPPLIERS. Keystone is dependent on a
small number of suppliers. For the nine months ended December 27, 1996, the
ten largest suppliers accounted for approximately ___% of the products
purchased by Keystone. Although alternative suppliers exist for
substantially all products distributed by Keystone, the loss of any one
supplier could have a material adverse effect on Keystone until alternative
suppliers are located and have commenced providing products. During the nine
months ended December 27, 1996, Keystone imported approximately ___% of its
products, of which all were imported from Taiwan. As a result, Keystone's
operations are subject to the customary risks of doing business abroad,
including, among other things, transportation delays, political instability,
expropriation, currency fluctuations and the imposition of tariffs, import
and export controls and other non-tariff barriers (including changes in the
allocation of quotas), as well as the uncertainty regarding the future
relationship between China and Taiwan. Such percentage may decline in the
future if sales of autoglass, paint and related supplies and equipment and
remanufactured alloy wheels, which are manufactured in the United States,
continue to grow. Any significant disruption in the Taiwanese sources of
supply or in Keystone's relationship with its suppliers located in Taiwan
could have a material adverse effect on Keystone. Keystone purchases
products from foreign suppliers in United States dollars and, accordingly,
its results of operations could be materially and adversely affected by
fluctuations in currency exchange rates. See "Information Concerning
Keystone -- Suppliers."
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY. Keystone has
experienced, and expects to continue to experience, a substantial variation
in its sales and profitability from quarter to quarter due, in part, to the
seasonal nature of Keystone's business and the timing of acquisitions. The
number of collision repair jobs is dependent on weather. Other factors which
influence quarterly variations include the reduced number of business days
during the holiday seasons, the timing of the introduction of new products,
the level of consumer acceptance of new products, general economic conditions
that affect consumer spending, the timing of supplier price changes and the
timing of expenditures in anticipation of increased sales and customer
delivery requirements. See "Information Concerning Keystone -- Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Variability of Quarterly Results and Seasonality."
RELIANCE ON KEY PERSONNEL. The operations of Keystone depend to a
great extent on the efforts of its executive officers, including Virgil K.
Benton II, Charles J. Hogarty and Al A. Ronco. The loss of the services of
any such person, or the failure of Keystone to attract and retain other
qualified personnel, could have a material adverse effect on Keystone's
operations. Although Keystone has entered into employment agreements with
Messrs. Benton, Hogarty and Ronco, such agreements may be ineffective in
retaining the services of such officers and do not restrict them from
competing with Keystone in the event of a termination of employment. In
addition, although Keystone has been successful in retaining the services of
its senior management to date, there can be no assurance that Keystone will
be able to do so in the future. See "Information Concerning Keystone --
Competitive Strengths."
COMPLIANCE WITH GOVERNMENT REGULATIONS; ENVIRONMENTAL HAZARDS.
Keystone and its customers are subject to increasing restrictions imposed by
various federal, state and local laws and regulations. Various state and
federal regulatory agencies, such as the Occupational Safety and Health
Administration and the United States Environmental Protection Agency (the
"EPA"), have jurisdiction over the operations of Keystone with respect to
matters including worker safety, community and employee "right-to-know" laws,
and laws regarding clean air and water. Under various federal, state and
local laws and regulations, an owner or lessee of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as
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well as related costs of investigation and property damage. Such laws often
impose such liability without regard to whether the owner or lessee knew of,
or was responsible for, the presence of such hazardous or toxic substances.
Keystone does not currently generate substantial hazardous waste in the
ordinary course of its business. Keystone's chrome bumper recycling business
was reduced from twelve sites in 1983 to one in 1993. See "Information
Concerning Keystone -- Products -- Bumpers." Keystone believes it currently
is in substantial compliance with all applicable laws and regulations, and is
not aware of any material environmental problem at any of its current or
former facilities. No assurance can be given, however, that Keystone's prior
activities or the activities of a prior owner or lessee did not create a
material environmental problem or that future uses or conditions (including,
without limitation, changes in applicable laws and regulations) will not
result in the imposition of material environmental liability upon Keystone.
Furthermore, compliance with legislative or regulatory changes may cause
future increases in Keystone's operating costs or otherwise adversely affect
operations. Certain of Keystone's products, such as paints and solvents, are
highly flammable. Accordingly, the storage and transportation of these
materials expose Keystone to the inherent risk of fire. See "Information
Concerning Keystone -- Government Regulation and Environmental Hazards."
ANTI-TAKEOVER PROVISIONS. The ownership positions of the existing
officers and directors of Keystone, together with the anti-takeover effect of
certain provisions in the California General Corporation Law and in
Keystone's Restated Articles of Incorporation and Bylaws, may have the effect
of delaying, deferring or preventing a change in control of Keystone, may
discourage bids for Keystone's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
Common Stock. See "Information Concerning Keystone -- Description of Capital
Stock."
VOLATILITY OF STOCK PRICE. The trading price of the Common Stock of
Keystone has been, and is likely to continue to be, subject to significant
fluctuations in response to quarterly variations in Keystone's actual or
anticipated operating results, changes in general market conditions and other
factors. In recent years, the stock market generally has experienced
significant price and volume fluctuations which often have been unrelated or
disproportionate to the operating performance of a specific company. There
can be no assurance that the market price of the Common Stock of Keystone
will not decline below the current market price. See "Information Concerning
Keystone --Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE. There currently are approximately
7,300,00 shares of the Common Stock of Keystone outstanding. Of these
shares, approximately 3,079,000 shares will be freely tradeable without
restriction. Of the remaining 4,221,000 shares of Common Stock,
approximately 2,767,000 shares are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, as amended,
or will be held by affiliates of Keystone and, accordingly, are eligible for
sale in the public market pursuant to Rule 144. The market price of
Keystone's Common Stock could be adversely affected by the availability for
sale of such shares or of shares which may be issued under Keystone's stock
incentive plan. Keystone and certain of its officers, directors and
principal shareholders have agreed, in connection with Keystone's initial
public offering, not to, directly or indirectly, sell or otherwise dispose of
the 4,600,000 shares of Common Stock held by them in the public market,
without the prior written consent of Morgan Keegan & Company, Inc. and
Crowell, Weedon & Co., the managing underwriters of such offering. The
lock-up period expires on March 20, 1997 at which time such shares will
become eligible for sale in the public market under Rule 144. Upon
expiration of the lock-up period, the market price for Keystone's Common
Stock could be materially and adversely affected by the sale or availability
for sale of such shares. See "Information Concerning Keystone -- Employee
Benefit Plans -- Stock Incentive Plan" and "Information Concerning Keystone
- -- Description of Capital Stock --Shares Eligible for Future Sale." For a
description of restrictions on the resale of shares of Keystone's Common
Stock received by the North Star Shareholders in the Merger, see "The Merger
- -- Resale of Shares Issued in the Merger."
RISK FACTORS RELATING TO NORTH STAR
ACQUISITION STRATEGY AND INTEGRATION OF ADDITIONAL SERVICE CENTERS.
North Star has pursued a growth through acquisition strategy similar to
Keystone. Since 1991, North Star completed four acquisitions of a total of
11 service centers of which one has been consolidated with existing
locations, including the acquisition of all the assets of Carolina Automotive
Group in January 1996. In addition, since 1991, North Star has opened five
additional service centers and has not closed any service centers. Growth
through acquisition involves substantial risks, including the risk of
improper valuation of the acquired service center. In addition, the value of
such acquired service center could be impaired if North Star is not
successful in integrating the service center into its existing operations.
There is no
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assurance that the acquired service centers will produce the results
anticipated or that the acquired service center will be successfully and
profitably integrated into North Star's operations.
DEPENDENCE ON KEY AND FOREIGN SUPPLIERS. North Star is dependent on
a number of foreign suppliers. For the fiscal year ended September 30, 1996,
North Star's ten largest suppliers accounted for approximately 58% of the
products purchased by North Star. Although alternative suppliers exist for
substantially all products distributed by North Star, the loss of any one
supplier could have a material adverse effect on North Star until alternative
suppliers are located and have commenced providing products. During the same
period, North Star imported approximately 28% of its products, substantially
all of which were imported from Taiwan. As a result, North Star's operations
are subject to the customary risks of doing business abroad, including, among
other things, transportation delays, political instability, expropriation,
currency fluctuations and the imposition of tariffs, import and export
controls or quotas, as well as the uncertainty regarding the future
relationship between China and Taiwan. Any significant disruption in the
Taiwanese sources of supply or in North Star's relationship with its
suppliers located in Taiwan could have a material adverse effect on North
Star. The percentage of imported products may decline in the future if sales
of autoglass, paint and other materials and equipment and remanufactured
alloy wheels, all of which are manufactured in the United States, continue to
grow. North Star purchases products from foreign suppliers with United
States dollars, and accordingly, its results of operations could be
materially and adversely affected by a devaluation in the dollar.
North Star is dependent upon a key supplier for its automotive paint
products. North Star has entered into standard agreements with PPG
Industries, Inc. ("PPG") to sell only PPG brand automotive paint at select
service centers. North Star derived approximately 9% of its revenues from the
sale of PPG paint in fiscal year 1996. The agreement may not be assigned by
North Star without the consent of PPG. Furthermore, upon consummation of the
Merger, PPG has the option to terminate the agreement in whole or in part
with respect to any product line or location. In any event, the agreement
may be terminated by either party upon 90 days' written notice. PPG has
agreed to consent to the Merger and assign all existing agreements with North
Star. There is no assurance that North Star will maintain its relationship
with PPG whether or not the merger with Keystone is consummated. In the
event North Star's agreement with PPG terminates for any reason, North Star
believes that alternative suppliers of paint products exist, although the
termination of North Star's agreement with PPG would have a material adverse
effect on North Star's operations until an alternative supplier is found.
RELIANCE ON KEY PERSONNEL. The success of North Star depends to a
great extent on the efforts of its executive officers, Ronald G. Brown,
President, and Kim D. Wood, Executive Vice President. The loss of the
services of any such person, or the failure of North Star to attract and
retain other qualified personnel, could have a material adverse effect on
North Star's operations. In addition, although North Star has been
successful in retaining the services of its senior management to date, there
can be no assurance that North Star will be able to do so in the future.
Upon the consummation of the Merger, North Star will enter into a five-year
employment agreement with Mr. Brown and a three-year employment agreement
with Mr. Wood. See "The Merger -- Interests of Certain Persons in the
Merger."
COMPLIANCE WITH GOVERNMENT REGULATIONS. North Star's steel bumper
plating operation, which utilizes a chrome plating process, is subject to a
variety of federal and state laws and regulations relating to environmental
matters, including environmental control requirements relating to air, water
and noise pollution. North Star endeavors to ensure that its chrome plating
operation complies with applicable environmental laws and regulations.
Compliance with such laws and regulations has not had a material effect on
North Star's capital expenditures, earnings or competitive position, and no
material capital expenditures are anticipated for the remainder of this
fiscal year. Although North Star believes it is in substantial compliance
with all applicable environmental laws and regulations, there can be no
assurance that this operation does not, or will not in the future, violate
such laws and regulations or that compliance with such laws and regulations
will not have a material effect on North Star's operations. An inadvertent
mishandling of materials or similar incident, however, could adversely affect
the operations of North Star and result in costly administrative and legal
proceedings. In addition, future environmental regulations could add to
overall costs of doing business. See "Information Concerning North Star --
Business Government Regulation and Environmental Hazards."
UNCERTAINTY OF THE CHROME BUMPER PLATING MARKET. North Star
generates approximately 11% of its revenue from sales to wholesale
distributors and a manufacturer of truck accessories from its chrome bumper
plating operation. The production of new vehicles with chrome plated bumpers
and parts has steadily decreased since the early 1980's as automobile and
light truck manufacturers have increased their use of plastic bumpers. North
Star believes that this may be a result of economic pressures, environmental
laws and regulatory and market pressures to produce lighter
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vehicles that get higher miles per gallon of fuel. For the 1996 model year,
approximately 4 million new vehicles with chrome plated bumpers are expected
to be sold in the United States. North Star believes that there will be a
demand for chrome plated bumpers in the future. There is no assurance that
the number of vehicles manufactured with chrome bumpers will not decline in
the future. In the event that the number of vehicles manufactured with
chrome bumpers does decline, there is no assurance that North Star's chrome
bumper plating operation will not be adversely affected. North Star believes
that its chrome bumper plating operation is capable of producing other chrome
plated products in addition to bumpers and could modify or retool its
operation if the demand for chrome plated bumpers declined or was projected
to decline to a level that would adversely affect North Star's profitability.
THE MEETINGS
This Proxy Statement/Information Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Board of
Directors of Keystone for use at the Keystone Meeting and in connection with
the matters to be considered and voted upon at the North Star Meeting, and
any adjournments or postponements thereof.
This Proxy Statement/Information Statement/Prospectus is first being
mailed to the Keystone Shareholders and the North Star Shareholders on or
about January ___, 1997.
DATE, TIME AND PLACE
KEYSTONE. The Keystone Meeting will be held on ________, February
__, 1997 commencing at 10:00 a.m., Pacific Standard Time, at Keystone's
principal executive offices, 700 East Bonita Avenue, Pomona, California.
NORTH STAR. The North Star Meeting will be held on _______,
February ____, 1997 commencing at ____ a.m., Central Standard Time, at ________,
________, Minneapolis, Minnesota.
MATTERS TO BE CONSIDERED
At the Meetings, the Keystone Shareholders and the North Star
Shareholders will be asked (i) to consider and to vote upon a proposal to
approve the Merger Agreement and (ii) to transact such other business as
properly may come before the respective Meeting. The Merger Agreement
provides, among other things, that (i) the Subsidiary will be merged with and
into North Star, (ii) all shares of the capital stock of North Star issued
and outstanding immediately prior to the Merger will be converted into the
right to receive an aggregate of 2,450,000 shares of the Common Stock of
Keystone (or approximately 25.1% of the shares of the Common Stock of
Keystone issued and outstanding immediately after the Merger) and (iii)
Ronald G. Brown, a shareholder of North Star, will become a director of
Keystone. As a result of the Merger, North Star will become a wholly owned
subsidiary of Keystone. See "The Merger Agreement."
RECORD DATES
KEYSTONE. Only persons who are shareholders of record of Keystone
(the "Keystone Shareholders") at the close of business on January __, 1997
(the "Keystone Record Date") are entitled to notice of and to vote, in person
or by proxy, at the Keystone Meeting.
NORTH STAR. Only persons who are shareholders of record of North
Star (the "North Star Shareholders") at the close of business on January ___,
1997 (the "North Star Record Date") are entitled to notice of and to vote, in
person or by proxy, at the North Star Meeting.
VOTES REQUIRED FOR APPROVAL
KEYSTONE. On the Keystone Record Date, there were 7,300,000 shares
of the Common Stock of Keystone issued and outstanding and held by
approximately 83 shareholders of record. Each Keystone Shareholder is
entitled to one vote, in person or by proxy, for each share of the Common
Stock of Keystone standing in his name on the books of Keystone as of the
Keystone Record Date on any matter properly submitted to the Keystone
Shareholders
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at the Keystone Meeting. The presence, in person or by proxy, of the holders
of a majority of the shares of Common Stock of Keystone outstanding on the
Keystone Record Date is necessary to constitute a quorum for the conduct of
business at the Keystone Meeting. Abstentions and broker non-votes will be
treated as shares present and entitled to vote at the Keystone Meeting for
purposes of determining the presence of a quorum.
The Merger Agreement must be approved by the affirmative vote, in
person or by proxy, of the holders of a majority of the issued and
outstanding shares of the Common Stock of Keystone entitled to vote thereon.
Accordingly, abstentions and broker non-votes on the proposal to approve the
Merger Agreement will have the effect of a vote AGAINST such proposal.
As of the Keystone Record Date, 2,284,162 shares of the Common Stock
of Keystone (or approximately 31.3% of the issued and outstanding shares of
Common Stock) were owned by certain officers, directors and shareholders of
Keystone who have entered into a voting agreement with North Star pursuant to
which they are obligated to vote FOR the Merger Agreement. See "The Merger
Agreement -- Voting Agreement."
NORTH STAR. On the North Star Record Date, there were 6,762.1875
shares of the Common Stock of North Star issued and outstanding and held by
approximately eleven shareholders of record. Each North Star Shareholder is
entitled to one vote, in person or by proxy, for each share of the Common
Stock of North Star standing in his or her name on the books of North Star as
of the North Star Record Date on any matter properly submitted to the North
Star Shareholders at the North Star Meeting. The presence, in person or by
proxy, of the holders of a majority of the shares of Common Stock of North
Star outstanding on the North Star Record Date is necessary to constitute a
quorum for the conduct of business at the North Star Meeting. Abstentions
will be treated as shares present and entitled to vote at the North Star
Meeting for purposes of determining the presence of a quorum.
The Merger Agreement must be approved by the affirmative vote, in
person or by proxy, of the holders of at least 66 2/3% of the issued and
outstanding shares of the Common Stock of North Star entitled to vote
thereon. Accordingly, abstentions on the proposal to approve the Merger
Agreement will have the effect of a vote AGAINST such proposal.
As of the North Star Record Date, 4,968.26 shares of the Common Stock
of North Star (or approximately 73.5% of the issued and outstanding shares of
Common Stock) were owned by certain officers, directors and shareholders of
North Star who have agreed to vote FOR the Merger Agreement. See "The Merger
Agreement -- Affiliate Agreement."
VOTING OF PROXIES
KEYSTONE. Shareholders of record on the Keystone Record Date are
entitled to cast their votes, in person or by a properly executed proxy, at
the Keystone Meeting.
All shares represented at the Keystone Meeting by properly executed
proxies received prior to or at the Keystone Meeting and not properly revoked
will be voted in accordance with the instructions indicated in such proxies.
If no instructions are indicated, such proxies will be voted FOR approval of
the Merger Agreement. The Board of Directors of Keystone does not know of
any matters that will come before the Keystone Meeting, other than the
matters described in the Notice of Meeting attached to this Proxy
Statement/Information Statement/Prospectus. However, if any other matter
properly comes before the Keystone Meeting, the proxies solicited hereby will
be voted by the proxyholders named therein in accordance with their best
judgment; provided, however, that shares that have been voted AGAINST
approval of the Merger Agreement will not be used to vote FOR postponement or
adjournment of the Keystone Meeting for the purpose of allowing additional
time for soliciting additional votes FOR approval of the Merger Agreement.
The grant of a proxy also will confer discretionary authority on the
proxyholders named therein to vote in accordance with their best judgment on
matters incident to the conduct of the Keystone Meeting (except as stated in
the preceding sentence).
If a quorum is not present at the time the Keystone Meeting is convened,
or if fewer shares of the Common Stock of Keystone are voted in favor of
approval of the Merger Agreement than the number required for approval, or if
for any other reason the Board of Directors of Keystone believes that additional
time should be allowed for the solicitation of proxies or for the satisfaction
of conditions to the transactions contemplated by the Merger
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Agreement, Keystone may adjourn the Keystone Meeting with a vote of the
Keystone Shareholders. If Keystone proposes to adjourn the Keystone Meeting,
the proxyholders named in the enclosed proxy card will vote all shares for
which they have voting authority in favor of such adjournment, except as
stated in the preceding paragraph. At any subsequent reconvening of the
Keystone Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Keystone
Meeting, except for any proxies that have theretofore effectively been
revoked or withdrawn.
The grant of a proxy will not affect the right of a Keystone
Shareholder to attend the Keystone Meeting and to vote in person. A Keystone
Shareholder may revoke his proxy at any time before it is voted by (i) filing
with the Secretary of Keystone, at or before the Keystone Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii)
filing with the Secretary of Keystone at or before the Keystone Meeting a
duly executed proxy relating to the same shares and bearing a date later than
the date of the proxy to be revoked or (iii) attending the Keystone Meeting
and voting in person. Attendance at the Keystone Meeting will not in and of
itself constitute revocation of a proxy. Any written notice revoking a proxy
and any subsequent proxy may be sent to: Keystone Automotive Industries,
Inc., 700 East Bonita Avenue, Pomona, California 91767, Attention: Secretary.
A properly executed proxy marked ABSTAIN will be counted for purposes
of determining whether there is a quorum, but will not be voted on the
proposal to approve the Merger Agreement. Accordingly, a proxy marked
ABSTAIN will have the effect of a vote against the proposal to approve the
Merger Agreement. In accordance with stock exchange rules, brokers and
nominees are not empowered to vote shares as to which they have voting
discretion with respect to the proposal to approve the Merger Agreement
absent specific instructions from the beneficial owner of such shares.
Accordingly, a broker non-vote (I.E., shares held by brokers or nominees
which are represented at a meeting but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) with respect to
the proposal to approve the Merger Agreement will have the effect of a vote
AGAINST this proposal. Shares represented by broker non-votes will, however,
be counted for purposes of determining whether there is a quorum at the
Keystone Meeting.
NORTH STAR. North Star Shareholders are entitled to cast their votes,
in person or by a properly executed proxy, at the North Star Meeting. All
shares of North Star's Common Stock represented at the North Star Meeting by
properly executed proxies received prior to or at the North Star Meeting and not
properly revoked will be voted in accordance with the instructions indicated in
such proxies.
NORTH STAR IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND NORTH STAR A PROXY.
SOLICITATION OF PROXIES
The costs of this solicitation of Keystone proxies, including the
expense of preparing, assembling, printing and mailing this Proxy
Statement/Information Statement/Prospectus and any other material used in the
solicitation of Keystone proxies, will be borne by Keystone. The
solicitation of Keystone proxies will be made by mail and may be supplemented
by telephone or other personal contact to be made without special
compensation by directors, officers and employees of Keystone. If it should
appear desirable to do so to ensure adequate representation at the Keystone
Meeting, directors, officers and employees may communicate with Keystone
Shareholders, banks, brokerage houses, custodians, nominees and others, by
telephone, facsimile transmissions, telegraph or in person to request that
proxies be furnished. Arrangements will be made with banks, brokerage houses
and other custodians, nominees and fiduciaries to forward proxy materials to
the beneficial owners of shares held of record by such banks, brokerage
houses, custodians, nominees and fiduciaries, and Keystone will reimburse
them for their reasonable expenses in doing so. The total estimated cost of
the solicitation of Keystone proxies is $1,000,000.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
For information regarding the security ownership of Keystone's Common
Stock by principal shareholders, directors and executive officers of
Keystone, see "Information Concerning Keystone -- Ownership of Keystone
Common Stock." For information regarding the security ownership of North
Star's Common Stock by principal shareholders, directors and executive
officers of North Star, see "Information Concerning North Star -- Ownership
of North Star Common Stock."
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THE MERGER
GENERAL
The Merger Agreement provides, among other things, that (i) the
Subsidiary will be merged with and into North Star, (ii) all shares of the
capital stock of North Star issued and outstanding immediately prior to the
Merger will be converted into the right to receive an aggregate of 2,450,000
shares of the Common Stock of Keystone (or approximately 25.1% of the shares
of the Common Stock of Keystone issued and outstanding immediately after the
Merger) and (iii) Ronald G. Brown, the a shareholder of North Star, will
become a director of Keystone. As a result of the Merger, North Star will
become a wholly owned subsidiary of Keystone.
Upon the consummation of the Merger, each outstanding share of the
Common Stock of North Star will be converted into the right to receive
362.3088 shares of the Common Stock of Keystone. The Merger Agreement does
not provide for adjustment of the exchange ratio based on fluctuations in the
price of the Common Stock of Keystone. Accordingly, the value of the
consideration to be received by the North Star Shareholders upon consummation
of the Merger will increase or decrease based on the market price of the
Common Stock of Keystone at the Effective Time. The closing price for the
Common Stock of Keystone on Nasdaq on December 2, 1996, the last trading day
prior to the public announcement of the Merger, was $15 and on February ___,
1997, the latest practicable trading day before the mailing of this Proxy
Statement/Information Statement/Prospectus, was $____. There can be no
assurance that the market price of the Common Stock of Keystone on and after
the Effective Time will not be materially different from such prices. See
"Information Concerning Keystone -- Price Range of Common Stock."
The Merger will become effective upon the filing of a Articles of Merger
with the Secretary of State of Minnesota (the "Effective Time"), which is
expected to occur as promptly as practicable after the approval of the Merger
Agreement by the Keystone Shareholders and the North Star Shareholders and the
satisfaction or waiver of the other conditions to the Merger contained in the
Merger Agreement.
A summary of the Merger Agreement and the Merger and the other
transactions contemplated thereby are set forth below. See "The Merger
Agreement." This summary does not purport to be complete and is qualified in
its entirety by reference to the complete text of the Merger Agreement, which
is attached as Appendix A to this Proxy Statement/Information
Statement/Prospectus and is incorporated herein by reference. Shareholders of
Keystone and North Star are urged to read the Merger Agreement and the exhibits
thereto in their entirety.
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the results of arm's-length
negotiations between representatives of Keystone and North Star. The following
is a brief discussion of the events that led to the negotiations, the Merger
Agreement and the related transactions.
Ronald G. Brown, the President of North Star, and Charles J. Hogarty,
the President of Keystone, first became acquainted in 1968, as both served as
industry leaders active in various trade associations. In addition, North
Star has been a vendor to Keystone since 1991, as a supplier of new and
recycled chrome plated bumpers. The possibility of a strategic relationship
involving the two companies was first discussed in general terms in
conversations between Mr. Brown and Mr. Hogarty on October 30, 1993 at an
ABPA meeting at the Bally Hotel in Las Vegas, Nevada. During the period
between November 1993 and November 1995, Mr. Hogarty and Mr. Brown engaged in
various telephone conversations regarding the feasibility of a business
combination with Keystone, North Star and various third parties.
Other than North Star's discussion with Keystone, North Star has had
discussions with a private and public company regarding a possible business
combination with North Star and industry-related issues, including methods to
value companies in the industry. In September 1994, a representative of a
plastic bumper manufacturer, a privately held company, solicited Mr. Brown to
propose that the manufacturer purchase North Star for cash and stock in the
private company. Mr. Brown indicated that North Star was not interested in
the proposed transaction but was willing to entertain future proposals. At
the direction of the Board of Directors of North Star, Mr. Brown advised the
manufacturer that the Board of Directors needed to identify North Star's
objectives for any such business combination and, in light of such
objectives, to determine whether the business combination was in the best
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interests of North Star and its shareholders. Accordingly, Mr. Brown advised
the manufacturer that North Star could not proceed with the proposed
transaction at that date, but might be willing to entertain proposals in the
future. No agreement was reached and no other proposal was submitted.
In the spring of 1995, discussions between the manufacturer and
Mr. Brown regarding a possible business combination resurfaced. From April
through November 1995, Mr. Brown conducted a due diligence investigation and
explored the possibility of a business combination with the manufacturer.
Following his investigation, Mr. Brown concluded that the manufacturer's and
North Star's business operations and corporate cultures were not compatible and
a successful business combination was not possible. Following Mr. Brown's
investigation, the Board of Directors determined that (i) the corporate cultures
of North Star and the manufacturer were not compatible and (ii) because North
Star was primarily a distributor and the manufacturer was engaged primarily in
the manufacturing of plastic bumpers, the business operations of North Star and
the manufacturer were not compatible. No agreements or firm understandings were
reached regarding the form of business combination or price.
In February 1995, Mr. Wood had discussions with a public company in the
industry to discuss issues related to the industry, including the trend toward
consolidation, and how the public company values companies in the industry, and
the public company's interest in conducting future business combinations of
companies in the industry. No agreement or understandings were reached.
On October 11, 1995, Mr. Hogarty telephoned Mr. Brown to arrange for a
meeting between Keystone and North Star to be held on November 1, 1995. On
November 1, 1995, Mr. Brown and Mr. Wood met with Messrs. Hogarty, Ronco and
Benton and Blanton, the President, Executive Vice President, Chief Executive
Officer and Vice President-Finance, respectively, of Keystone at the Keystone
facility in Pomona, California to discuss the possibility of a strategic
combination of the two companies. The meeting participants discussed in general
terms the benefits of a strategic relationship or business combination to
provide both companies with additional products and services as well as
geographic expansion. This meeting involved preliminary discussions only and
did not result in a proposal with respect to a transaction. In January 1996
Keystone engaged Crowell, Weedon & Co. to provide certain financial advisory
services in connection with evaluating any combination of Keystone and North
Star. Pursuant to such agreement, Keystone agreed to pay Crowell, Weedon & Co.
$125,000 upon effectiveness of a merger between Keystone and North Star.
Discussions between Keystone and North Star were terminated in April 1996 due
primarily to North Star's request that a substantial portion of the purchase
price be paid in cash in order to ensure liquidity for North Star's
shareholders. North Star's Board of Directors believes that the proposed form
of Merger consideration is acceptable because it will provide North Star's
shareholders with the necessary liquidity for their original investment. See
"The Merger -- Reasons for the Merger -- North Star."
In August 1996, Mr. Hogarty telephoned Mr. Brown to arrange for a
meeting between the two companies to be held on August 19, 1996. On August 19,
1996, Messrs. Brown and Wood met with Messrs. Hogarty, Ronco, Blanton and Benton
and John Palumbo, the Treasurer, at Keystone's facility located in Pomona,
California to again consider a possible business combination of the two
companies. The representatives of both companies agreed that they were open to
a variety of relationships with each other, but that further investigation was
necessary to determine the potential strategic combinations between the two
companies. On September 3, 1996, Messrs. Brown, Hogarty and Benton participated
in a telephonic conference call and discussed pricing of the possible merger
between the two companies. In September 1996, Keystone initiated due diligence
investigations, which included interviews with North Star management as well as
a detailed review of various North Star documents, contracts and financial
information. Financial advisors and legal counsel for both companies have
assisted in the due diligence investigation.
On September 17, 1996, Mr. Hogarty telephoned Mr. Brown to arrange
for a meeting between Keystone and North Star representatives to be held on
October 1, 1996. On October 1, 1996, Messrs. Brown, Wood, Hogarty, Benton,
Palumbo, Ronco and Blanton, as well as financial advisors and legal counsel,
met at the North Star facility located in Minneapolis, Minnesota, to engage
in detailed discussions regarding a possible merger between the two
companies. Due diligence investigation continued during this time period.
On October 29, 1996, the Board of Directors of Keystone held a
meeting to consider the proposed form of Merger Agreement and the
transactions contemplated thereby. Keystone's Board of Directors reviewed
and considered, among other things, the background of the proposed
transaction, various strategic alternatives to implement Keystone's growth
strategy, financial and valuation analyses of the transaction, the proposed
terms of the Merger
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Agreement, its fiduciary obligations and the continuing due diligence
investigation. Representatives of Manatt, Phelps & Phillips, LLP, Ernst &
Young LLP and FMV Opinions, Inc. ("FMV") made presentations to Keystone's
Board of Directors concerning the various aspects of the proposed
transaction. The Board of Directors was advised by FMV that as of October
28, 1996 FMV did not have sufficient information and documentation concerning
Keystone, North Star and the Merger to allow it to render an opinion as to
the fairness of the Merger, from a financial point of view to Keystone and
its shareholders; however, based upon the information FMV had reviewed and
received, there was not yet any basis for FMV to conclude that the proposed
terms of the Merger were not fair to Keystone or its shareholders from a
financial point of view. Ernst & Young LLP advised the Board of Directors as
to the requirements for the Merger to be treated as a pooling of interests.
After substantial discussions, the Board of Directors unanimously authorized
the continued negotiation of the Merger Agreement and the preparation of this
Proxy Statement/Information Statement/Prospectus.
On December 2, 1996, the Board of Directors of Keystone met to
discuss the proposed form of Merger Agreement and the transactions
contemplated thereby. At the meeting, Keystone's management, as well as
representatives of Manatt, Phelps & Phillips, LLP and FMV, made presentations
to the Board of Directors as to the status of the negotiations, the results
of the due diligence investigation, the principal terms of the proposed
Merger and the benefits and potential risks of the proposed Merger. FMV
delivered its opinion that the terms of the transactions contemplated by the
Merger Agreement are fair to Keystone and its shareholders from a financial
point of view. The Board of Directors of Keystone unanimously approved the
Merger Agreement and the transactions contemplated thereby and authorized
Keystone's management to execute and deliver the Merger Agreement and to
proceed with the Merger.
On December 2, 1996, Keystone announced that the parties had reached
an agreement in principle, and on December 6, 1996, the parties executed the
Merger Agreement.
REASONS FOR THE MERGER
KEYSTONE
The Board of Directors of Keystone believes that the Merger is in
furtherance of Keystone's long-term growth strategy for the following reasons:
- EXPANSION OF GEOGRAPHIC SCOPE. Keystone operates seven
regional hubs and 47 service centers located primarily in 26 states in the
West, Midwest, Northeast and South and in Mexico. North Star operates four
regional hubs and 20 service centers located primarily in the upper Midwest
and the mid-Atlantic states. Accordingly, the location of North Star's
service centers generally are complementary to, and not competitive with,
Keystone's service centers and expand the geographic scope of Keystone's
distribution system.
- STABLE SUPPLY OF NEW AND RECYCLED CHROME PLATED BUMPERS. For the
nine months ended December 27, 1996, sales of new and recycled chrome plated
bumpers accounted for 11.7% of Keystone's net sales. During such nine-month
period, Keystone purchased 9.1% of the new and recycled chrome plated bumpers
sold by it from North Star. The Merger is expected to ensure Keystone a stable
supply of high-quality new and recycled chrome plated bumpers at reasonable
cost.
- ENHANCEMENT OF LEADING MARKET POSITION. The Merger is expected to
enhance Keystone's position as the nation's leading distributor of aftermarket
automobile and light truck collision parts, which enables it to offer its
customers one of the broadest available selections of aftermarket collision
parts, just-in-time delivery, lower prices due to volume purchasing, worldwide
product sourcing, priority access to new products and superior technical
expertise.
- EXPANSION OF PRODUCT LINES TO NORTH STAR'S DISTRIBUTION SYSTEM.
The Merger is expected to enable Keystone to leverage North Star's distribution
system through the selective introduction of Keystone's generally broader
product lines, including remanufactured alloy wheels.
- ENHANCEMENT OF OPERATING EFFICIENCIES. Through a combination
of Keystone's volume purchase discounts, efficient inventory management,
strong working capital position and advanced order taking, inventory control
and management information systems, the Merger is expected to enhance the
operating efficiencies
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of the North Star distribution system. In addition, the proximity of
Keystone's regional hubs in Chicago and Atlanta to North Star's service
centers in the mid-Atlantic states is expected to enhance the efficiency of
inventory management with respect to such centers.
NORTH STAR
North Star's Board of Directors believes that the aftermarket
collision replacement parts industry is consolidating and that in order for
North Star to compete successfully in the industry in the future, North Star
must combine with a company that complements North Star's operations and
management. The Board of Directors established objectives for a business
combination including the following: (i) providing shareholders of North
Star with liquidity for their original investment through a tax-free exchange
of their North Star shares with shares of a public company; (ii) providing a
basis for each shareholder of North Star to continue, if such shareholder
desires, his or her investment in a company in the same industry; (iii)
combining with a company which would likely result in potential growth of the
combined companies and be attractive to the investment community; (iv)
combining with a company that will allow North Star to operate as a separate
wholly owned subsidiary and retain North Star's management and employees; (v)
providing North Star with representation on the combined business's board of
directors and (vi) obtaining a price for shares of North Star's Common Stock
that is reasonable within industry practices familiar to the Board of
Directors.
North Star's Board of Directors believes that the Merger with
Keystone will achieve the Board of Directors' objectives set forth above.
First, North Star's Board of Directors insisted during its discussions with
Keystone in April 1996, before Keystone conducted its initial public
offering, that a substantial portion of the Merger consideration be paid in
cash in order to provide North Star's shareholders with liquidity for their
original investment in North Star. The Merger will provide liquidity for
shareholders of North Star through a tax-free exchange of North Star's Common
Stock for Keystone's Common Stock, which is listed and traded on the Nasdaq
National Market. North Star's shareholders will receive freely transferable
shares of Keystone's Common Stock and, except for shareholders who are deemed
affiliates, will be able to sell their Keystone shares in the public market.
See "The Merger -- Resale of Shares Issued in the Merger." Second,
shareholders of North Star can retain their equity ownership in Keystone and
maintain an investment in the same industry. Third, the North Star Board of
Directors believes that the combined company of North Star and Keystone will
be positioned well in the industry to compete in the future as a result of
the combined company's greater financial resources, geographic diversity of
the service centers and complementary operations. Because North Star and
Keystone presently service distinct geographical areas, the Merger does not
require the closing or consolidation of a large number of service centers. In
addition, North Star and Keystone's operations are complementary as each uses
a hub and spoke distribution system to distribute parts to its service
centers. Furthermore, North Star brings its chrome bumper plating operation
to the combined company. As a result, North Star's Board of Directors
believes that the combined company of North Star and Keystone will be
attractive to the investment community. Fourth, following the Merger, North
Star will be a wholly owned subsidiary of Keystone. North Star's Board of
Directors will include Kim Wood, Richard Monson and John Palumbo. Kim Wood
will serve as President and Ron Brown as Vice President. It is anticipated
that all shareholders who were employed by North Star prior to the Merger
will continue their employment with North Star following the Merger, although
such employees, except for Ron Brown and Kim Wood, will be employees at will.
See "The Merger -- Interests of Certain Persons in the Merger." Fifth, Ron
Brown will be elected to the Keystone Board of Directors following the Merger.
Finally, based on the Board of Directors' experience in North Star's
acquisitions of companies in the industry, anecdotal information gathered
while serving as directors of various industry associations and discussions
with competitors, and in light of the strategic value of the combination as
discussed above, North Star's Board of Directors analyzed the merger
transaction from a financial point of view. North Star's Board of Directors
reviewed the financial statements of North Star and Keystone to calculate the
percentage of North Star's net sales attributable to North Star in the
combined company following the Merger. The Board of Directors performed this
analysis to establish an objective as to the approximate percentage ownership
North Star Shareholders should receive in Keystone immediately following the
Merger. Pursuant to the Merger Agreement, North Star Shareholders will own
approximately 25% of the issued and outstanding Keystone Common Stock
immediately after the Merger, which is equivalent to the approximate
percentage of North Star's net sales in the combined company after the
Merger. In addition, the Board of Directors calculated the multiple of price
to North Star's (i) total revenues; (ii) earnings before interest and taxes
(EBIT) and (iii) earnings before interest, taxes, depreciation and
amortization (EBITDA) for fiscal year ended September 30, 1996. The North
Star Board of Directors believe that a multiple of the price to total
revenues of approximately 0.55, a multiple of price to EBIT
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of approximately eight to ten and a multiple of price to EBITDA of
approximately four to five have been paid in acquisition transactions in the
industry. Based upon the closing price of Keystone's Common Stock
immediately prior to the public announcement of the Merger, the multiple of
price equaled approximately 0.71 of total revenues, approximately eleven
times EBIT and approximately eight times EBITDA. Based upon the Board of
Directors' analysis and in light of the strategic value of the Merger, the
Board of Directors has determined that the Merger is fair to North Star's
shareholders from a financial point of view.
As described above, in analyzing the Merger from a financial point of
view, North Star's Board of Directors relied, in part, upon its experience in
acquiring companies in the industry. Since January 1, 1992, North Star has
completed four acquisitions of eleven service centers in the midwest and
mid-Atlantic states. The acquisitions from 1993 through 1996 represent North
Star's largest transactions. In January 1993, North Star acquired
substantially all the assets of a company in Peoria, Illinois that had
revenues of approximately $2.0 million, for approximately $700,000. In May
1994, North Star acquired substantially all the assets of a company in
Dubuque, Iowa that had revenues of approximately $2.5 million, for
approximately $1.1 million. And in January 1996, North Star acquired
substantially all the assets of Carolina Automotive Group, that had revenues
of approximately $9.0 million, for approximately $5.2 million.
Although North Star's Board of Directors believes the above
transactions provide a reasonable basis for it to analyze the Merger from a
financial point of view, North Star's Board of Directors believes that the
Merger provides North Star the added strategic value of combining with a
company that also is primarily engaged in the distribution of aftermarket
replacement parts. In addition, the Merger enables North Star's shareholders
to benefit from the increased value of Keystone's Common Stock the market may
attribute to North Star's Merger with Keystone.
Each North Star Shareholder has unique expectations and goals
relating to the Merger which directly or indirectly influence whether he or
she views the Merger as being "fair." Such expectations and goals include:
(i) a shareholder's investment in North Star, (ii) a shareholder's employment
relationship with North Star, (iii) the nature of North Star's operation
following the Merger, (iv) a shareholder's retirement plans, and (v) a
shareholder's lifestyle expectations. Although North Star's Board of
Directors believes that the transactions contemplated by the Merger Agreement
are in the best interests of North Star and its shareholders, and are fair to
the North Star Shareholders from a financial point of view, each North Star
shareholder is urged to carefully consider those transactions in light of his
or her own unique expectations concerning North Star and the Merger. In
addition, the Board of Directors believes that a fairness opinion from an
investment banking firm or other expert would not adequately include each
shareholder's individual expectations and goals and as a result chose not to
seek such an opinion.
The combination of Keystone and North Star will require, among other
matters, integration of their respective purchasing, distribution, marketing and
sales efforts, pricing and employee benefits policies, liquidity and capital
expenditure requirements, acquisition strategies, management teams and
management information and other systems. The challenges of such integration
may be increased by the necessity of coordinating geographically separated
organizations. In addition, the integration of certain operations following the
Merger will require the dedication of management resources which may temporarily
distract attention from the day-to-day business of the combined company. The
inability of management to integrate the operations of the two companies
successfully could have a material adverse effect on the business and the
results of operations of Keystone following the Merger. See "Risk Factors --
Risk Factors Relating to the Merger."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
KEYSTONE
The Board of Directors of Keystone has determined that the transactions
contemplated by the Merger Agreement are in the best interests of Keystone and
its shareholders. Accordingly, the Board of Directors has unanimously approved
the Merger Agreement and recommends that all Keystone Shareholders vote FOR its
approval.
The Board of Directors of Keystone considered the following factors
in evaluating the transactions contemplated by the Merger Agreement: (i) the
anticipated benefits described above under "The Merger -- Reasons for
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the Merger;" (ii) Keystone's and North Star's respective businesses,
operations and prospects to determine the compatibility of Keystone and North
Star and to identify potential problems with North Star's business (including
a review of North Star's historical and projected results of operations,
liquidity, capital resources, business strategy, growth strategy,
assimilation of acquisitions and new products, establishment of new service
centers, existing and anticipated product lines, relationship with insurance
companies, general business reputation, experience and depth of management,
corporate culture, customer service, product mix, distribution system,
marketing programs, management information systems, principal customers,
principal suppliers, seasonality, inventory practices, competitive position
in local markets, performance of individual service centers, compliance with
governmental regulations, environmental hazards, principal employees,
equipment, facilities and pending legal proceedings); (iii) the relative
value North Star might contribute to the combine company, including North
Star's historical and projected financial condition and results of
operations; (iv) the relationship between the current and anticipated market
value of the Common Stock of Keystone to be issued in the Merger and North
Star's historical and projected revenues, operating income and earnings; (v)
analyses of the potential impact of the Merger on the balance sheet and
earnings per share of the combined company; (vi) the financial terms of
selected acquisitions in Keystone's industry; (vii) management's judgment
that Keystone was unlikely to identify an alternate acquisition or series of
acquisitions that would provide comparable benefits to Keystone and its
shareholders; (viii) the opinion of FMV that the terms of the transactions
contemplated by the Merger Agreement are fair to Keystone and its
shareholders from a financial point of view; (ix) the knowledge and
experience of North Star's management; (x) the compatibility of the
managements of Keystone and North Star; (xi) the fact that the Merger is
expected to be accounted for as a pooling of interests and, accordingly, that
no good will is expected to be recorded by the combined company; (xii) the
complementary nature of Keystone's and North Star's businesses which provide
significant opportunities for development without the need for significant
restructuring or redirection or disposition of assets; (xiii) recent trends
in the industry for collision repair parts; (xiv) reports from accounting,
legal and financial advisors on the specific terms of the Merger Agreement
and related documents; and (xv) the provision of the Merger Agreement
prohibiting North Star from negotiating with any third party with respect to
a Competing Transaction.
The Board of Directors of Keystone also considered certain negative
factors, including but not limited to, the following, in evaluating the
transactions contemplated by the Merger Agreement: (i) the risk that the
Merger would not be consummated; (ii) the risk that the benefits sought in
the Merger would not be fully achieved; (iii) the risks associated with
integrating Keystone's and North Star's respective businesses; (iv) the
environmental risks associated with North Star's chrome bumper plating
operation; and (v) the uncertainty of the chrome bumper plating market. See
"Risk Factors -- Risk Factors Relating to the Merger" and "Risk Factors --
Risk Factors Relating to North Star." The Board of Directors of Keystone
believes that these risks are outweighed by the potential benefits to be
gained by the Merger.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement and the transactions contemplated thereby,
the Board of Directors of Keystone did not quantify, reach independent
conclusions regarding or otherwise attempt to assign relative weights to the
individual factors considered by it. Many of the factors considered by the
Board of Directors of Keystone are described in greater detail elsewhere in
this Proxy Statement/Information Statement/Prospectus. Accordingly, Keystone
Shareholders are urged to read this Proxy Statement/Information
Statement/Prospectus in its entirety, and in particular the matters referred
to in "Risk Factors."
NORTH STAR
The Board of Directors of North Star believes that the transactions
contemplated by the Merger Agreement are in the best interests of North Star and
its shareholders and fair to North Star Shareholders from a financial point of
view. Accordingly, the Board of Directors has unanimously approved the Merger
Agreement, and recommends that the North Star Shareholders vote "FOR" its
approval.
In reaching its conclusion to approve the Merger Agreement, the Board
of Directors of North Star considered the financial and strategic business
implications of the Merger and its risks and potential benefits, along with
the risks and potential benefits of North Star remaining as an independent
company. The Board of Directors of North Star considered the business,
financial condition, results of operation and prospects of North Star, on
both a historical and prospective basis. North Star's Board of Directors has
recognized that many products sold by North Star and its method of
distribution are similar to Keystone and its chrome bumper plating operation
and brand of paint products will add a strategic operation and product line
to the combined companies. Furthermore, competition in the aftermarket
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automobile and light truck collision repair market is intense and includes
companies with greater financial resources than North Star.
North Star's Board of Directors believes that the Merger, among other
things, will: (i) provide liquidity to the North Star Shareholders through
the exchange of North Star's non-publicly traded stock for Keystone's
publicly traded stock; (ii) provide an opportunity for the North Star
Shareholders to continue equity participation in a comparable company with a
larger distribution network; and (iii) allow the North Star Shareholders to
benefit from the anticipated growth of the combined companies. On the basis
of these factors, North Star's Board of Directors concluded that the Merger
is fair and in the best interests of North Star and its shareholders.
Each North Star Shareholder has unique expectations and goals
relating to the Merger which directly or indirectly influence whether he or
she views the Merger as being "fair." Such expectations and goals include:
(i) a shareholder's investment in North Star, (ii) a shareholder's employment
relationship with North Star, (iii) the nature of North Star's operation
following the Merger, (iv) a shareholder's retirement plans, and (v) a
shareholder's lifestyle expectations. Although North Star's Board of
Directors believes that the transactions contemplated by the Merger Agreement
are in the best interests of North Star and its shareholders, and are fair to
the North Star Shareholders from a financial point of view, each North Star
shareholder is urged to carefully consider those transactions in light of his
or her own unique expectations concerning North Star and the Merger. In
addition, the Board of Directors believes that a fairness opinion from an
investment banking firm or other expert would not adequately include each
shareholder's individual expectations and goals and as a result chose not to
seek such an opinion.
OPINION OF FINANCIAL ADVISOR
On September 24, 1996, the Board of Directors of Keystone retained
FMV to make a determination of the fairness to Keystone and its shareholders
from a financial point of view, of Keystone's acquisition of North Star in a
stock pooling arrangement.
At the meeting of the Board of Directors of Keystone on December 2,
1996, at which the terms of the Merger were discussed and considered, FMV
rendered an oral opinion to the Board of Directors that, as of the date of
such opinion, the terms and conditions of the Merger were fair, from a
financial point of view, to Keystone and its shareholders. FMV has confirmed
its December 2, 1996 opinion by delivery of a written opinion to the Board of
Directors of Keystone dated the date of this Proxy Statement/Information
Statement/Prospectus stating that, as of the date of this Proxy
Statement/Information Statement/Prospectus and based on the matters set forth
in such opinion, the terms and conditions of the transactions contemplated by
the Merger Agreement are fair, from a financial point of view, to Keystone
and its shareholders.
THE FULL TEXT OF FMV'S OPINION DATED THE DATE OF THIS PROXY
STATEMENT/INFORMATION STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS
MADE, THE PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS ON THE
REVIEW UNDERTAKEN BY FMV, IS ATTACHED AS APPENDIX B HERETO AND IS INCORPORATED
HEREIN BY THIS REFERENCE. THE DESCRIPTION OF THE FMV OPINION SET FORTH IN THIS
PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE KEYSTONE SHAREHOLDERS ARE URGED
TO READ THE FMV OPINION IN ITS ENTIRETY.
FMV DID NOT RENDER AN OPINION REGARDING THE FAIRNESS OF THE TRANSACTION
TO NORTH STAR AND ITS SHAREHOLDERS.
FMV's opinion is limited to the fairness of the terms and conditions
of the Merger, from a financial point of view, to Keystone and its
shareholders and does not address Keystone's underlying business decision to
proceed with the Merger, nor does it express an opinion as to the prices at
which shares of Keystone's Common Stock may trade if and when the Merger is
completed. The opinion addresses only the fairness of the terms and
conditions of the Merger from a financial point of view and does not
constitute a recommendation to any holder of Keystone's Common Stock as to
how such holder should vote with respect to the Merger Agreement at any
meeting of holders of Keystone's Common Stock.
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FMV is a nationally recognized firm regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, competitive biddings, private placements and valuations for
corporate and other purposes. The Board of Directors of Keystone selected
FMV on the basis of its familiarity with Keystone, its qualifications,
ability and previous experience, and its reputation with respect to the
valuation of companies and their securities. No restrictions or limitations
were imposed by the Board of Directors of Keystone upon FMV with respect to
the investigations made or the procedures followed by FMV in rendering its
opinion.
For purposes of its opinion dated the date of this Proxy
Statement/Information Statement/Prospectus and in connection with its review
of the proposed transaction with North Star, FMV, among other things: (i)
reviewed the Merger Agreement, including the exhibits and schedules thereto;
(ii) participated in discussions among representatives of Keystone and North
Star and their financial and legal advisors; (iii) reviewed this Proxy
Statement/Information Statement/Prospectus; (iv) reviewed certain publicly
available financial statements, both audited and unaudited, of Keystone,
including those included in its Prospectus dated June 20, 1996 and its
Quarterly Reports on Form 10-Q for the periods ended June 29, 1996 and
September 27, 1996; (v) reviewed certain financial statements, both audited
and unaudited, of North Star including those dated September 30, 1992,
September 30, 1993, September 30, 1994, September 30, 1995 and September 30,
1996; (vi) reviewed certain financial statements and other financial and
operating data concerning Keystone and North Star prepared by their
respective managements; (vii) reviewed certain financial forecasts of
Keystone and North Star prepared by their respective managements and made
inquiries of representatives of Keystone's and North Star's managements as to
the expected future financial performance of Keystone and North Star,
respectively, on a stand-alone basis and giving effect to the Merger; (viii)
discussed the past and current business operations, results of operations,
financial condition and future prospects of Keystone and North Star with
certain members of their respective managements; (ix) reviewed reported
market prices and historical trading activity of Keystone's Common Stock; (x)
reviewed the financial performance of Keystone and North Star and compared
such financial performance of Keystone and North Star, together with stock
market data relating to Keystone's Common Stock, with similar data available
for certain other companies deemed similar from an investment perspective and
certain of their publicly traded securities; (xi) reviewed the financial
terms of certain other business combinations involving Keystone and North
Star and, to the extent publicly available, of certain recent business
combinations and change of control transactions involving other companies
that FMV deemed similar from an investment perspective; and (xii) conducted
such other studies, analyses and examinations as FMV deemed appropriate.
In conducting its review and rendering its opinion dated the date
hereof, FMV relied upon and assumed without independent verification the
accuracy and completeness of all of the financial and other information
provided to FMV by Keystone, North Star and their respective representatives
and of the publicly available information reviewed by FMV. FMV also relied
upon the managements of both Keystone and North Star as to the reasonableness
of the financial and operating forecasts provided to FMV (and the assumptions
and bases therefor). In that regard, FMV assumed that such forecasts reflect
the best currently available estimates and judgments of such managements and
that such forecasts will be realized in the amounts and in the time periods
estimated by the managements of Keystone and North Star. FMV has relied upon
Keystone's management to investigate the businesses of North Star and to
provide FMV with all documentation and information requested by FMV to
evaluate the businesses of Keystone and North Star. FMV was not retained to,
and FMV did not, make any independent evaluation or appraisal of the assets,
liabilities or prospects of Keystone and North Star and was not furnished
with any such evaluation or appraisal. In rendering its opinion, FMV was
advised by Keystone and North Star that there were no other factors that
would delay or subject Keystone, North Star or the Merger to adverse
conditions including any necessary regulatory or governmental approval for
the Merger, and further assumed that all conditions to the Merger will be
satisfied and not waived and that the Merger will be accounted for as a
pooling-of-interests. Among the factors that FMV considered in conducting
its analysis, those which FMV deemed of special relevance are: (i) the fact
that the proposed consolidation of Keystone and North Star is a strategic
combination that greatly enhances the prospects of the combined entity in a
consolidating industry; (ii) the financial resources and market share of the
combined North Star and Keystone entity would create competitive advantages
for the combined entity over existing competitors in the aftermarket industry
and potential entrants into that market; and (iii) Keystone's results of
operations would be negatively impacted if the transactions contemplated in
the Merger Agreement are not closed. In performing its analysis, FMV relied
upon statements by Keystone's management that quantified certain reductions
in costs of operations and increases in revenue resulting from the
synergistic effects of the Merger. FMV also relied upon statements by
Keystone's management that material cost savings and revenue-enhancing
synergies would be achieved in addition to those quantified by Keystone's
management. Moreover, because the resale of shares of Keystone Common Stock,
held by affiliates, would be subject to substantial restrictions under
federal and state securities laws, FMV assumed that the economic value of
such shares is less than the
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market price at which shares of Keystone's Common Stock is publicly traded at
the Effective Time and that subsequent to the Merger the amount of such
shares that would be publicly traded would be limited.
Set forth below is a brief summary of the analyses performed by FMV in
reaching its opinion.
STOCK TRADING HISTORY. FMV examined the history of trading prices
and volume for Keystone's Common Stock and the relationship between the
movements of such trading prices to movements of the trading prices and
volume for the common stocks of the companies that FMV deemed to be similar
to Keystone from an investment perspective (consisting of APS, Inc.,
Finishmaster, Inc, Hahn Automotive Warehouse, Inc., JPE, Inc., R&B, Inc.,
Republic Automotive Parts, Inc. and Thompson PBE, Inc.).
In conducting this review, FMV has relied upon the trading prices and
volume for Keystone's Common Stock from June 20, 1996, the date of its
initial public offering, until the date of this Proxy Statement/Information
Statement/Prospectus to review the historical market price of Keystone's
Common Stock prior to the proposed merger with North Star. Additionally, FMV
analyzed the historical trading volume of Keystone's Common Stock to evaluate
the sensitivity of Keystone's Common Stock price to the issuance of
additional shares of Keystone's Common Stock to, and the potential for
subsequent sale of such stock by, North Star shareholders based on FMV's
discussions with Messrs. Brown and Wood. Because of this limited trading
history, there can be no assurance that such trading prices or volume for
Keystone's Common Stock will be indicative of future price and volume
movements. Additionally, FMV assumed that the number of shares of Keystone's
Common Stock which are publicly available for sale will not be materially
increased except as specifically provided in the Merger Agreement or as set
forth in "Information Concerning Keystone -- Description of Capital Stock --
Shares Eligible for Future Sale."
COMPARISON WITH SELECTED COMPANIES. FMV compared selected
financial ratios and multiples (at or for the twelve months ended September
30, 1996) for North Star to the corresponding ratios and multiples of the
North Star Comparative Group (consisting of the companies listed above that
FMV deemed similar to Keystone and including Keystone). FMV also calculated
implied values for North Star based on the trading multiples for the North
Star Comparative Group. The trading multiples used in calculating such
implied values were market price as a multiple of: (i) net income for the
fiscal year ended September 30, 1996; (ii) estimated net income for the year
ending September 30, 1997; (iii) cash flow for the year ended September 30,
1996; and (iv) net book value as of September 30, 1996. In addition, FMV
analyzed total invested capital (I.E., total equity plus total
interest-bearing debt) to (i) earnings before interest and income taxes
("EBIT") for the year ended September 30, 1996; (ii) earnings before
interest, income taxes, depreciation and amortization ("EBITDA") for the year
ended September 30, 1996; and (iii) total revenues for the year ended
September 30, 1996. FMV used Keystone management's projected net income
estimates for Keystone, North Star management's projected net income
estimates for North Star and consensus net income estimates as published for
the companies comprising the North Star Comparative Group. In analyzing the
multiples of the North Star Comparative Group for total invested capital to:
(i) EBIT; (ii) EBITDA; and (iii) total revenues for the year ended September
30, 1996, FMV adjusted the market value of equity of each of the companies in
the North Star Comparative Group to include a premium over trading prices
that reflects the difference in the prices paid for equity interests where a
controlling interest is purchased.
The calculations from this comparison yielded a range of multiples of
market price to net income for the fiscal year ended September 30, 1996 of
6.3 to 61.9, with a median of 14.2; a range of multiples of market price to
projected net income for the fiscal year ending September 30, 1997 of 5.3 to
22.2, with a median of 9.6; a range of multiples of market price to cash flow
for the fiscal year ended September 30, 1996 of 3.1 to 21.6, with a median of
9.4; a range of multiples of market price to net book value for the fiscal
year ended September 30, 1996 of 1.1 to 13.0, with a median of 3.4; a range
of multiples of total invested capital to EBIT for the year ended September
30, 1996 of 8.1 to 19.9, with a median of 13.9; a range of multiples of total
invested capital to EBITDA for the year ended September 30, 1996 of 6.0 to
17.9, with a median of 10.9; and a range of multiples of total invested
capital to total revenues of 0.46 to 1.27, with a median of 0.80. In
conducting this analysis, FMV made certain adjustments to income, expense,
and balance sheet items of North Star and the North Star Comparative Group in
order to account for certain non-recurring items and other factors deemed
appropriate by FMV.
In calculating the implied multiples for the Merger, FMV utilized
North Star's earnings and cash flow levels for the year ended September 30,
1996 adjusted for certain non-recurring expenses incurred by North Star
including charitable contributions and certain legal and accounting expenses.
Additionally, FMV analyzed
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the multiples applicable to the Merger based on earnings that reflect certain
synergies available to North Star as a result of the Merger, as provided by
Keystone's management. Based upon earnings that reflected identified
synergies, these calculations indicated multiples applicable to the Merger of
(i) market price to net income for the fiscal year ended September 30, 1996
of 14.8, or .6 above the median from the comparison with selected companies;
(ii) market price to projected net income for the fiscal year ending
September 30, 1997 of 11.1, or 1.5 above the median from the comparison with
selected companies; (iii) market price to cash flow for the year ended
September 30, 1996 of 10.7, or 1.3 above the median from the comparison with
selected companies; (iv) market price to net book value as of September 30,
1996 of 5.6, or 2.2 above the median from the comparison with selected
companies; (v) total invested capital to EBIT for the year ended September
30, 1996 of 9.3, or 4.6 below the median from the comparison with selected
companies; (vi) total invested capital to EBITDA for the year ended September
30, 1996 of 7.8, or 3.1 below the median from the comparison with selected
companies; and (vii) total invested capital to total revenues for the year
ended September 30, 1996 of .81 or .1 above the median from the comparison
with selected companies. Based upon earnings that did not reflect identified
synergies, these calculations indicated multiples applicable to the Merger of
(i) market price to net income for the fiscal year ending September 30, 1997
of 14.3, or 4.7 above the median from the comparison with selected companies;
(ii) market price to net income for the year need September 30, 1996 of 18.0,
or 3.8 above the median from the comparison with selected companies; (iii)
market price to cash flow for the year ended September 30, 1996 of 12.3, or
2.9 above the median from the comparison with selected companies; (iv) market
price to net book value as of September 30, 1996 of 5.6, or 2.2 above the
median from the comparison with selected companies; (v) total invested
capital to EBIT for the year ended September 30, 1996 of 11.1, or 2.8 below
the median from the comparison with selected companies; (vi) total invested
capital to EBITDA for the year ended September 30, 1996 of 9.0, or 1.9 below
the median from the comparison with selected companies; and (vii) total
invested capital to total revenues for the year ended September 30, 1996 of
.81, or .1 above the median from the comparison with selected companies. FMV
believes that in light of the financial characteristics of North Star
(including growth, profitability, leverage, and other characteristics deemed
relevant), relative to the North Star Comparative Group, a review of premiums
paid above trading prices for change of control transactions, and the
strategic importance of the Merger to Keystone, that the analysis of selected
companies supports FMV's opinion that the Merger was fair to Keystone and its
shareholders from a financial point of view.
ANALYSIS OF SELECTED TRANSACTIONS. As part of its analyses, FMV
reviewed certain transactions which FMV deemed relevant. For each
transaction for which data was available, FMV calculated the multiple of the
price to the acquired company's: (i) net income for the fiscal year
preceding the transactions ("LFY") (ii) tangible net asset value; (iii) EBIT;
and (iv) total revenues. The transactions that FMV reviewed were not limited
to those previously entered into by Keystone and/or North Star, but rather
included transactions by other companies within Keystone's and North Star's
industry that FMV deemed relevant.
The calculations for the transactions yielded a range of multiples of
price to LFY of (66.19) to 123.7 with a median of 123.7; a range of multiples
of price to tangible net asset value of 1.02 to 3.67, with a median of 1.67;
a range of multiples of price to EBIT of (48.0) to 100.79, with a median of
10.9; a range of multiples of price to total revenues of 0.21 to 1.0, with a
median of 0.53. FMV believes that because of the relative size of the
Merger, the profitability of North Star, and the strategic value of the
Merger to Keystone, the multiples applicable to the Merger as discussed above
support FMV's opinion that the Merger is fair to Keystone and its
shareholders from a financial point of view.
No company used in the above analyses as a comparison is identical to
Keystone, North Star or the combined Keystone/North Star operations.
Additionally, no transaction used in the above analysis is identical to the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies, including profitability and size, and other facts that could affect
the value of the companies and the assets purchased and form of payment in other
transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. FMV utilized the future cash flow
streams that North Star could produce over the period from October 1, 1996
through September 30, 1999 assuming North Star continued to operate as a
stand-alone entity, if North Star performed in accordance with forecasts
provided by the management of North Star. FMV also estimated a terminal
value of North Star's total invested capital as of September 30, 1999 by
applying multiples to North Star's projected fiscal year 1999 EBIT. FMV
selected the range of terminal multiples in part on the
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basis of past and current trading multiples for the North Star Comparative
Group. The cash flow streams and terminal value were discounted to present
values as of February __, 1997 using a range of discount rates, which reflect
different assumptions regarding North Star's weighted average cost of
capital. The calculations based upon the Merger consideration yielded a
range of terminal EBIT multiples of 8.0 to 10.0 and a range of discount rates
of 10.0% to 14.0%. In evaluating the fairness of the Merger from a financial
point of view to Keystone and its shareholders, FMV believes that this range
of the terminal multiples and discount rates are reasonable given North
Star's financial position, the availability of synergies, and the strategic
value of the Merger.
PRO FORMA MERGER ANALYSIS. FMV performed certain calculations to
confirm that, based on financial forecasts of Keystone and North Star
prepared by their respective managements, the Merger would be slightly
accretive to Keystone's earnings per share, and dilutive to book value per
share and tangible book value per share as of the Effective Time.
FMV also analyzed certain additional pro forma effects of the Merger.
FMV's analysis showed that the shares of Keystone's Common Stock issued in
the Merger would represent approximately 25.1% of the pro forma total number
of outstanding shares of Keystone's Common Stock.
In connection with its written opinion dated as of the date of this
Proxy Statement/Information Statement/Prospectus, FMV performed certain
procedures to update certain of its analyses and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith. In updating its opinion, FMV did not utilize any methods of
analysis in addition to those used previously.
The summary set forth above describes the material analyses performed
by FMV in rendering its written opinion to the Board of Directors of Keystone
and does not purport to be a complete description of such analyses. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. FMV believes that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering all factors and analyses, would create an
incomplete view of the process underlying the analyses by which FMV reached
its opinions. The results of any particular analysis described above should
not be taken to be FMV's view of the actual value of Keystone, North Star,
Keystone following the Effective Time or the trading price for Keystone's
Common Stock.
In performing its analyses, FMV made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Keystone and North
Star. These assumptions included, among other things, that: (i) there would
be continued demand for aftermarket products provided by Keystone and North
Star; (ii) Keystone would continue to be profitable; (iii) Keystone and North
Star would be able to achieve certain cost saving and revenue-enhancing
synergies as a result of the Merger; and (iv) North Star's chrome plating
business will continue to be a viable aspect of North Star's business;
however, levels of revenue and income attributable to such operations will
decline in relation to North Star's total operations. The analyses performed
by FMV are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of FMV's analysis
of the fairness of the transactions contemplated by the Merger Agreement,
from a financial point of view, to Keystone and its shareholders. The
analyses do not purport to be appraisals or to reflect the prices at which a
company or its securities may actually be bought or sold. FMV used in its
analyses various projections prepared by Keystone's and North Star's
managements. Neither Keystone nor North Star publicly discloses internal
management projections of the type provided to FMV in connection with its
review. Such projections were not prepared for, or with a view toward,
public disclosure. In addition, such projections were based on numerous
variables and assumptions that are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions,
many of which are beyond the control of the managements of Keystone and North
Star. Accordingly, actual results could vary significantly from those set
forth in such projections.
Pursuant to the terms of a letter agreement dated September 24, 1996
(the "Engagement Letter") for FMV's services in rendering its opinion,
Keystone will pay FMV $42,000, which amount includes reimbursement of certain
of FMV's reasonable out-of-pocket expenses, including reasonable fees and
expenses of FMV's legal counsel, and has agreed to indemnify FMV against
certain expenses and liabilities incurred in connection with its engagement,
including liabilities under federal securities law; provided, however, that
Keystone is not obligated to indemnify FMV for any expense or liability which
results from FMV's gross negligence.
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FMV previously was retained by a member of Keystone's management to
provide certain valuation services to him that were unrelated to the
transactions contemplated in the Merger Agreement. This initial engagement
was governed by a letter agreement dated November 7, 1995 pursuant to which
he paid FMV a fee of $9,000 for one valuation. That letter agreement also
provided for the reimbursement of FMV's reasonable out-of-pocket expenses and
the indemnification of FMV against certain expenses and liabilities incurred
in connection with its engagement, including liabilities under federal
securities law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In January 1996, Keystone entered into an agreement with Crowell,
Weedon & Co., one of the representatives of the underwriters of Keystone's
initial public offering, to provide certain financial advisory services to
Keystone in connection with evaluating any combination of Keystone and North
Star. Upon the consummation of the Merger, Crowell, Weedon & Co. will be
entitled to receive $125,000 in consideration of such services. Timothy C.
McQuay, a director of Keystone, is a Managing Director of Corporate Finance
at Crowell, Weedon & Co.
Upon the consummation of the Merger, Keystone will enter into
employment agreements with Ronald G. Brown, the President, director and a
shareholder of North Star, and Kim D. Wood, a Vice President and director of
North Star. Keystone will also enter into indemnification agreements, with
Messrs. Brown and Wood in the same form as Keystone has entered into with its
existing officers and directors.
Under a five-year employment agreement, Mr. Brown will be employed as
the Vice President - Manufacturing of North Star commencing at the Effective
Time and will be entitled to (i) receive an annual base salary for the twelve
months commencing March 1, 1997, 1998, 1999, 2000 and 2001 of $325,000,
$300,000, $275,000, $225,000 and $150,000, respectively, and (ii) participate
in any group health, medical reimbursement or dental plan sponsored by
Keystone or North Star for executive officers in general. In the event North
Star terminates employment before the end of the stated term with cause, or
Mr. Brown terminates his employment for specified causes, North Star is
obligated to pay the compensation described in clauses (i) and (ii) only
through the date of termination. In the event North Star terminates
employment before the end of the stated term other than with cause, North
Star is obligated to pay such compensation through the stated term of the
agreement. The agreement further provides that Mr. Brown will not engage in
any "competitive activity" (as defined in the agreement) during the period
commencing on the date of the employment agreement and ending on the later to
occur of the seventh anniversary of such date or two years after the
termination of his employment.
Under a three-year employment agreement, Mr. Wood will be employed as
the President and Chief Operating Officer of North Star commencing at the
Effective Time and will be entitled to (i) receive an annual base salary of
$175,000, (ii) receive such performance-based bonus, if any, as may be
determined by the Board of Directors, (iii) participate in all plans
sponsored by North Star for employees in general and (iv) receive the use of
an automobile leased and maintained by North Star. In the event North Star
terminates employment before the end of the stated term with cause, or Mr.
Wood terminates his employment for specified causes, North Star is obligated
to pay such compensation only through the date of termination. In the event
North Star terminates employment before the end of the stated term other than
with cause, North Star is obligated to pay such compensation through the
stated term of the agreement, but in no event for less than eighteen months.
The agreement further provides that Mr. Wood will not engage in any
"competitive activity" (as defined in the agreement) during the eighteen
month period commencing on the termination of his employment.
Upon consummation of the Merger, Keystone and certain shareholders
have agreed to use their best efforts to cause Ronald G. Brown to be elected
and maintained as a director of Keystone.
Upon the consummation of the Merger, Keystone will enter into a
Registration Rights Agreement with certain shareholders of North Star
pursuant to which, among other things, such shareholders will be entitled,
subject to certain limitations, to have up to 600,000 shares of the Common
Stock of Keystone issued in connection with the Merger registered under the
Securities Act in connection with the next public offering of Keystone's
Common Stock. See "The Merger Agreement -- Registration Rights Agreement."
North Star has a line of credit with a bank under which North Star
can borrow up to $1.0 million for working capital needs, has financed through
the bank the purchase of vehicles and has borrowed from the bank under
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a term note approximately $4 million in connection with North Star's purchase
of all the assets of Carolina Automotive Group. Pursuant to North Star's
credit agreement with the bank, Ronald Brown has personally guaranteed North
Star's existing and future obligations to the bank, including its obligations
under the line of credit, vehicle financing and term note. As a condition to
consummation of the Merger, Keystone has agreed to cause the bank to release
Mr. Brown of his personal guarantee with the bank.
RESALE OF SHARES ISSUED IN THE MERGER
All shares of the Common Stock of Keystone received by the North Star
Shareholders in the Merger will be freely transferable, except that shares of
the Common Stock of Keystone received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of North Star
prior to the Merger may be resold by them only in transactions permitted by
the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Keystone) or as
otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of Keystone or North Star generally include individuals or
entities that control, are controlled by or are under common control with
such party and may include directors, executive officers and principal
shareholders of such party.
The Merger Agreement requires North Star to cause to be delivered to
Keystone, prior to the Effective Time, from each affiliate of North Star an
Affiliate Agreement to the effect that such person will not offer or sell or
otherwise dispose of any of the shares of the Common Stock of Keystone issued
to such persons in the Merger in violation of the Securities Act or the rules
and regulations promulgated by the Commission thereunder.
As a condition to North Star's obligation to effect the Merger,
Keystone is required to enter into a Registration Rights Agreement with
certain shareholders of North Star, pursuant to which such shareholders will
be entitled, subject to certain limitations, to have up to 600,000 shares of
the Common Stock of Keystone issued in connection with the Merger registered
under the Securities Act in connection with the next public offering of
Keystone's Common Stock. See "The Merger Agreement -- Registration Rights
Agreement."
Rule 145 promulgated under the Securities Act restricts the sale of
Keystone's Common Stock received in the Merger by affiliates of North Star
and certain of their family members and related parties. Generally, during
the two years following the Effective Time, affiliates of North Star,
provided they are not affiliates of Keystone, may publicly resell Keystone's
Common Stock received by them in the Merger, subject to certain limitations
as to the amount of such Common Stock that may be sold by them in any
three-month period and as to the manner of sale. After the two-year period,
such affiliates of North Star, who are not affiliates of Keystone, may resell
their shares without such restrictions so long as there is adequate current
public information with respect to Keystone as required by Rule 144. Persons
who become affiliates of Keystone prior to, at or after the Effective Time
may publicly resell the Common Stock of Keystone received by them in the
Merger subject to similar limitations and subject to certain filing
requirements specified in Rule 144. Affiliates also would be permitted to
resell Keystone's Common Stock received in the Merger pursuant to an
effective registration statement under the Securities Act or another
available exemption from the registration requirements of the Securities Act.
This Proxy Statement/Information Statement/Prospectus does not cover
any resales of the Common Stock of Keystone issued in the Merger to persons
who may be deemed to affiliates of North Star or Keystone.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences of
the Merger does not take into account the facts and circumstances of any
particular shareholder of North Star and does not address all aspects of
federal income taxation that may be important to particular shareholders in
light of their personal investment circumstances or to shareholders subject
to special treatment under the federal income tax laws (including life
insurance companies, foreign persons, tax-exempt entities, and holders who
acquired their Common Stock of North Star pursuant to the exercise of
employee stock options or otherwise as compensation). This summary also
assumes that the Common Stock of North Star will be held as a capital asset
by each North Star Shareholder at the Effective Time. Neither Keystone nor
North Star has sought a ruling from the Internal Revenue Service with respect
to the income tax consequences of the Merger and related transactions, and
there can be no assurance that the Internal Revenue Service will not take a
different view of the transaction.
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Fredrikson & Byron, P.A., counsel to North Star, has advised North
Star concerning the federal income tax consequences of the proposed Merger.
In the opinion of Fredrikson & Byron, P.A., the following accurately
summarizes the material federal income tax consequences of the proposed
Merger:
(a) The Merger will be treated as a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(b) Keystone, North Star and the Subsidiary will each be "a party
to a reorganization" within the meaning of Section 368(b) of the Code.
(c) No gain or loss will be recognized to the North Star
Shareholders upon their receipt of Keystone's Common Stock in exchange for
their North Star's Common Stock.
(d) The aggregate basis of the Keystone's Common Stock to be
received by a North Star Shareholder will be the same as the aggregate basis
of the Common Stock of North Star surrendered in exchange therefor.
(e) The holding period of the Common Stock of Keystone to be
received by a North Star Shareholder will include the holding period of the
Common Stock of North Star surrendered in exchange therefor.
(f) A North Star Shareholder who receives solely cash for his or
her Common Stock of North Star pursuant to the exercise of dissenters' rights
will be obligated to report either (i) capital gain or loss equal to the
difference between the cash received and the shareholder's basis in his or
her Common Stock of North Star, or (ii) dividend income, depending on whether
the redemption qualifies for sale or exchange treatment in accordance with
certain tests under the Internal Revenue Code that measure the effect of the
transaction on a shareholder-by-shareholder basis. Most such dissenting
shareholders should receive capital gain or loss treatment if the deemed
redemption of their Common Stock of North Star constitutes a complete
termination of their interest in North Star (and Keystone, after the Merger).
If the gain is treated as capital gain, it will constitute long-term capital
gain if the shareholder held the Common Stock of North Star for more than one
year at the Effective Time.
In describing its conclusions as to the tax consequences of the
transaction, Fredrikson & Byron, P.A. is relying on, among other things,
representation letters provided by Keystone and North Star to such counsel
containing customary statements relating to planned dispositions of shares of
Keystone's Common Stock by North Star Shareholders, plans to undertake
transactions outside the ordinary course of business and certain other
technical requirements under the Code.
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER, AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO
CHANGE. ANY SUCH CHANGE, WHICH MAY OR MAY NOT BE RETROACTIVE, COULD ALTER THE
TAX CONSEQUENCES TO NORTH STAR OR ITS SHAREHOLDERS DESCRIBED ABOVE. THE
FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES, IF ANY, OF THE
MERGER UNDER APPLICABLE STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
SHAREHOLDERS OF NORTH STAR ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for using the
"pooling of interests" method of accounting pursuant to Opinion No. 16 of the
Accounting Principles Board. The pooling of interests method of accounting
assumes that the combining companies have been merged from inception, and the
historical financial statements for periods prior to consummation of the
Merger are restated as though the companies had been combined from inception.
Consummation of the Merger is conditioned upon receipt by Keystone of (i) a
letter from Ernst & Young LLP, Keystone's independent auditors, regarding
that firm's concurrence with the conclusion of Keystone's management as to
the appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with the Merger Agreement, and (ii) a letter (addressed to North
Star) from Ernst & Young LLP, North Star's independent auditors, regarding
that firm's concurrence with the conclusion of
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North Star's management as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16,
if closed and consummated in accordance with the Merger Agreement.
In order for a business combination to be accounted for as a pooling
of interests, no affiliate of Keystone or North Star can sell or in any other
way reduce his risk relative to any common shares received in the business
combination until such time as financial results covering at least 30 days of
post-merger combined operations have been published. This would include all
sales whether private or public. Affiliates of Keystone and North Star may
not reduce their risk relative to their common shareholder positions through
disposition of their shares within 30 days prior to the consummation of a
business combination accounted for as a pooling of interests.
RIGHTS OF DISSENTING SHAREHOLDERS
KEYSTONE
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO DISSENTERS' RIGHTS UNDER THE CALIFORNIA GENERAL CORPORATION LAW
(THE "CGCL") AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF CHAPTER 13 OF THE CGCL ATTACHED TO THIS PROXY STATEMENT/INFORMATION
STATEMENT/PROSPECTUS AS APPENDIX F. ANY SHAREHOLDER WHO WISHES TO EXERCISE
SUCH DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO
SHOULD REVIEW THE FOLLOWING DISCUSSION AND APPENDIX F CAREFULLY BECAUSE
FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED WILL
RESULT IN THE LOSS OF DISSENTERS' RIGHTS UNDER THE CGCL.
Because Keystone's Common Stock is traded on Nasdaq, dissenters'
rights will be available to the Keystone Shareholders only if the holders of
five percent (5%) or more of the shares of Keystone's Common Stock entitled
to vote at the Keystone Meeting make a written demand upon Keystone for the
purchase of dissenting shares in accordance with Chapter 13 of the CGCL.
Such a demand is not effective for any purpose unless it is received by
Keystone not later than the date of the Keystone Meeting, and must be
addressed to Keystone Automotive Industries, Inc., 700 East Bonita Avenue,
Pomona, California 91767, Attention: Secretary. If this condition is
satisfied and the Merger is consummated, Keystone Shareholders who dissent
from the Merger by complying with the procedures set forth in Chapter 13 of
the CGCL would be entitled to receive from Keystone an amount equal to the
fair market value of their shares of Keystone's Common Stock as of December
2, 1996, the day before the public announcement of the Merger. The closing
price for Keystone's Common Stock, as reported on Nasdaq on December 2, 1996,
was $15 1/8. A copy of the pertinent provisions of Chapter 13 of the CGCL is
attached hereto as Appendix F and should be read for more complete
information concerning dissenters' rights. THE REQUIRED PROCEDURE SET FORTH
IN CHAPTER 13 OF THE CGCL MUST BE FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS
MAY BE LOST. The information set forth below is a general summary of
dissenters' rights as they apply to the Keystone Shareholders and is
qualified in its entirety by reference to Appendix F.
In order to be entitled to exercise dissenters' rights, a Keystone
Shareholder must not vote "For" the Merger. Thus, any shareholder who wishes
to dissent and executes and returns a proxy in the accompanying form must
specify that his or her shares are to be voted "Against" the Merger. If the
shareholder returns a proxy without voting instructions or with instructions
to vote "For" the Merger, his or her shares will automatically be voted in
favor of the Merger and the shareholder will lose his or her dissenters'
rights. In addition, if the shareholder abstains from voting his or her
shares, the shareholder will lose his or her dissenters' rights.
If (i) the holders of five percent (5%) or more of the outstanding
shares of Keystone's Common Stock entitled to vote at the Keystone Meeting
have submitted written demands for Keystone to purchase their shares, (ii)
these demands are received by Keystone on or before the date of the Keystone
Meeting and (iii) the Merger is approved by the Keystone Shareholders,
Keystone will have ten days after such approval to send to those Keystone
Shareholders who have voted either "Against" or "Abstain" on the Merger and
who have submitted timely written demands for Keystone to repurchase their
shares written notice of such approval accompanied by a copy of the pertinent
provisions of Chapter 13 of the CGCL, a statement of the price determined by
Keystone to represent the fair market value of the dissenting shares as of
December 2, 1996 and a brief description of the procedure to be followed if a
shareholder desires to exercise dissenters' rights. Within 30 days after the
date on which the notice of the approval of the Merger is mailed, the
dissenting shareholder must surrender to Keystone, at the office designated
in the notice of approval, the certificates representing the dissenting
shares to be stamped or endorsed with a statement that they are dissenting
shares or to be
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exchanged for certificates of appropriate denomination so stamped or
endorsed. Any shares that are transferred prior to their submission for
endorsement lose their status as dissenting shares.
If Keystone and the dissenting shareholder agree that the surrendered
shares are dissenting shares and agree upon the price of the shares, the
dissenting shareholder will be entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement.
Payment of the fair value of the dissenting shares shall be made within 30
days after the amount thereof has been agreed upon or 30 days after any
statutory or contractual conditions to the Merger have been satisfied,
whichever is later, subject to the surrender of the certificates therefor,
unless provided otherwise by agreement.
If Keystone denies that the shares surrendered are dissenting shares
or Keystone and the dissenting shareholder fail to agree upon a fair market
value of such shares, then the dissenting shareholder must, within six months
after the notice of approval is mailed, file a complaint at the Superior
Court of the proper county requesting the court to make such determinations
or intervene in any pending action brought by any other dissenting
shareholder. If the complaint is not filed or intervention in a pending
action is not made within the specified six-month period, the dissenter's
rights are lost. If the fair market value of the dissenting shares is at
issue, the court will determine, or will appoint one or more impartial
appraisers to determine, such fair market value. The costs of the action
shall be apportioned as the court considers equitable, but if the appraisal
exceeds the price offered by the corporation, the corporation shall pay the
costs (including, in the discretion of the court, attorneys' fees) if the
value awarded by the court for the shares is more than 125 percent of the
price offered by the corporation.
A dissenting Keystone Shareholder may not withdraw his or her dissent
or demand for payment unless Keystone consents to such withdrawal.
NORTH STAR
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO DISSENTERS' RIGHTS UNDER THE MINNESOTA BUSINESS CORPORATION ACT
( "MBCA") AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SECTION 302A.471 AND 302A.473 OF THE MBCA ATTACHED TO THIS PROXY
STATEMENT/INFORMATION STATEMENT/PROSPECTUS AS APPENDIX G. ANY SHAREHOLDER
WHO WISHES TO EXERCISE SUCH DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE HIS
OR HER RIGHT TO DO SO SHOULD REVIEW THE FOLLOWING DISCUSSION AND APPENDIX G
CAREFULLY BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES
SPECIFIED WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS UNDER THE MBCA.
PROCEDURE TO PRESERVE DISSENTERS' RIGHTS. Under Minnesota law, any
holder of North Star's Common Stock who follows the procedures set forth in
Section 302A.473 of the MBCA will be entitled to receive payment in cash of
the "fair value" of such shareholder's shares.
Under Section 302A.473 of the MBCA, if a corporation calls a
shareholder meeting at which a plan of merger to which such corporation is a
party is to be voted upon, the notice of the meeting must inform each
shareholder of the right to dissent and must include a copy of sections
302A.471 and 302A.473 of the MBCA and a brief description of the procedures
to be followed under such sections.
The Merger Agreement must be approved by the holders at least 66 2/3% of
the outstanding shares of North Star's Common Stock. A SHAREHOLDER WHO
WISHES TO EXERCISE DISSENTERS' RIGHTS MUST FILE WITH NORTH STAR BEFORE THE
VOTE ON THE MERGER AGREEMENT A WRITTEN NOTICE OF INTENT TO DEMAND THE FAIR
VALUE OF THE SHARES OWNED BY SUCH SHAREHOLDER AND MUST NOT VOTE HIS OR HER
SHARES IN FAVOR OF THE MERGER AGREEMENT.
The "fair value of the shares" means the value of the shares of North
Star immediately before the effective date of the Merger.
After the proposed Merger has been approved by the Board of Directors
of North Star and the North Star Shareholders, North Star must send a written
notice to all shareholders who have not voted their shares in favor of the
Merger Agreement and who have filed with North Star before the vote on the
Merger Agreement a written notice of intent to demand the fair value of the
shares owned by such shareholder. The notice from North Star must contain:
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(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired
the shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a
brief description of the procedures to be followed under such sections.
In order to receive the fair market value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice was given, but the dissenter retains all other rights of a
shareholder until the Merger takes effect.
A shareholder may not assert dissenters' rights as to less than all
of the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially
owned by another person but registered in the name of the shareholder and
discloses the name and address of each beneficial owner on whose behalf the
shareholder dissents. In that event, the rights of the dissenter will be
determined as if the shares as to which the shareholder has dissented and the
other shares were registered in the names of different shareholders.
A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of such beneficial
owner, and will be treated as a dissenting shareholder under the terms of
sections 302A.471 and 302A.473 of the MBCA, if the beneficial owner submits
written consent of the shareholder holding such beneficial owner's shares to
North Star at the time of or before the assertion of the rights.
PROCEDURES FOLLOWING AN ASSERTION OF DISSENTERS' RIGHTS. After the
Merger takes effect, or after North Star receives a valid demand for payment,
whichever is later, North Star must remit to each dissenting shareholder who
has not voted his or her shares in favor of the proposed Merger and has filed
with North Star before the vote on the proposed Merger a written notice of
intent to demand the fair value of the shares owned by such shareholder, the
amount North Star estimates to be the fair value of the shares, plus interest
("interest" commences five days after the effective date of the Merger up to
and including the date of payment, calculated at a rate provided under
Minnesota law for interest on verdicts and judgments), accompanied by:
(1) North Star's balance sheet and statement of operations for a
fiscal year ending not more than 16 months before the effective date of the
Merger, together with the latest available interim financial statements;
(2) An estimate by North Star of the fair value of the shares and a
brief description of the procedures to be followed in demanding supplemental
payment.
(3) A copy of sections 302A.471 and 302A.473 of the MBCA, and a
brief description of the procedures to be followed in demanding supplemental
payment.
North Star may withhold the above-described remittance from a person
who was not a shareholder on the date the Merger Agreement was first
announced to the public or who is dissenting on behalf of a person who was
not a beneficial owner on that date. If such dissenter has not voted his or
her shares in favor of the proposed Merger Agreement and has filed with North
Star before the vote on the proposed Merger Agreement a written notice of
intent to demand the fair value of the shares owned by such shareholder,
North Star must forward to such dissenter the materials described in the
preceding paragraph, a statement of reason for withholding the remittance,
and an offer to pay to such dissenter the amount listed in the materials if
the dissenter agrees to accept that amount in full satisfaction. Such
dissenter may decline the offer and demand payment of such dissenter's own
estimate of the fair value of the shares, plus interest, by written notice to
North Star. Failure to do so entitles such dissenter only to the amount
offered. If such dissenter makes demand, the procedures, costs, fees and
expenses described below for petitioning the court shall apply.
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If North Star fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertified
shares, it must return all deposited certificates and cancel all transfer
restrictions. However, North Star may require deposit or restrict transfer at
a later time and again give notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired
the shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a
brief description of the procedures to be followed under such sections.
If a dissenter believes that the amount remitted by North Star is
less than the fair value of the shares plus interest, the dissenter may give
written notice to North Star of the dissenter's own estimate of the fair
value of shares, plus interest, within 30 days after North Star mails the
remittance, and demand payment of the difference (a "Demand"). Otherwise, a
dissenter is entitled only to the amount remitted by North Star.
If North Star receives a Demand, it must, within 60 days after
receiving the Demand, either pay to the dissenter the amount demanded, or an
amount agreed to by the dissenter after discussion with North Star, or file
in court a petition requesting that the court determine the fair value of the
shares, plus interest. The petition must be filed in Hennepin County,
Minnesota. The petition must name as parties all dissenters who made a
Demand and who have not reached agreement with North Star. The jurisdiction
of the court is plenary and exclusive. The court may appoint appraisers,
with powers and authorities the court deems proper, to receive evidence on
and recommend the amount of the fair value of the shares. The court must
determine whether the shareholder or shareholders in question have fully
complied with the requirements of section 302A.473 of the MBCA, and must
determine the fair value of the shares, taking into account any and all
factors the court finds relevant, computed by any method or combination of
methods that the court, in its discretion, sees fit to use, whether or not
used by North Star or by a dissenter. The fair value of the shares as
determined by the court is binding on all shareholders, wherever located. A
dissenter is entitled to judgment for the amount by which the fair value of
the shares as determined by the court, plus interest, exceeds the amount, if
any, remitted by North Star, but shall not be liable to North Star for the
amount, if any, by which the amount, if any, remitted to the dissenter
exceeds the fair value of the shares as determined by the court, plus
interest.
The court must determine the costs and expenses of any appraisers of
a proceeding under the preceding paragraph, including the reasonable expenses
and compensation of any appraisers appointed by the court, and must assess
those costs and expenses against North Star, except that the court may assess
part or all of those costs and expenses against a dissenter whose Demand is
found to be arbitrary, vexatious, or not in good faith.
If the court finds that North Star has failed to comply substantially
with section 302A.473 of the MBCA, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the
"HSR Act") and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and specified waiting period requirements have been
satisfied. Keystone and North Star each filed with the Antitrust Division
and the FTC a Notification and Report Form
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(the "Notification and Report Form") with respect to the January 8, 1997.
The initial waiting period for each of these filings expired at 11:59 p.m. on
February 7, 1997.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions such as the Merger. At any time
before or after the Meeting, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the Merger or seeking the
divestiture of certain assets of Keystone or North Star. In addition, state
antitrust authorities may also bring legal action under the antitrust laws.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of certain assets of Keystone or North Star. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
of the result thereof.
Keystone and North Star are not aware of any other material
governmental or regulatory approvals required for the consummation of the
transactions contemplated by the Merger Agreement, other than compliance with
the HSR Act and applicable federal and state securities laws.
NASDAQ LISTING
The Common Stock of Keystone to be issued in the Merger has been
approved for listing on the Nasdaq National Market under the symbol "KEYS,"
subject to official notice of issuance.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF KEYSTONE AND NORTH STAR
Upon consummation of the Merger, holders of North Star's Common Stock
will receive shares of Keystone's Common Stock. Set forth below is a summary
of (i) the material features of North Star's Common Stock and Keystone's
Common Stock, and (ii) the material differences between the rights of the
holders of North Star's Common Stock and Keystone's Common Stock. These
summaries are qualified in their entirety by reference to the charter
documents and other instruments of North Star and Keystone that create the
rights of the security holders.
Certain provisions of the Keystone Articles and the Keystone Bylaws
may have the effect of delaying, deferring or preventing a change in control
of Keystone without further action by the shareholders, may discourage bids
for Keystone's Common Stock at a premium over the market price of the Common
Stock and may adversely affect the market price of the Common Stock.
KEYSTONE
Keystone currently is authorized to issue up to (i) 20,000,000 shares
of Common Stock, of which 7,300,000 shares are outstanding and held of record
by 83 shareholders, and (ii) 3,000,000 shares of Preferred Stock, none of
which are outstanding. The outstanding shares of Keystone's Common Stock
are, and the shares to be issued in the Merger will be, when issued and
delivered in accordance with the Merger Agreement, validly issued fully paid
and nonassessable. Additional shares of Common Stock may be issued by
Keystone from time to time. The Board of Directors of Keystone is authorized
to issue additional shares of Keystone's Common Stock, but not to exceed the
amount authorized by the Keystone's Articles of Incorporation (the "Keystone
Articles"), and to issue options and warrants for the purchase of such
shares, on such terms and conditions and for such consideration as the Board
of Directors of Keystone may deem appropriate without further shareholder
action.
The Board of Directors, without further action by the holders of
Common Stock, may issue shares of Preferred Stock in one or more series and
may fix or alter the relative, participating, optional or other rights,
preferences, privileges and restrictions, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation preferences and conversion rights, and the
description of and number of shares constituting any wholly unissued series
of Preferred Stock. The Board of Directors, without further shareholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. No
shares of Preferred Stock presently are outstanding, and Keystone currently
has no plans to issue shares of Preferred Stock. The issuance of Preferred
Stock in certain circumstances may have the effect of delaying, deferring or
preventing a change in control of Keystone without further action by the
shareholders, may
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discourage bids for Keystone's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price, and the
voting and other rights of the holders, of Common Stock.
NORTH STAR
North Star's authorized capital stock consists of 100,000 shares of
Common Stock, of which 6,762.1875 shares are issued and outstanding, and
10,000 shares of Preferred Stock, of which no shares are issued and
outstanding. All shares of North Star's Common Stock presently outstanding
are fully paid and nonassessable. The Board of Directors of North Star is
authorized to issue additional shares of North Star's Common Stock, but not
to exceed the amount authorized by the North Star's Articles of Incorporation
(the "North Star Articles"), and to issue options and warrants for the
purchase of such shares, on such terms and conditions and for such
consideration as the Board of Directors of North Star may deem appropriate
without further shareholder action.
COMPARISON OF NORTH STAR COMMON STOCK AND KEYSTONE COMMON STOCK
As a result of the Merger, holders of North Star's Common Stock will
become holders of Keystone's Common Stock. Such persons will have different
rights as shareholders of Keystone than they had as shareholders of North
Star. These differences are due to (i) differences in the respective Articles
of Incorporation and Bylaws of North Star and Keystone, and (ii) differences
between the corporate laws of California, where Keystone is incorporated and
by whose laws it is governed, and the corporate laws of Minnesota, where
North Star is incorporated and by whose laws it is governed.
The following is a summary of certain significant differences between
the charter documents of North Star and Keystone and between the laws of
Minnesota and California.
ANNUAL MEETINGS OF SHAREHOLDERS. The Bylaws of North Star (the
"North Star Bylaws") provide that regular meetings of the shareholders
entitled to vote shall be held on an annual or other less frequent basis as
determined by the Board of Directors or the chief executive officer,
provided, that if a regular meeting has not been held during the immediately
preceding fifteen months, a shareholder or shareholders holding 3% or more of
the voting power of all shares entitled to vote may demand a regular meeting
of shareholders by written notice of demand given to an officer of North Star.
The Bylaws of Keystone (the "Keystone Bylaws") provide that the
annual meeting of shareholders shall be held each year on a date and at a
time designated by the Board of Directors. The date so designated for each
meeting must be held within fifteen months after the last annual meeting.
The CGCL provides that if there is a failure to hold the annual meeting for a
period of 15 months after the last annual meeting, the court may order a
meeting to be held upon the application after notice to the corporation
giving it an opportunity to be heard. The Keystone Bylaws provide that if a
shareholder wishes to propose an item for consideration at a special meeting
of shareholders, or at the first annual meeting of shareholders after the
date of Keystone's initial public offering, he or she must give written
notice to Keystone not less than 30 nor more than 60 days prior to the
meeting or, if later, the tenth day following the first public announcement
of such meeting, or such other date as is necessary to comply with applicable
federal proxy solicitation rules or other regulations. In addition, if a
shareholder wishes to propose an item for consideration at any annual meeting
of shareholders (other than the first annual meeting after the date of
Keystone's initial public offering), he or she must give written notice to
Keystone not less than 90 days prior to the day and month on which, in the
immediately preceding year, the annual meeting for such year had been held.
SPECIAL MEETINGS OF SHAREHOLDERS. The MBCA and the North Star Bylaws
provide that meetings of shareholders may be called by (i) the chief
executive officer, (ii) the chief financial officer, (iii) two or more
directors, (iv) shareholders holding 10% or more of the voting power of all
shares entitled to vote (except that the voting power needed to demand a
meeting to directly or indirectly effect a business combination is 25%), or
(v) any other person authorized in the North Star Articles or the North Star
Bylaws. The North Star Bylaws provide that special meetings of shareholders
may be called only by the parties listed in items (i) through (iv) above.
The CGCL provides that a special meeting shareholders may be call by the
Board of Directors, the Chairman of the Board, the President or the holders of
shares entitled to cast not less than 10% of the votes at the meeting
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or such additional persons as may be provided in the articles or bylaws. The
Keystone Bylaws provide that special meetings of the shareholders may be
called only by the Board of Directors, the Chairman of the Board or the
President.
ACTION WITHOUT MEETINGS OF SHAREHOLDERS. The MBCA provides that any
action which might be taken at a meeting of the shareholders may be taken
without a meeting if done in writing and signed by all of the shareholders
entitled to vote on that action.
The CGCL provides that any action which may be taken at a meeting of
shareholders may also be taken by the written consent of the holders of at
least the same proportion of outstanding shares as would be necessary to take
such action at a meeting at which all shares entitled to vote were present
and voted, except that election of directors by written consent generally
requires the unanimous consent of all shares entitled to vote. The Keystone
Articles provide that any action required to be taken or that may be taken at
any meeting of Keystone's shareholders may only be taken at a meeting of
shareholders or by the written consent of the holders of two-thirds of the
outstanding voting shares
VOTING RIGHTS; SHAREHOLDER APPROVALS. The North Star Articles
provide that each holder of record of shares of Common Stock shall be
entitled to one vote per share on all matters submitted to a vote of the
shareholders. The North Star Bylaws provide that, except as specifically
required otherwise under the North Star Articles, the North Star Bylaws or
the MBCA, all matters submitted to the shareholders are decided by a majority
vote of the shares entitled to vote and represented at a meeting at which
there is a quorum. The North Star Articles provide that where approval of
shareholders is required by law, the affirmative vote of the holder of at
least 66 % of the voting power of all shares entitled to vote shall be
required to authorize North Star to (i) merge, (ii) to exchange its shares
for shares of another corporation, (iii) to sell lease, transfer or otherwise
dispose of all or substantially all of its property and assets, including its
goodwill, or (iv) to commence voluntary dissolution.
The Keystone Articles provide that each holder of Keystone's Common
Stock is entitled to one vote for each share held of record on each matter
submitted to a vote of shareholders (other than the election of directors).
Except as specifically required otherwise under the Keystone Articles, the
Keystone Bylaws or the CGCL, shareholder actions generally require the
approval of the holders of a majority of Keystone's outstanding shares of
Common Stock entitled to vote and represented at a meeting at which there is
a quorum.
CUMULATIVE VOTING. The North Star Articles provide that each
shareholder entitled to vote for directors shall have the right to cumulate
his votes in the election of directors by giving written notice of intent to
cumulate his votes to any officer of North Star before the meeting or to the
presiding officer at the meeting at which the election is to occur at any
time before the election of directors at the meeting.
Under the CGCL (unless a corporation's Articles of Incorporation
provides otherwise), any shareholder of a corporation is entitled to cumulate
his or her votes for the election of directors provided that at least one
shareholder has given notice at the meeting prior to the voting of such
shareholder's intention to cumulate his or her votes. Keystone's
shareholders currently may cumulate their votes for the election of directors
in accordance with the CGCL. Cumulative voting will no longer be required or
permitted under Keystone's Articles at such time as (i) Keystone's shares of
Common Stock are listed on the Nasdaq National Market System and Keystone has
at least 800 holders of its equity securities as of the record date of
Keystone's most recent annual meeting of shareholders, or (ii) Keystone's
shares of Common Stock are listed on the New York Stock Exchange or the
American Stock Exchange. At the same time, Keystone will divide its Board of
Directors into two classes of directors. Keystone's Common Stock currently
is included in the Nasdaq National Market System and Keystone may have at
least 800 holders of its equity securities by the record date for its next
annual meeting of shareholders.
The CGCL generally requires approval of any reorganization (which
includes a merger, certain exchange reorganizations and certain sale-of-asset
reorganizations) or sale of all or substantially all of the assets of a
corporation by the affirmative vote of the holders of a majority (unless the
charter requires a higher percentage) of the outstanding shares of each class
of capital stock of the corporation entitled to vote thereon. The Keystone
Articles do not require a higher percentage. In general, under the CGCL, no
approval of a reorganization is required by the holders of the outstanding
shares in the case of any corporation if such corporation, or its
shareholders immediately before such reorganization, or both, own,
immediately after such reorganization, equity securities (other than warrants
or rights) of the surviving or acquiring corporation, or the parent of either
of the constituent corporations, possessing more than a five-
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sixths of the voting power of such surviving or acquiring corporation or such
parent. The Keystone Articles do not require shareholder authorization for
mergers of the type described in the preceding sentence.
DIVIDENDS AND REPURCHASES OF STOCK. The Board of Directors of North
Star, under the MBCA, may declare dividends without shareholder approval so
long as the corporation will be able to pay its debts in the ordinary course
of business after making the distribution.
The Keystone Articles provide that, subject to preferences which may
be granted to the holders of Preferred Stock of Keystone, each holder of
Common Stock of Keystone is entitled to share ratably in distributions to
shareholders and to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor and, in the event
of the liquidation, dissolution or winding up of Keystone, is entitled to
share ratably in all assets of Keystone remaining after payment of
liabilities.
Generally, a California corporation may pay out dividends out of
retained earnings or if, after giving effect thereto, the sum of (i) the
assets (excluding goodwill and certain other assets) of the corporation is at
least equal to 1 times its liabilities (excluding certain deferred credits)
and (ii) the current assets of such corporation is at least equal to (x) its
current liabilities or (y) if the average of the earnings of such corporation
before taxes and interest expense for the two preceding fiscal years was less
than the average of the interest expense of such corporation for such fiscal
years, 1 times its current liabilities. In addition, neither a corporation
nor any of its subsidiaries shall make any distribution to the corporation's
shareholders if the corporation or the subsidiary making the distribution is,
or as a result thereof would be, likely to be unable to meet its liabilities.
INSPECTION RIGHTS. Under the MBCA, a shareholder has an "absolute
right," upon written demand, to examine the following corporate documents:
(i) the share register; (ii) records of all proceedings of shareholders for
the last three years; (iii) records of all proceedings of the board for the
last three years; (iv) the corporation's articles and all amendments
currently in effect; (v) the corporation's bylaws and all amendments
currently in effect; (vi) certain financial statements and the financial
statement for the most recent interim period prepared in the course of
operation of the corporation for distribution to the shareholders or to a
governmental agency as a matter of public record; (vii) reports made to
shareholders generally within the last three years; (viii) a statement of the
names and usual business addresses of its directors and principal officers;
(ix) voting trust agreements; (x) shareholder control agreements; and (xi) a
copy of agreements, contracts, or other arrangements or portions of them
fixing the rights of a class or series of securities issued by the company.
Under the CGCL, a shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of a corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following: (i) inspect and copy the record of
shareholders' names and addresses and share holdings during usual business
hours upon five business days' prior written demand upon the corporation, or
(ii) obtain from the transfer agent for the corporation, upon written demand
and upon the tender of its usual charges for such a list (the amount of which
charges shall be stated to the shareholder by the transfer agent upon
request), a list of the shareholders' names and addresses, who are entitled
to vote for the election of directors, and their share holdings, of the most
recent record date for which it has been compiled or as of a date specified
by the shareholder subsequent to the date of demand. The CGCL requires that
the list shall be made available on or before the later of five business days
after the demand is received or the date specified therein as the date as of
which the list is to be compiled, and that a corporation shall have the
responsibility to cause its transfer agent to comply with this subdivision.
AMENDMENTS TO ARTICLES. The North Star Articles provide that such
Articles may be amended by the affirmative vote of at least 66 % of the
voting power of the shares present and entitled to vote at a duly held
meeting.
Under the CGCL, amendments to the Articles of Incorporation of a
corporation generally require the approval by vote of the board of directors
and the holders of a majority of outstanding shares entitled to vote thereon
and, where their rights are affected, by the holders of a majority of the
outstanding shares of a class, whether or not such class is entitled to vote
thereon by the provision of the charter. The Keystone Articles provide that
the provisions contained in such Articles with respect to the unanimous vote
for shareholder action without a meeting, the classification of the Board of
Directors, the filling of vacancies on the Board of Directors, the
elimination of cumulative voting, indemnification of directors, officers and
others, the removal of directors and the Preferred Stock may not be amended
without the affirmative vote of at least two-thirds of the outstanding voting
shares.
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AMENDMENT OF BYLAWS. The North Star Bylaws provide that such Bylaws
may be amended by the affirmative vote of a majority of the Board of
Directors of North Star, subject to the power of North Star's shareholders to
change or repeal such Bylaws. The North Star Bylaws further provide that the
Board of Directors of North Star shall not make or alter any Bylaws fixing a
quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies on the Board of Directors of North Star, or
fixing the number of directors or their classifications, qualifications or
terms of office, but the Board of Directors may adopt or amend a Bylaw to
increase the number of directors.
Under the CGCL, bylaws may be adopted, amended or repealed either by
the vote of a majority of the outstanding shares entitled to vote thereon or
(subject to any restrictions in the Articles of Incorporation or Bylaws) by
the approval of the board of directors, except that amendments to the bylaws
specifying or changing a fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable board or vice versa may only be
adopted by approval of the outstanding shares. The Keystone Bylaws provide
that such Bylaws may not be amended without the approval of the holders of at
least at least two-thirds of the outstanding voting shares or the approval of
at least two-thirds of the authorized directors; provided, however, that the
provisions of the Keystone Bylaws relating to the calling of special meetings
of shareholders, shareholder proposals and the number and nomination of
directors require the approval of the holders of at least two-thirds of the
outstanding voting shares.
PREEMPTIVE RIGHTS. The North Star Articles grant each holder of
shares of North Star the preemptive rights provided by the MBCA. The MBCA
defines preemptive right as the right of a shareholder to acquire a certain
fraction of the unissued securities or rights to purchase securities of a
corporation before the corporation may offer them to other persons.
Minnesota law provides that, with some exceptions, a shareholder has a
preemptive right whenever the corporation proposes to issue new or additional
shares or rights to purchase additional shares of the same series as the
series held by the shareholder. Holders of North Star's Common Stock have no
subscription, redemption or conversion rights.
Holders of Keystone's Common Stock have no conversion, preemptive or
other rights to subscribe for additional shares, and there are no redemption
rights or sinking fund provisions with respect to the Common Stock.
DIRECTORS. Under the MBCA and the North Star Bylaws, directors hold
office until the next annual meeting of shareholders or the election and
qualification of their successors.
The Keystone Bylaws provide that the number of directors shall be not
less than five nor more than nine until changed by an amendment duly adopted
by Keystone's shareholders. The Keystone Bylaws further provide that the
exact number of directors shall be fixed from time to time, within such
range, by the Board of Directors. The number of directors currently is fixed
at five, but will be increased to six to permit the election of Ronald G.
Brown, a director, officer and principal shareholder of North Star, as
provided by the Merger Agreement. The Keystone Articles provide that, upon
the satisfaction of certain conditions, the Board of Directors will be
divided into two classes of directors, each serving for staggered two-year
terms. The Keystone Articles further provide that (i) vacancies shall be
filled solely by the affirmative vote of at least two-thirds of the remaining
directors, (ii) shareholders may remove a director either with cause by the
affirmative vote of at least a majority of the outstanding voting shares or
without cause by the affirmative vote of at least two-thirds of the
outstanding voting shares and (iii) the Board of Directors may remove a
director with cause by the affirmative vote of at least two-thirds of the
directors or, if such director ceases to be employed as President, Chief
Executive Officer or Vice President, by the affirmative vote of at least a
majority of the directors.
PERSONAL LIABILITY OF DIRECTORS. The MBCA generally permits a
Minnesota corporation's articles to eliminate or limit a director's personal
liability to the corporation or its shareholders for monetary damages for
breaches of a director's duty as a director. However, the articles cannot
deprive the corporation or its shareholders of the right to enjoin
transactions which violate a director's duty of care. Moreover, the articles
cannot limit liability for any breach of the director's duty of loyalty, for
transactions resulting in an improper personal benefit to the director or for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law. In addition, liability for illegal dividends,
stock repurchases or other distributions to shareholders or for violations of
Minnesota's securities statutes cannot be limited. The North Star Articles
do not limit personal liability of directors.
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The Keystone Articles limit the liability of members of the Keystone's
directors for monetary damages arising from a breach of their fiduciary duties
to Keystone and its shareholders, except to the extent otherwise required by
CGCL. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or recision.
The CGCL permits the inclusion in the Articles of Incorporation of a
California corporation of provisions eliminating or limiting the personal
liability of a director for monetary damages in an action brought by or in the
right of the corporation for breach of a director's duties to the corporation
and its shareholders; provided, however, that (A) such provision may not
eliminate or limit the liability of directors: (i) for acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law, (ii)
for acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director, (iii) for any transaction from which a
director derived an improper personal benefit, (iv) for acts or omissions that
show a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders, (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders, (vi)
under Section 310 (regarding transactions between corporations and directors or
corporations having interrelated directors), or (vii) under Section 316
(regarding directors' liability for distributions, loans and guarantees), (B) no
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when the provision becomes effective,
and (C) no such provision shall eliminate or limit the liability of an officer
for any act or omission as an officer notwithstanding that the officer is also a
director or that his or her actions, if negligent or improper, have been
ratified by the directors."
INDEMNIFICATION. Article Five of the North Star Bylaws provides for
indemnification of directors, officers and employees of North Star to the full
extent permitted by Minnesota Law. Minnesota Law provides for mandatory
indemnification of a person acting in an official capacity on behalf of the
corporation (including a director, officer, employee or agent) if such person
acted in good faith, received no improper personal benefit, acted in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
Keystone's Bylaws provide that Keystone shall indemnify its directors to
the fullest extent permitted by applicable law, including circumstances in which
indemnification is otherwise discretionary. Keystone has entered into
indemnification agreements with its directors and executive officers containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the CGCL. Such agreements may require Keystone, among
other things, (i) to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers provided that such persons acted in good faith and in a manner
reasonable believed to be in the best interests of Keystone, and, with respect
to any criminal action, had no cause to believe their conduct was unlawful, (ii)
to advance the expenses actually and reasonably incurred by its officers and
directors as a result of any proceeding against them as to which they could be
indemnified and (iii) to obtain directors' and officers' insurance if available
on reasonable terms. There is no action or procedure pending or, to the
knowledge of Keystone, threatened which may result in a claim for
indemnification of any director, officer, employee or agent.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of North
Star and Keystone, North Star and Keystone have been advised that in the opinion
of the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES. The North Star Bylaws
provide that no shareholder shall voluntarily transfer or encumber shares of
North Star without first giving notice to North Star. Upon receipt of such
notice from or the death, insolvency or bankruptcy of a shareholder, North Star
shall have ninety days to purchase such shareholder's shares at the price last
established by the unanimous vote of the entire Board of Directors. If the
Board of Directors has failed to establish any such price for more than fourteen
months, then the price shall be determined by appraisal. Keystone does not have
any similar restrictions or purchase options on Keystone's Common Stock.
RIGHTS OF DISSENTING SHAREHOLDERS. Under Section 302A.473 of the MBCA,
if a corporation calls a shareholders meeting to approve a merger to which such
corporation is a party, the sale of substantially all of the assets
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of the corporation, or in certain other circumstances, the notice of the
meeting must inform each shareholder of the right to dissent from such action
and must include a copy of Section 302A.471 and Section 302A.473 of the MBCA
and a brief description of the procedure to be followed under such sections.
A shareholder who wishes to exercise dissenters' rights in such circumstances
is entitled to demand the fair value of the shares owned by such shareholder.
See "The Merger -- Rights of Dissenting Shareholders -- North Star."
Under Chapter 13 of the CGCL, shareholders have certain dissenters'
rights. However, because Keystone's Common Stock is traded on Nasdaq,
dissenters' rights will be available to the Keystone Shareholders only if the
holders of five percent (5%) or more of the shares of Keystone's Common Stock
entitled to vote at the Keystone Meeting make a written demand on Keystone for
the purchase of dissenting shares in accordance with Chapter 13 of the CGCL. If
this condition is satisfied and the Merger is consummated, Keystone Shareholders
who dissent from the Merger by complying with the procedures set forth in
Chapter 13 will be entitled to receive from Keystone an amount equal to the fair
market value of the Common Stock of Keystone held by them as of December 2,
1996, the day before the public announcement of the Merger. The procedure for
perfecting dissenters' rights is summarized under the caption "The Merger --
Rights of Dissenting Shareholders -- Keystone," and the pertinent provisions of
Chapter 13 of the CGCL are included as Appendix F to this Proxy Statement/
Information Statement/Prospectus.
THE MERGER AGREEMENT
THE FOLLOWING DESCRIBES THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT.
THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS ATTACHED AS
APPENDIX A TO THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF KEYSTONE AND NORTH STAR ARE
URGED TO READ THE MERGER AGREEMENT AND THE EXHIBITS THERETO IN THEIR ENTIRETY.
THE MERGER
The Merger Agreement provides that, at the Effective Time, the
Subsidiary shall be merged with and into North Star. The separate corporate
existence of the Subsidiary shall cease and North Star shall continue as the
surviving corporation and as a wholly owned subsidiary of Keystone (the
"Surviving Corporation").
Pursuant to the provisions of the Merger Agreement, as soon as
practicable after the satisfaction or waiver of certain conditions summarized
herein, Articles of Merger will be prepared, executed and acknowledged by
Keystone and North Star and thereafter delivered to the Secretary of State of
the State of Minnesota for filing pursuant to the Minnesota Business Corporation
Act. The Merger shall become effective at the Effective Time.
CONVERSION OF NORTH STAR COMMON STOCK
At the Effective Time, and pursuant to the Merger Agreement, (i) each
issued and outstanding share of the Common Stock of North Star will be converted
into the right to receive 362.3088 shares of the Common Stock of Keystone, (ii)
each issued and outstanding share of the Common Stock of North Star held as
treasury stock will be canceled and retired without payment of any consideration
therefor and (iii) each share of the Subsidiary's Common Stock will be converted
into one share of the Common Stock of the Surviving Corporation.
Promptly after the Effective Time, Keystone will cause to be sent to
each holder of shares of the Common Stock of North Star as of the Effective Time
a transmittal letter containing instructions for the surrender of certificates
for shares of the Common Stock of North Star in exchange for new certificates
representing shares of the Common Stock of Keystone; PROVIDED that with respect
to any holder of North Star Common Stock who has delivered such holders' North
Star Common Stock certificates and other required documentation at or prior to
the Effective Time, Keystone will cause to be delivered to such Person at the
Closing certificates representing the appropriate number of shares of Keystone
Common Stock. No fractional shares of Keystone's Common Stock shall be issued
in connection with the Merger. In lieu of such fractional shares, (i) any
holder of North Star's Common Stock who would otherwise be entitled to receive
a fractional share of Keystone's Common Stock equal to 0.50 or more of a share
shall instead receive one full share of Keystone's Common Stock, and (ii) any
holder of North Star's Common Stock who would otherwise be entitled to a
fractional share of Keystone's Common Stock equal to less than 0.50 of a share
shall instead receive no consideration in respect of such fractional interest.
CERTIFICATES SHOULD NOT BE
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SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED AND ONLY IN
ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
Pending delivery to Keystone of North Star's Common Stock certificates, no
dividends or other distributions with respect to the Keystone's Common Stock
to be issued in the Merger will be paid to the holders of unsurrendered
certificates for North Star's Common Stock. Upon such surrender, such
holders will be paying, without interest, all dividends and other
distributions with respect to Keystone's Common Stock payable after (and for
which the record date occurs after) the Effective Time, and all dividends and
other distributions with respect to North Star's Common Stock payable after
(and for which the record date occurs before) the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
North Star, the Principal Shareholders and Keystone, made in each case to such
party's "Knowledge" (as defined in the Merger Agreement). The Merger Agreement
includes representation and warranties of North Star, made by North Star and the
principal shareholders as to: (i) its organization, standing and power;
(ii) its ownership of subsidiaries; (iii) its corporate authority to enter into
the Merger Agreement and related agreements; (iv) the absence of certain
governmental filings; (v) its compliance with its Articles of Incorporation,
Bylaws and applicable law; (vi) its authorized capital stock; (vii) the accuracy
of its financial statements; (viii) the accuracy of its books and records;
(ix) the identification of its material contracts; (x) the absence of certain
material changes or events; (xi) the absence of certain litigation; (xii) the
absence of certain tax liabilities; (xiii) its ownership of assets; (xiv) the
absence of material labor disputes; (xv) its employee benefit plans; (xvi) the
absence of certain material defaults or violations; (xvii) the absence of
brokers; (xviii) the absence of certain environmental liabilities; (xix) its
ownership of trademarks, patents and copyrights; (xx) the validity of certain
contracts; and (xxi) the identification of certain insurance policies. In
addition, Keystone makes representations and warranties as to: (i) its due
organization and good standing; (ii) its corporate authority to enter into the
Merger Agreement and related agreements; (iii) its governmental filings and
approvals; (iv) its compliance with its Articles of Incorporation, Bylaws and
applicable law; (v) its authorized capital stock; (vi) the accuracy of its
filings with the Commission; (vii) the absence of certain material changes or
events; (viii) the absence of certain litigation; (ix) the absence of certain
tax liabilities; and (x) the absence of brokers.
CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS BY NORTH STAR. Pursuant to the Merger Agreement,
North Star has agreed not to (and the Principal Shareholders have agreed not to
permit North Star to) do any of the following prior to the Effective Time unless
Keystone consents in writing: (i) amend its Articles of Incorporation, Bylaws
or other comparable charter or organizational documents; (ii) declare, set aside
or pay any dividends on, or make any other distributions (whether in cash, stock
or property) in respect of, any of North Star's Common Stock; (iii) acquire or
agree to acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any portion of the
assets of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof
except in the ordinary course of business consistent with past practice or
(B) any assets that are material, individually or in the aggregate, to North
Star, except purchases of inventory in the ordinary course of business
consistent with past practice; (iv) sell, lease, license, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any of its properties or
assets except in the ordinary course of business consistent with past practice;
(v) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of North Star, guaranty any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice, or (B) make any loans, advances or capital contributions to,
or investments in, any other person, other than to North Star or advances to
employees in accordance with past practice; (vi) make or agree to make any new
capital expenditure or expenditures which, individually, is in excess of $50,000
or, in the aggregate, are in excess of $100,000; (vii) make any material tax
election or settle or compromise any material tax liability; (viii) pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent financial statements of North Star or incurred in the ordinary course of
business consistent with past practice, or waive any material benefits of, or
agree to modify in any material respect, in any confidentiality, standstill or
similar agreements to which North Star is
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a party; (ix) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which North Star is a party
or waive, release or assign any material rights or claims; (x) enter into any
contracts, agreements, arrangements or understandings relating to the
distribution, sale or marketing by third parties of North Star's products or
products licensed by North Star in the ordinary course of business consistent
with past practice; (xi) except as required to comply with applicable law,
(A) adopt, enter into, terminate or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation or other plan, trust arrangement or fund for the benefit or
welfare of any director, officer or current or former employee, (B) increase
in any manner the compensation or fringe benefits of, or pay any bonus to,
any director, officer or employee (except for normal increases or bonuses in
the ordinary course of business consistent with past practice), (C) pay any
benefit not provided for under a North Star Plan, (D) except as permitted in
clause (B), grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or North Star Plan (including the grant of
stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock, or the removal of existing
restrictions in any North Star Plan or agreement or awards made thereunder)
or (E) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or North Star Plan; (xii) make any change in any method of
accounting or accounting practice or policy other than those required by
generally accepted accounting principles; or (xiii) authorize any of, or
commit or agree to take any of, the foregoing actions.
CONDUCT OF BUSINESS BY KEYSTONE. Pursuant to the Merger Agreement,
Keystone has agreed to conduct its business in the ordinary course consistent
with past practice and to use its best efforts to preserve intact its business
organizations and relationships with third parties and to keep available the
services of its present officers and employees until the Effective Time.
OTHER ACTION. North Star and Keystone have agreed not to take any
action that would, or that could reasonably be expected to, result in (i) any of
the representations and warranties of such party set forth in the Merger
Agreement that are qualified as to materiality becoming untrue, (ii) any of the
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Merger and consummation
of the transactions contemplated by the Merger Agreement not being satisfied.
INTERIM FINANCIAL INFORMATION. Each of Keystone and North Star has
agreed to provide to the other, not later than January 15, 1997, its respective
internally prepared financial statements for the two month period ending
November 30, 1996.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Keystone and North Star to consummate the
Merger are subject to the following conditions at or before the Effective Time:
(i) the Merger Agreement shall have been approved by the requisite vote of the
outstanding shares of North Star and Keystone entitled to vote; (ii) all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expiration of waiting periods imposed by any governmental entity
necessary for the consummation of the transactions contemplated by the Merger
Agreement, shall have been filed, expired or obtained; (iii) the Registration
Statement of which this Proxy Statement/Information Statement/Prospectus is a
part shall have become effective and shall not be the subject of any stop order
or proceeding seeking a stop order, and this Proxy Statement/Information
Statement/ Prospectus shall not at the Effective Time be subject to any
proceedings commenced or threatened by the Commission; (iv) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any governmental entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Merger or any other transaction
contemplated by the Merger Agreement shall be in effect; (v) no action shall
have been taken, and no statute, rule, regulation or order shall have been
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would (A) make the consummation of the Merger illegal,
or (B) render Keystone or North Star unable to consummate the Merger except for
any waiting period provisions; (vi) the Registration Rights Agreement shall have
been entered into (see "Other Conditions" below); and (vii) since the date of
the Merger Agreement no Material Adverse Effect (as defined in the Merger
Agreement) shall have occurred that is the result of conditions or factors
affecting the economy generally or the industry in which Keystone or North Star
operates or the result of the announcement of the Merger or actions taken in
contemplation thereof.
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The separate obligations of Keystone and North Star are subject to the
satisfaction of certain further conditions at or prior to the Effective Time.
Such further conditions with respect to Keystone's obligations include the
following: (i) the representations and warranties of North Star and the
Principal Shareholders set forth in the Merger Agreement, without regard to any
qualification or reference to materiality or "Material Adverse Effect," shall be
true and correct in all respects as of the Effective Time, except for any
inaccuracies which, individually or in the aggregate, have not had, and would
not have, a Material Adverse Effect on North Star, and Keystone shall have
received a certificate signed by behalf of North Star by the President and the
Vice President of Finance of North Star, and by the Principal Shareholders, to
such effect; (ii) North Star and the Principal Shareholders shall have performed
in all material respects, all obligations and covenants required to be performed
by them under the Merger Agreement prior to or as of the Effective Time, unless
waived in writing by Keystone, and Keystone shall have received a certificate
signed on behalf of North Star by the Chief Executive Officer and the Chief
Financial Officer of North Star certifying as to North Star's performance;
(iii) all required consents, approvals and authorizations shall have been
obtained in form and in substance reasonably satisfactory to Keystone, except
for such consents, approvals and authorizations with respect to which the
failure to obtain would not have a Material Adverse Effect on either Keystone or
the Surviving Corporation; (iv) Keystone shall have received from the Keystone
Financial Advisor an opinion dated the Effective Time, in form and substance
reasonably satisfactory to Keystone, that the Merger and the other transactions
contemplated by the Merger and the Merger Agreement are fair to the shareholders
of Keystone from a financial point of view; provided, however, that this
condition shall be deemed satisfied if Keystone fails to use all commercially
reasonable efforts to obtain such fairness opinion; (v) Keystone shall have
received a letter from Ernst & Young LLP, Keystone's independent auditors, dated
the Effective Time, regarding that firm's concurrence with the conclusion of
Keystone's management as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
consummated in accordance with the Merger Agreement; (vi) Keystone shall have
received evidence satisfactory to Keystone that none of the holders of North
Star's Common Stock are entitled to dissent from the Merger and that the holders
of shares of Keystone Common Stock entitled to dissent from the Merger do not
hold, in the aggregate, more than 1% of the issued and outstanding shares of
Keystone Common Stock; and (vii) Keystone shall have received a limited
indemnity from Ronald G. Brown with respect to environmental remediation costs,
if any, at North Star's Brainerd, Minnesota facility.
With respect to North Star's obligations, such further conditions
include the following: (i) the representations and warranties of Keystone set
forth in the Merger Agreement, without regard to any qualification or reference
to materiality or Material Adverse Effect, shall be true and correct in all
respects as of the Effective Time, except for any inaccuracies which,
individually or in the aggregate, have not had, and would not have, a Material
Adverse Effect on Keystone, and North Star shall have received a certificate
signed on behalf of Keystone by the Chief Executive Officer and the Chief
Financial Officer of Keystone to such effect; (ii) Keystone shall have performed
in all material respects all obligations and covenants required to be performed
by it under the Merger Agreement prior to or as of the Effective Time, unless
waived in writing by North Star or the Principal Shareholders, and North Star
shall have received a certificate signed on behalf of Keystone by the Chief
Executive Officer and the Chief Financial Officer of Keystone to such effect;
(iii) all required consents, approvals and authorizations shall have been
obtained in form and substance reasonably satisfactory to North Star, except for
such consents, approvals and authorizations with respect to which the failure to
obtain would not have a Material Adverse Effect on either Keystone or the
Surviving Corporation; (iv) North Star shall have received a letter from
Keystone's independent auditors or legal counsel indicating (A) the number of
shares of Keystone's Common Stock that have been authorized for issuance by the
Board of Directors of Keystone as set forth in the minutes in the Keystone
minute book, and (B) the number of shares of Keystone's Common Stock subject to
warrants and options to purchase them that have been authorized by the Board of
Directors of Keystone as set forth in the minutes in the Keystone minute book;
and (v) Ronald G. Brown shall have been released from his personal guaranty of
North Star's obligations to First Bank, N.A.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
North Star has agreed to direct and use its commercially reasonable
efforts to cause its officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) not to initiate, solicit or knowingly encourage, directly or
indirectly (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any "Competing Transaction" (as defined below), or enter into or
continue discussions or negotiations with any person in furtherance of such
inquiries to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of its officers,
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directors or employees or any investment banker, financial adviser, attorney,
accountant or other representative retained by it to take any such action,
and North Star has agreed to notify Keystone of all inquiries or proposals
which North Star may receive relating to any of such matters and if such
inquiry or proposal is in writing, shall deliver Keystone a copy of such
inquiry or proposal.
"Competing Transaction" shall mean any of the following (other than the
transactions contemplated hereby): (i) any merger, consolidation, share
exchange, business combination, or other similar transaction involving North
Star, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of North Star or any subsidiary of
North Star, taken as a whole, in a single transaction or series of transactions,
other than in the ordinary course of business, (iii) any tender offer or
exchange offer for any shares of North Star's Common Stock or the filing of a
registration statement under the Securities Act in connection therewith, (iv)
any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
having been formed which beneficially owns or has the right to acquire
beneficial ownership of, 10% or more of the shares of North Star's Common Stock
or (v) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing other than any
transaction contemplated in the Merger Agreement.
INDEMNIFICATION
Pursuant to the Merger Agreement, North Star will indemnify and hold
Keystone harmless against all payments, damages, demands, claims, losses,
obligations, liabilities, costs and expenses, including, but not limited to,
reasonable attorneys' fees and costs ("Claims") which Keystone may suffer or
incur in connection with any breach by North Star of any of its representations,
warranties or covenants in the Merger Agreement. Pursuant to the Merger
Agreement, the Principal Shareholders, jointly and severally, will indemnify and
hold Keystone harmless against all Claims which Keystone may suffer or incur in
connection with any breach by the Principal Shareholders of their respective
representations, warranties or covenants in the Merger Agreement. Pursuant to
the Merger Agreement, Keystone will indemnify and hold North Star and the
Principal Shareholders harmless against all Claims which North Star or the
Principal Shareholders may suffer or incur in connection with any material
breach by Keystone of any of its representations, warranties or covenants in the
Merger Agreement.
The Merger Agreement provides that a party shall be liable for any Claim
only to the extent that (i) such party had Knowledge (as defined in the Merger
Agreement) of the facts and circumstances giving rise to such Claim and (ii)
such Claim, together with all other Claims for which such party is liable under
the Merger Agreement, exceeds $500,000, and (iii) written notice of such Claim,
describing the subject matter thereof in reasonable detail, shall have been
delivered to such party within the applicable period set forth below: (A) with
respect to a Claim arising from the breach of the representations and warranties
contained in Section 4.7 of the Merger Agreement relating to North Star's
financial statements, not later than thirty (30) days after the first issuance
of audited financial statements of Keystone following the Merger, (B) with
respect to a Claim arising from a breach of the representations and warranties
contained in the last sentence of Section 4.6 of the Merger Agreement relating
to the ownership by the North Star Shareholders of North Star's outstanding
Common Stock, the sixth anniversary of the Effective Time, and (iv) with respect
to a Claim arising from a breach of any other representations, warranties and
covenants contained in the Merger Agreement, the date occurring 365 days after
the Effective Time. The foregoing limitations shall apply to each party
regardless of any joint or joint and several liability borne by such party
together with any other party. In addition, while the indemnification provided
in the Merger Agreement is not the exclusive remedy of any party with respect to
the transactions contemplated by the Merger Agreement, such limitations shall
apply to any Claim, whether pursuant to the indemnification provisions of the
Merger Agreement, in an action at law or in equity, or otherwise.
If a claim by a third party is made against any of the indemnified
parties, and if any of the indemnified parties intends to seek indemnity with
respect to such claim pursuant to the Merger Agreement, such indemnified party
shall promptly notify the indemnifying party of such claim. The indemnifying
party shall have thirty (30) days after receipt of the above-mentioned notice to
undertake, conduct and control, through counsel of such party's own choosing
(subject to the consent of the indemnified party, such consent not to be
unreasonably withheld) and that at such party's expense, the settlement or
defense of it, and the indemnified party shall cooperate with the indemnifying
party in connection with such efforts; provided that: (i) the indemnifying
party shall not by the Merger Agreement permit to exist any lien, encumbrance or
other adverse charge upon any asset of any indemnified party; (ii) the
indemnifying party shall permit the indemnified party to participate in such
settlement or defense through counsel chosen by the indemnified
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party, provided that the fees and expenses of such counsel shall be borne by
the indemnified party; and (iii) the indemnifying party shall agree promptly
to reimburse the indemnified party for the full amount of any loss resulting
from such claim and all related expenses incurred by the indemnified party
pursuant to the Merger Agreement. So long as the indemnifying party is
reasonably contesting any such claim in good faith, the indemnified party
shall not pay or settle any such claim. If the indemnifying party does not
notify the indemnified party within thirty (30) days after receipt of the
indemnified party's notice of a claim of indemnity under the Merger Agreement
that such party elects to undertake the defense of such claim, or does not
actively prosecute such defense thereafter, the indemnified party shall have
the right to contest, settle or compromise the claim in the exercise of the
indemnified party's exclusive discretion at the expense of the indemnifying
party.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement is subject to termination, notwithstanding any
requisite approval of the Merger Agreement and the Merger by the Keystone
Shareholders and the North Star Shareholders: (i) by mutual written consent of
Keystone and North Star; or (ii) by either Keystone or North Star if either
(A) the Effective Time shall not have occurred on or before March 28, 1997
(subject to certain limitations), or (B) there shall be any law that makes
consummation of the Merger illegal or otherwise prohibited or if any court of
competent jurisdiction or governmental entity shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and unappealable. The Merger Agreement may be terminated by either
Keystone or North Star, if its respective shareholders' meeting shall have been
held and the shareholders of either North Star or Keystone shall have failed to
approve the Merger or the Merger Agreement at such meeting.
The Merger Agreement may be terminated by North Star if (i) the Board of
Directors of Keystone withdraws, modifies or changes its recommendation of the
Merger Agreement or the Merger in a manner adverse to North Star or shall have
resolved to do any of the foregoing, (ii) a tender offer or exchange offer for
25% or more of the outstanding shares of Keystone's Common Stock is commenced,
and the Board of Directors of Keystone, within ten (10) business days after such
tender offer or exchange offer is so commenced, either fails to recommend
against acceptance of such tender offer or exchange offer by its shareholders or
takes no position with respect to the acceptance of such tender offer or
exchange offer by its shareholders or (iii) any person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) shall have been formed which
beneficially owns, or has the right to acquire beneficial ownership of, 25% or
more of the then outstanding shares of Keystone's Common Stock (excluding for
this purpose holdings of shares by persons or groups as currently reflected in
filings with the Commission under Section 13(d)). The Merger Agreement may be
terminated by North Star in the event that any conditions to North Star's
obligations under of the Merger Agreement are not satisfied by March 28, 1997.
The Merger Agreement may be terminated by Keystone if the Board of
Directors of Keystone shall have withdrawn, modified or changed its
recommendation of the Merger Agreement and the Merger to the Keystone
Shareholders as a result of a determination by a majority of such directors in
good faith that failure to so withdraw, modify or change such recommendation
would be a breach of the fiduciary duty of such directors. The Merger Agreement
may be terminated by Keystone in the event that any condition to Keystone's
obligations under the Merger Agreement is not satisfied or waived by March 28,
1997.
In the event Keystone terminates the Merger Agreement other than in
compliance with the Merger Agreement or in the event North Star terminates the
Merger Agreement in compliance with the Merger Agreement because the Effective
Time has not occurred on or before March 28, 1997 as a result of a material
breach of the Merger Agreement by Keystone or in compliance with the provisions
of the Merger Agreement, Keystone shall reimburse North Star for its reasonable
and documented fees and expenses (including reasonable attorney's fees and
costs) incurred in connection with the transactions contemplated by the Merger
Agreement, in an aggregate amount not to exceed $100,000. In the event North
Star terminates the Merger Agreement other than in compliance with the Merger
Agreement, or in the event Keystone terminates the Merger Agreement in
compliance with the provisions of the Merger Agreement because the Effective
Date has not occurred on or before March 28, 1997 as a result of a material
breach of the Merger Agreement by North Star or the Principal Shareholders or in
compliance with the provisions of the Merger Agreement, North Star shall
reimburse Keystone for its reasonable and documented fees and expenses
(including
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reasonable attorney's fees and costs) incurred in connection with the
transactions contemplated by the Merger Agreement, in an aggregate amount not
to exceed $100,000.
The Merger Agreement may be amended with the approval of the Boards of
Directors of Keystone and North Star at any time prior to the Effective Time.
The Merger Agreement may not be amended except by an instrument in writing
signed by Keystone and North Star.
At any time prior to the Effective Time, Keystone or North Star may
(i) extend the time for the performance of any obligation or other act of the
other party, (ii) waive any inaccuracy in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement, and (iii) waive compliance with any agreement or condition
contained in the Merger Agreement. Any such extension or waiver shall be valid
if set forth in any instrument in writing signed by the party or parties to be
bound thereby.
VOTING AGREEMENT
Keystone and certain officers, directors and shareholders of Keystone
have entered into a voting agreement (the "Voting Agreement") with North Star
pursuant to which each such person has agreed, among other things, (i) to vote
all shares of the Common Stock of Keystone held by him to approve the Merger
Agreement and against any proposal that could impede the transactions
contemplated by the Merger Agreement, (ii) in his capacity as a director of
Keystone, to recommend that the Keystone Shareholders approve the Merger
Transaction and (iii) not to dispose of any interest in any such shares or the
right to vote any such shares prior to the Merger.
Under the Voting Agreement, officers, directors and shareholders of
Keystone who as of the Keystone Record Date hold an aggregate of 2,284,162
shares of Common Stock (or approximately 31.3% of the issued and outstanding
shares of Common Stock entitled to vote at the Keystone Meeting) agreed to vote
for the Merger Agreement, increasing the likelihood that the Merger Agreement
will be approved. The Merger Agreement must be approved by the affirmative vote
of the holders of an additional 18.7% of the issued and outstanding shares of
the Common Stock of Keystone entitled to vote thereon.
REGISTRATION RIGHTS AGREEMENT
The Principal Shareholders have entered into an agreement (the
"Registration Rights Agreement") with Keystone, which provides, among other
things, that upon the next registration of an offering of Keystone's Common
Stock, the Principal Shareholders will be entitled to request that Keystone
include up to 600,000 shares of Keystone's Common Stock held by the Principal
Shareholders (subject to certain restrictions and limitations) in the proposed
offering (a "Piggyback Registration"). Each Principal Shareholder shall notify
Keystone in writing, not less than five days after receipt from Keystone of
notice of such registration, of his election to include shares of Keystone's
Common Stock in such registration statement, subject to constraints on the
marketability of the proposed offering, as determined by the managing
underwriters. In the event that marketing conditions prevent all of Keystone's
Common Stock requested to be registered by Principal Shareholders to be included
in such registration statement, such shares as may be registered shall be
registered on a pro rata basis relative to the holders' respective holdings of
Keystone's Common Stock. Shares not registered pursuant to the Registration
Rights Agreement that are held by shareholders who were affiliates of North Star
at the time of the Merger or certain of their family members will be subject to
certain resale restrictions. See "The Merger -- Resale of Shares Issued in the
Merger."
The Principal Shareholders will pay all underwriting discounts,
commissions and transfer taxes related to the shares of Keystone's Common Stock
offered for sale by them, as well as the fees and disbursements of their
counsel. All other fees and expenses in connection with the registration of
shares of Keystone's Common Stock by the Principal Shareholders shall be borne
by Keystone.
Keystone agrees to indemnify the Principal Shareholders for any loss
caused by material misstatements and omissions in the registration statement, to
the extent not provided by the Principal Shareholders. Similarly, each
Principal Shareholder agrees to indemnify Keystone and any underwriter for any
loss caused by material misstatements and omissions made in the registration
statement in reliance on information provided to Keystone by the Principal
Shareholders.
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AFFILIATE AGREEMENT
CERTAIN PROVISIONS OF THE AFFILIATE AGREEMENT ARE SUMMARIZED BELOW.
THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE COMPLETE TEXT OF THE AFFILIATE AGREEMENT, WHICH IS
ATTACHED AS APPENDIX E TO THIS PROXY STATEMENT/INFORMATION
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS
OF KEYSTONE AND NORTH STAR ARE URGED TO READ THE AFFILIATE AGREEMENT AND THE
EXHIBITS THERETO IN THEIR ENTIRETY.
The Principal Shareholders have entered into an agreement (the
"Affiliate Agreement") with Keystone pursuant to which each such person has
agreed, among other things, (i) to vote all shares of the Common Stock of
North Star held by him to approve the Merger Agreement, against any Competing
Transaction (as defined in the Affiliate Agreement) and against any proposal
that could impede the transactions contemplated by the Merger Agreement, (ii)
to recommend that the North Star Shareholders approve the Merger Agreement
and reject any Competing Transaction or any proposal that could impede the
transactions contemplated by the Merger Agreement, (iii) not to dispose of
any interest in any such shares or the right to vote any such shares, (iv)
not to sell any shares of the Common Stock of Keystone received in the Merger
until the publication of financial results of the combined operations of
Keystone and North Star for at least thirty days following consummation of
the Merger, (v) not to solicit any Competing Transaction and (vi) not to take
any action which could preclude Keystone from accounting for the Merger as a
pooling of interests. The Affiliate Agreement will terminate on the date on
which the Merger Agreement is terminated in accordance with its terms.
Under the Affiliate Agreement, the Principal Shareholders have agreed
to vote the 4,968.26 shares of the Common Stock of North Star held by them (or
approximately 73.5% of the shares of the Common Stock of North Star issued and
outstanding on the date hereof) in favor of the Merger Agreement.
INFORMATION CONCERNING KEYSTONE
GENERAL
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes its products primarily to collision repair
shops throughout most of the United States. Keystone's product lines consist of
automotive body parts, bumpers, autoglass and remanufactured alloy wheels, as
well as the paint and other material used in repairing a damaged vehicle.
Founded in 1947 as a chrome bumper recycler serving collision repair shops in
Southern California, the Company now operates a "hub and spoke" distribution
system consisting of seven regional hubs and 47 service centers. Keystone sells
approximately 13,000 stock keeping units to over 17,000 collision repair shops,
out of an estimated 48,000 shops nationwide. Keystone's service centers are
located in 26 states in the West, Midwest, Northeast and South, as well as
Tijuana, Mexico. This growth has been primarily due to a combination of (i) the
acquisition of smaller distributors both in Keystone's existing markets and new
geographic markets, (ii) the expansion of existing product lines and the
introduction of additional product lines and (iii) increased demand for
aftermarket collision parts. In addition, Keystone has 6 which remanufacture
collision damaged alloy wheels and one facility which recycles chrome bumpers.
INDUSTRY OVERVIEW
HISTORY. The Aftermarket Body Parts Association ("ABPA") estimates
that the wholesale market for aftermarket collision parts in 1995 ranged between
$800 million and $1.2 billion in annual expenditures, or approximately 10% of
the collision parts market. In addition, industry sources estimate that
wholesale sales of paint and related supplies and equipment, which constitute a
growing part of Keystone's business, accounted for approximately $2.4 billion in
1995. Substantially all of the remainder of the collision parts market consists
of parts produced by OEMs, and a substantial number of collision parts are
available exclusively from OEMs and are likely to remain so. Although Keystone
believes that the most frequently replaced collision parts currently are
available from independent producers, it is unable to determine the percentage
of all collision parts which are available from independent producers or which
likely will become available in the future. The growth in sales of aftermarket
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collision parts has been due primarily to the increased availability of such
parts and to cost containment efforts by the insurance industry.
Before 1980, automotive collision parts were manufactured almost
exclusively by OEMs. During the 1960's and 1970's, due to prohibitive tariffs
on imported automobiles and restrictions on foreign ownership of manufacturing
facilities in Taiwan, certain Taiwanese automobile manufacturers commenced
producing automobiles for sale in Taiwan. Since the early 1980's, these
Taiwanese manufactures have sought to reduce the effect on their business of the
cyclical demand for new automobiles by producing aftermarket collision parts.
Collision Repair Industry Insight ("Insight"), an industry trade
publication, estimates that approximately 80% of all automobile collision repair
work is covered in part by insurance. Accordingly, the major insurance
companies exert significant influence over the selection of collision parts used
by collision repair shops. The availability of aftermarket collision parts has
been a major factor in the insurance industry's efforts to contain the
escalating cost of collision repairs. Aftermarket collision parts generally
sell for between 20% and 40% less than comparable OEM parts. The ABPA estimates
that the competition afforded by aftermarket collision parts has resulted in
price reductions of between 25% and 50% for selected OEM collision parts, and
that the availability of aftermarket collision parts saved insurance companies
approximately $800 million in 1994. These savings have been realized both
directly by providing consumers with less expensive parts and indirectly by
creating competition resulting in lower prices for comparable OEM parts.
Keystone believes that it is somewhat insulated from downturns in the economy
generally as a result of the fact that most of the cost of collision repairs is
paid for by insurance.
As a part of their ongoing efforts to improve customer service, most
major insurance companies have adopted programs designating selected collision
repair shops in particular geographic areas as Direct Repair Providers ("DRPs").
DRPs are generally directed additional collision repair business by the insurers
in return for adhering to certain criteria, which include the use of aftermarket
collision parts when available. To encourage consumers to use DRPs, the
insurers authorize the repair of collision damage without obtaining the prior
approval of the insurer's adjuster (thereby generally providing for a quicker
return of the vehicle to its owner) and offer additional warranties concerning
the repair services and parts used.
Companies offering collision support services, including Automated
Data Processing ("ADP"), Mitchell International and CCC Information Services,
Inc., have developed proprietary software and databases to provide insurance
claims adjustors and collision repair shops with computerized access to the
inventories and prices of selected distributors of both aftermarket and OEM
collision parts nationwide. The Company's inventory and prices are included in
these databases. Access to the providers' databases enables distributors with
computerized inventory control systems, such as Keystone, to update prices
rapidly and notify collision repair shops of the availability of new products.
QUALITY ASSURANCE. In 1987, the Certified Automotive Parts
Association ("CAPA") was founded to provide insurance companies, distributors,
collision repair shops and consumers with an objective method of evaluating the
functional equivalence of aftermarket collision parts and OEM collision parts.
CAPA, a non-profit association of insurance companies, manufacturers, importers,
distributors, collision repair shops and consumer groups, establishes the
specifications for, tests and certifies the quality of aftermarket automotive
collision parts. Through independent testing laboratories, CAPA develops
precise engineering specifications for aftermarket collision parts based upon an
examination of OEM parts; certifies the factories, manufacturing processes and
quality control procedures used by independent manufacturers; and certifies the
materials, fit and finish of specific aftermarket collision parts. According to
CAPA, the number of collision part applications entitled to bear the CAPA
certification has increased from approximately 600 in January 1994 to
approximately 1,300 in December 1995. CAPA randomly reviews both the factories
and individual parts previously certified by it and solicits comments concerning
the quality of certified parts from collision repair shops and consumers on a
regular basis.
Most major insurance companies have adopted policies recommending or
requiring the use of parts certified by CAPA, when available. The Company
distributes parts certified by CAPA when available and actively participates
with CAPA, insurance companies and consumer groups in encouraging independent
manufacturers of
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collision parts to seek CAPA certification. Management believes that
Keystone is the largest distributor of CAPA certified parts in the United
States.
CONSOLIDATION. The collision repair shop industry is in the process
of consolidation due to, among other things, (i) an increase in the technical
complexity of collision repair jobs generally, (ii) an increase in governmental
regulations, including environmental regulations, applicable to collision repair
shops, (iii) the designation of certain collision repair shops as DRPs and
(iv) a reduction in the number of collision repair jobs generally. The
increasing number of aftermarket collision parts and makes and models of
automobiles has resulted in distributors being required to maintain larger
inventories. In addition, the trend towards fewer, larger and more efficient
collision repair shops has increased the pressure on distributors to provide
price concessions, just-in-time delivery and value-added services, including
training, that collision repair shops require in their increasingly complex and
competitive industry. These pressures are contributing to a consolidation of
distributors of aftermarket collision parts, providing Keystone with an
opportunity to expand its operations into new markets and to penetrate further
existing markets.
COMPETITIVE STRENGTHS
Keystone believes that the following characteristics enable it to
compete effectively.
LEADING MARKET POSITION. Keystone believes that it derives
significant benefits from its position as the nation's leading distributor of
aftermarket collision parts. These benefits include its ability to offer its
customers one of the broadest available selections of aftermarket collision
parts thereby allowing its customers to simplify their business by relying on
fewer vendors, just-in-time delivery, lower prices as a result of volume
purchasing power, worldwide product sourcing and superior technical expertise.
As a result of the Keystone's volume purchases, it obtains favorable pricing and
has less difficulty than its generally smaller competitors in assembling entire
containers for shipment from foreign manufacturers. In addition, as a result of
its leading market position, Keystone periodically is requested to introduce new
aftermarket collision parts.
RELATIONSHIP WITH INSURANCE COMPANIES. Since the founding of its
business in 1947, Keystone has fostered its relationship with insurance
companies whose efforts to contain escalating costs of collision repairs have
been a principal factor in the growth of the market for aftermarket collision
parts. Keystone's inventory and prices are included in the parts databases used
by most major insurance companies. In addition, the Keystone's national
marketing staff routinely conducts seminars for regional insurance executives
and claims adjusters to explain the role of aftermarket collision parts in
containing the cost of claims and to encourage the implementation of the
insurance companies' policies favoring such parts. Charles J. Hogarty,
Keystone's President and Chief Operating Officer, was active in the efforts of
ABPA and CAPA to provide insurance companies an objective method of evaluating
the quality of aftermarket collision parts. As a result of its distribution
system, which covers most of the United States, and its position as the nation's
largest distributor of aftermarket collision parts, Keystone believes that it is
well positioned to deal with major insurance companies on a national basis.
Keystone's business is highly dependent upon the continued acceptance of
aftermarket collision parts by the insurance industry.
EXPERIENCED EXECUTIVE MANAGEMENT AND SERVICE CENTER MANAGERS.
Keystone believes that its key employees, including its service center managers,
are among the most experienced in its industry. Keystone's executive officers
have been employed by Keystone for an average of over 24 years, and Keystone's
service center managers for an average of over nine years. The experience and
tenure of the Company's service center managers and the relationships they have
established with collision repair shop operators have enabled Keystone to
compete successfully in local markets.
ENTREPRENEURIAL CORPORATE CULTURE. Keystone fosters an
entrepreneurial corporate culture in which the manager of each service center is
responsible for its day-to-day operations including the management of a staff of
four to 55 employees. Each service center manager participates in an incentive
compensation program through which the manager may earn a bonus of up to 100% of
base salary, based upon the profitability of the service center in particular,
as well as increases in sales, the collection of accounts receivable, inventory
turns and the promotion of new product lines. Keystone regularly distributes to
all service center managers a ranking of all managers by key
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performance indicators. Keystone believes that its entrepreneurial corporate
culture has contributed to its growth in sales and profitability and has
enabled Keystone to attract and retain employees and to be highly responsive
to customer requirements and preferences, actions by competitors and changes
in local market conditions.
SUPERIOR CUSTOMER SERVICE. Keystone believes that its high level of
customer service is one of the most important factors which differentiates it
from its competitors. Keystone periodically introduces new programs to provide
responsive customer service and to foster close customer relations. For
example, most orders are filled by Keystone within 24 hours of receipt as a
result of the large inventories maintained in its regional hubs and service
centers, its computerized inventory control system and its fleet of more than
420 delivery trucks. In addition, Keystone offers its customers one of the
broadest available selections of aftermarket collision parts and makes placing
orders convenient and accurate through a computerized order taking system which
regularly updates the prices and the availability of parts. Moreover, Keystone
generally warrants its products on a limited basis against defects in material
and workmanship for as long as the repair shop's customers own the vehicle.
Keystone has 299 professionally trained route salespersons who are a resource
for customers concerning technical and regulatory developments in an
increasingly complex and competitive industry. Keystone believes that its
superior customer service has resulted in long-term customer relationships which
present the opportunity to cross-sell additional products.
MANAGEMENT INFORMATION SYSTEMS. Keystone believes that its
computerized order taking, inventory control and management information systems
are among the most advanced in its industry. Keystone periodically upgrades
these systems to achieve additional operating efficiencies and a higher level of
customer service. The ordering, shipment, storage and delivery of Keystone's
products are managed through a proprietary centralized information system that
allows Keystone's corporate headquarters, regional hubs and service centers to
obtain timely information regarding the location and availability of products,
customers, sales and other financial and operating data. Keystone's electronic
parts catalog and price list allows rapid updating of prices and availability of
products both within Keystone's distribution system and within the electronic
databases maintained by various collision support services for use by claims
adjusters and collision repair shops. Keystone's computerized order taking
system reduces the time required for a customer to place an order, reduces
errors in order taking and aids in the cross-selling of related products.
GROWTH STRATEGY
Keystone's growth strategy includes the following key elements.
ACQUISITIONS AND SERVICE CENTER ADDITIONS. Since April 1992, Keystone
has completed fourteen acquisitions of 31 service centers in the Northeast,
Midwest, South and Mexico, of which nine have been consolidated with existing
locations and four have been closed, and has opened three additional service
centers. Keystone intends to continue to take advantage of the consolidation of
its industry by acquiring service centers in new and existing markets. In the
ordinary course of its business, Keystone regularly evaluates new geographic
markets and potential acquisitions and believes that numerous acquisition
opportunities exist due to the preponderance of small local or regional
competitors. In evaluating potential acquisitions, Keystone seeks well-
established local distributors with strong management and significant market
share, which operate in markets which Keystone believes will provide additional
growth and acquisition opportunities. Through a combination of broader product
lines, volume purchase discounts, efficient inventory management, generally more
experienced management and a national distribution system, Keystone believes
that it is generally able to operate acquired service centers more profitably
than the prior owners. As of the date of this Proxy Statement/Information
Statement/Prospectus, there are no existing commitments or agreements with
respect to any acquisition.
EXPANSION OF PRODUCTS. Since April 1992, Keystone has introduced
additional product lines, including autoglass, remanufactured alloy wheels and
paint and related supplies and equipment. In addition, Keystone has expanded
its existing product lines as additional aftermarket collision parts have become
available, such as radiators, condensers and head and tail light assemblies for
the growing number of makes and models of automobiles on the road today. The
number of collision parts distributed by Keystone has increased from
approximately 3,000 at December 31, 1992 to approximately 3,900 at December 27,
1996. Keystone intends to
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continue to expand its existing product lines, as well as to continue to
introduce new product lines compatible with its distribution system.
INCREASE IN MARKET SHARE. Comparable service center sales increased
approximately 19% in fiscal 1995 and 10% in fiscal 1996. Keystone's strategy is
to continue to increase its market share in existing markets in the future by
introducing new products and product lines, capitalizing on the competitive
advantages provided by its position as a market leader and continuing to
emphasize customer service.
BUSINESS
PRODUCTS
Keystone distributes more than 13,000 stock keeping units of
aftermarket collision parts and repair materials for most popular models of
domestic and foreign automobiles and light trucks generally for the seven most
recent model years. Keystone's principal product lines consist of automotive
body parts, bumpers, paint and other materials, autoglass, light truck
accessories and remanufactured alloy wheels.
AUTOMOTIVE BODY PARTS. Keystone distributes more than 4,000
automotive and light truck parts manufactured by six foreign and nine domestic
manufacturers, including fenders, hoods, radiators and condensers and head and
tail light assemblies. These products accounted for $43.9 million, or 44.4% of
Keystone's net sales in the nine months ended December 27, 1996.
BUMPERS. Keystone distributes more than 3,000 models of new and
remanufactured plastic bumper covers and steel bumpers manufactured by five
foreign and six domestic manufacturers. For the nine months ended December 27,
1996, sales of bumpers accounted for $32.8 million, or 33.2% of Keystone's net
sales.
Keystone was founded in 1947 as a chrome bumper recycler serving
collision repair shops in Southern California. Keystone has reduced the number
of recycling centers from twelve in 1983 to one by 1993. Keystone's remaining
facility produced less than one percent of the recycled chrome bumpers sold by
Keystone during the nine months ended December 27, 1996. During such nine-month
period, Keystone purchased 9.1% of the new and recycled chrome bumpers sold by
it from North Star.
PAINT AND OTHER MATERIALS. Beginning in fiscal 1993, Keystone
significantly increased its emphasis on the sale of paint and other materials
used in repairing a damaged vehicle. Other materials include sandpaper,
abrasives, masking products and plastic filler. For the nine months ended
December 27, 1996, sales of paint and other materials, which are purchased from
approximately 20 domestic suppliers, accounted for $14.4 million, or 14.6% of
Keystone's net sales. Certain of these products are distributed under the
"Keystone" name.
LIGHT TRUCK ACCESSORIES. Keystone distributes a limited number of
accessories for light trucks, including grills, step bumpers and bedliners. For
the nine months ended December 27, 1996, sales of accessories for light trucks
accounted for $4.8 million, or 4.9% of Keystone's net sales.
AUTOGLASS. Keystone distributes over 750 items of autoglass,
including windshields, side windows and rear windows, which are purchased from
two domestic manufacturers. For the nine months ended December 27, 1996, sales
of autoglass, which was introduced in fiscal 1993, accounted for $2.0 million,
or 2.0% of Keystone's net sales.
REMANUFACTURED ALLOY WHEELS. In October 1995, Keystone acquired a
remanufacturer of collision damaged alloy wheels located in Denver, Colorado,
and in fiscal 1997 has constructed three additional remanufacturing facilities
in Bethlehem, Pennsylvania, Ontario, California and Chicago, Illinois.
According to industry sources, the percentage of new automobiles equipped with
alloy wheels, as opposed to steel wheels and hub caps, has increased from 11% in
1985 to 45% for the 1996 model year. The average wholesale cost of a new
replacement alloy wheel is $225, compared to an average wholesale cost of $140
for a remanufactured alloy wheel. The remanufactured alloy wheel industry is
highly fragmented and generally consists of small independent operators.
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Keystone believes that there is a large and growing demand for remanufactured
alloy wheels and that, using its existing distribution system and customer base,
Keystone is well-positioned to service that demand. For the nine months ended
December 27, 1996, sales of remanufactured alloy wheels accounted for $1.6
million or 1.6% of Keystone's net sales.
DISTRIBUTION, MARKETING AND SALES
Keystone strives to develop every aspect of its business, including
its expanded distribution system, marketing organization and programs,
management information systems and its incentive compensation program, to
provide responsive customer service and to foster long-term, close customer
relations.
DISTRIBUTION SYSTEM. Keystone has developed a national "hub and
spoke" distribution system consisting of seven regional hubs and 47 service
centers. Each regional hub receives container shipments directly from foreign
and domestic manufacturers. Using Keystone's fleet of over 420 delivery trucks,
each regional hub makes regular shipments to the service centers in its region,
which in turn make regular deliveries to its repair shop customers. By
maintaining a fleet of delivery trucks, Keystone ensures rapid delivery within
its distribution system and to its customers. In addition, each service center
can order products directly from any hub or service center. Keystone manages
the ordering, shipment, storage and delivery of products through a centralized
information system that allows Keystone's corporate headquarters, regional hubs
and service centers to obtain timely information regarding the location and
availability of products. The continuing increase in the number of makes and
models of automobiles and the number of aftermarket collision parts has
increased the pressure on distributors to maintain larger inventories. Keystone
believes that its "hub and spoke" distribution system allows it to offer its
customers one of the broadest available selections of aftermarket collision
parts and to fill most orders within 24 hours, while minimizing inventory costs.
SALES AND MARKETING STAFF. Keystone has an eight-person marketing
staff in its corporate headquarters and 53 sales representatives and 299 route
salespersons operating from its service centers. The national marketing staff
develops all marketing and promotional materials, assists the service centers in
recruiting and training sales representatives, route salespersons and customer
service representatives, supervises Keystone's in-house management training
program and supports general managers of its service centers, sales
representatives and route salespersons with computerized analyses of sales by
product, route and customer. In addition, the national marketing staff conducts
educational programs for regional insurance executives and claims adjusters to
explain the role of aftermarket collision parts in containing the escalating
costs of claims and in order to facilitate the implementation of the insurance
companies' policies favoring aftermarket collision parts.
The general managers of Keystone's service centers have been employed
by Keystone for an average of over nine years and are actively involved in
customer calls. Keystone believes that this local control and expertise have
contributed significantly to its growth. In addition, through its periodic
training programs and performance reviews, Keystone seeks to enhance the
professionalism and technical expertise of its route salespersons. As a result,
Keystone believes that its route salespersons are highly attendant to the needs
of Keystone's customers.
MARKETING PROGRAMS. Keystone offers various marketing programs to
foster closer customer relations. For example, Keystone generally warrants its
products against defects in material and workmanship for as long as the repair
shop's customer owns the vehicle. In addition, Keystone's management
information system allows it to provide individual collision repair shops with
personalized product usage reports which enable them to better manage their
inventory by controlling inventory shrinkage and ensuring timely reordering.
CUSTOMERS
Keystone currently markets its products to more than 17,000 regular
collision repair shop customers throughout most of the United States, none of
which accounted for more than 1% of Keystone's net sales in the nine months
ended December 27, 1996. The size of its customer base reduces Keystone's
dependence on any single customer and its national scope mitigates the effects
of regional economic changes and regional weather patterns. Insight estimates
that there are over 48,000 collision repair shops nationwide. The number of
collision
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repair shops to whom Keystone sold products increased from approximately
13,400 in fiscal 1993 to approximately 17,600 during the nine months ended
December 27, 1996. The average monthly net sales per customer increased from
$480 in fiscal 1993 to $546 in the nine months ended December 27, 1996,
primarily as a result of the increase in the products offered by Keystone.
Keystone's regional hubs also sell collision parts to local
distributors who may compete with Keystone. Approximately 10% of Keystone's net
sales for the nine months ended December 27, 1996 were attributable to sales to
other local distributors. No distributor accounted for more than 1% of
Keystone's net sales for such nine-month period.
SUPPLIERS
The products distributed by Keystone are manufactured by over 60
manufacturers, the ten largest of which provided approximately 60% of the
products purchased by Keystone during the nine months ended December 27, 1996.
Keystone believes that it is one of the largest customers of each of its ten
largest suppliers. Approximately 67% of the products distributed by Keystone is
manufactured in the United States or Canada and 33% is manufactured abroad, of
which all are imported from Taiwan. Keystone's orders from domestic suppliers
generally are received within ten days and orders from foreign manufacturers
generally are received in between 60 and 90 days. Although Keystone has no
manufacturing agreements with any of its suppliers and competes with other
distributors for production capacity, Keystone believes that its sources of
supply and its relationships with its suppliers are satisfactory. Although
alternative suppliers exist for substantially all products distributed by
Keystone, the loss of any one supplier could have a material adverse effect on
Keystone until alternative suppliers are located and have commenced providing
products. See "Risk Factors -- Risk Factors Relating to Keystone -- Dependence
on Key and Foreign Suppliers."
COMPETITION
Based upon industry estimates, Keystone believes that approximately
85% of collision parts are supplied by OEMs, compared with approximately 10% by
distributors of aftermarket collision parts and an additional 5% by distributors
of salvage parts. Keystone encounters intense competition from OEMs, all of
which have substantially greater financial, distribution, marketing and other
resources, including greater brand recognition and a broader selection of
collision parts, than Keystone. Accordingly, OEMs are in a position to exert
pricing and other competitive pressure on Keystone. The distribution industry
for aftermarket collision parts is highly fragmented. Keystone's competitors
generally are independently owned distributors having from one to three
distribution centers.
Keystone expects to encounter significant competition in the future,
including competition from OEMs, automobile dealerships, distributors of salvage
parts, buying groups and other large distributors.
Keystone competes with OEMs primarily on the basis of price. In
addition, Keystone competes with distributors of aftermarket collision parts
primarily on the basis of the competitive advantages provided by its position as
a market leader, experienced executive management and service center managers,
entrepreneurial corporate culture, superior customer service, relationship with
insurance companies and management information systems and centralized
administrative functions, as well as price.
GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS
Keystone and its customers are subject to increasing restrictions
imposed by various federal, state and local laws and regulations. Various state
and federal regulatory agencies, such as the Occupational Safety and Health
Administration and the EPA, have jurisdiction over the operations of Keystone
with respect to matters including worker safety, community and employee "right-
to-know" laws, and laws regarding clean air and water. Under various federal,
state and local laws and regulations, an owner or lessee of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose such
liability without regard to whether the owner or lessee knew of, or was
responsible for, the presence of such hazardous or
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toxic substances. Keystone does not currently generate substantial hazardous
waste in the ordinary course of its business. Keystone's chrome bumper
recycling business was reduced from twelve sites in 1983 to one by 1993.
Keystone believes it currently is in substantial compliance with all
applicable laws and regulations, and is not aware of any material
environmental problem at any of its current or former facilities. No
assurances can be given, however, that Keystone's prior activities or the
activities of a prior owner or lessee did not create a material environmental
problem or that future uses or conditions (including, without limitation,
changes in applicable laws and regulations) will not result in the imposition
of material environmental liability upon Keystone. Furthermore, compliance
with legislative or regulatory changes may cause future increases in
Keystone's operating costs or otherwise adversely affect operations. Certain
of Keystone's products, such as paints and solvents, are highly flammable.
Accordingly, the storage and transportation of these materials expose
Keystone to the inherent risk of fire.
FORD LITIGATION
In 1987, Ford Motor Company ("Ford") filed suit against Keystone on
the grounds that between 1982 and 1987, Keystone had misrepresented the quality
of the aftermarket collision parts sold by it for Ford automobiles. In May
1992, Ford and Keystone settled this lawsuit. As part of the settlement,
Keystone and its insurance companies paid Ford $1.8 million, of which Keystone
contributed $450,000, as damages and to finance a one-year corrective
advertising campaign conducted by Ford using Keystone's name. As a result of
this settlement and the corrective advertising campaign, certain insurance
companies ceased listing Keystone as an approved supplier of aftermarket
collision parts. Currently, most major insurance companies list Keystone as an
approved supplier of aftermarket collision parts, and all major insurance
companies reimburse the cost of collision repairs using Keystone's products.
Keystone's business is highly dependent on the continued acceptance of
aftermarket collision parts in general, and Keystone's products in particular,
by insurers, collision repair shops, consumers and governmental agencies.
EMPLOYEES
At November 1, 1996, Keystone had 951 full-time employees, of whom six
were engaged in corporate management, 89 in administration, 557 in sales and
customer service and 299 in warehousing and shipping. Two sales persons in the
St. Louis, Missouri service center, seven persons in the Newark, New Jersey
chrome bumper recycling facility and six persons in its Kenilworth, New Jersey
service center are covered by collective bargaining agreements. Keystone
considers its relations with its employees to be satisfactory.
PROPERTIES
Keystone's principal executive offices are located in Pomona,
California. These premises contain approximately 20,000 square feet and are
owned by Keystone. In addition, Keystone owns facilities used as service
centers in Chicago, Illinois; Bethlehem, Pennsylvania; Denver, Colorado; New
Albany, Indiana and Palmyra, New Jersey, of which two of the facilities also
serve as regional hubs and two serve as wheel remanufacturing facilities.
Keystone leases its remaining facilities, consisting of 42 service centers, of
which four serve as regional hubs and one serves as a wheel remanufacturing
center.
Keystone's regional hubs range from approximately 47,000 square feet
to 163,000 square feet. Its service centers range from approximately 4,000
square feet to 30,000 square feet. All of its leased properties are leased for
terms expiring on dates ranging from the date hereof to October 2002, many with
options to extend the lease term. Keystone believes that no single lease is
material to its operations, its facilities are adequate for the foreseeable
future and alternative sites presently are available at market rates. Three of
Keystone's service centers are leased from parties in whom officers, directors
or shareholders of Keystone have an interest. Keystone believes that the terms
and conditions of leases with affiliated parties are no less favorable than
could have been obtained from unaffiliated parties in arm's-length transactions
at the time of the execution of such leases. See "Information Concerning
Keystone -- Certain Transactions." Keystone also leases ten small depots in
larger cities to facilitate distribution.
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LEGAL PROCEEDINGS
Keystone is from time to time involved in litigation incidental to
the conduct of its business. Keystone currently is not a party to any
pending litigation.
DIVIDEND POLICY
Keystone has never paid cash dividends on its Common Stock.
Keystone currently intends to retain any future earnings to provide funds for
the operation and expansion of its business and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. The payment of
dividends is within the discretion of Keystone's Board of Directors, and will
depend upon, among other things, Keystone's earnings, financial condition,
capital requirements, general business conditions and restrictions in credit
agreements. Keystone's line of credit currently prohibits the payment of
dividends. See "Information Concerning Keystone -- Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
PRICE RANGE OF COMMON STOCK
Keystone's Common Stock began trading publicly on the Nasdaq
National Market under the symbol "KEYS" on June 20, 1996. The following
table sets forth, for the periods indicated, the range of high and low sale
prices for Keystone's Common Stock as reported by the Nasdaq National Market.
These prices do not include retail markups, markdowns or commissions.
FISCAL 1997 HIGH LOW
----- ----
First Quarter (since June 20, 1996) . . . . . . . $10.50 $ 9.25
Second Quarter . . . . . . . . . . . . . . . . . . 13.75 10.125
Third Quarter . . . . . . . . . . . . . . . . . . 17.25 12.00
Fourth Quarter (through February 10, 1997) . . . . 18.00 17.00
On December 2, 1996, the last trading day prior to the public
announcement of the Merger, the closing price for the Common Stock of
Keystone on Nasdaq was $15.125. On December 10, 1996, the last reported sale
price of Keystone's Common Stock as reported by the Nasdaq National Market
System was $16.50. As of December 10, 1996, there were approximately 83
shareholders of record of the Common Stock.
SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of,
each of the fiscal years in the two-year period ended March 29, 1996 have been
derived from financial statements of Keystone, which have been audited by Ernst
& Young LLP, independent auditors, appearing elsewhere in this Proxy
Statement/Information Statement/Prospectus The selected financial data
presented below for, and as of the end of the fiscal year ended March 25, 1994,
have been derived from the financial statements audited by Ernst & Young LLP, of
which the balance sheet is not included in this Proxy Statement/Information
Statement/Prospectus. The operating data were derived from unaudited
information maintained by Keystone. The selected financial data presented below
for, and as of the end of, each of the fiscal years in the two-year period ended
March 26, 1993 have been derived from financial statements audited by Ernst &
Young LLP, independent auditors, which are not included in this Proxy
Statement/Information Statement/Prospectus. The selected financial data as of
December 29, 1995 and December 27, 1996 and the nine-month periods then ended
have been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the information set forth therein. Operating
results for the nine months ended December 27, 1996 are not necessarily
indicative of the results that may be expected after the Merger is consummated.
The following data is qualified in its entirety by, and should be read in
conjunction with, the other information and financial
66
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statements, including the notes thereto, appearing elsewhere in this Proxy
Statement/Information Statement/Prospectus.
<TABLE>
<CAPTION>
(In thousands, except share and per share amounts and operating data)
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- ---------------------------
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29, DECEMBER 29, DECEMBER 27,
1992 1993 1994 1995(1) 1996 1995 1996
--------- --------- --------- -------- -------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales . . . . . . . . . . . . . . . $ 75,234 $ 77,320 $ 84,884 $ 101,596 $ 115,326 $ 82,188 $ 98,967
Cost of sales . . . . . . . . . . . . . 46,528 47,258 51,196 61,532 70,246 50,010 59,278
--------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . . 28,706 30,062 33,688 40,064 45,080 32,178 39,689
Selling and distribution expenses . . 19,984 23,428 25,308 28,635 31,230 22,389 26,542
General and administrative expenses . . 4,845 4,793 5,511 6,436 7,172 5,083 6,233
Merger costs . . . . . . . . . . . . . -- -- -- -- -- -- 286
Certain charges(2)
ESOP contribution(3) . . . . . . . 650 300 174 190 -- 225 --
Special stock compensation(4) . . . -- -- 562 1,200 -- -- --
Founders' compensation(5) . . . . . 626 658 356 400 393 300 --
Litigation settlement(6) . . . . . 450 -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Subtotal . . . . . . . . . . . . . 1,726 958 1,092 1,790 393 525 --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income . . . . . . . . . . . 2,151 883 1,777 3,203 6,285 4,181 6,628
Interest expense . . . . . . . . . . . 727 767 680 962 1,156 860 561
--------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect . . . . . . . . . . 1,424 116 1,097 2,241 5,129 3,321 6,067
Income taxes . . . . . . . . . . . . . 635 38 447 835 2,023 1,326 2,486
Income before cumulative effect
of accounting change . . . . . . . . . $ 789 $ 78 $ 650 $ 1,406 $ 3,106 $ 1,995 $ 3,581
--------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative effect of accounting
change for income taxes . . . . . . . -- -- 134 -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . $ 789 $ 78 $ 516 $ 1,406 $ 3,106 $ 1,995 $ 3,581
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
Income per share before
cumulative effect of accounting
change . . . . . . . . . . . . . . . . $ 0.13 $ 0.01 $ 0.11 $ 0.24 $ 0.54 $ 0.34 $ 0.53
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative effect per share . . . . . . -- -- (0.02) -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income per share(7) . . . . . . . . $ 0.13 $ 0.01 $ 0.09 $ 0.24 $ 0.54 $ 0.34 $ 0.53
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
Weighted average common shares
outstanding(7)(8) . . . . . . . . . 5,862,909 5,862,755 5,862,755 5,805,166 5,800,000 5,800,000 6,789,000
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- ---------------------------
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29, December 29, December 27,
1992 1993 1994 1995(1) 1996 1995 1996
-------- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (UNAUDITED)
Number of service centers
Starting sites . . . . . . . . . . . 27 30 40 38 42 42 41
Sites acquired . . . . . . . . . . -- 12 -- 5 2 2 9
Sites opened . . . . . . . . . . . 3 -- -- -- -- -- --
Sites consolidated . . . . . . . . -- 2 -- 1 2 2 3
Sites closed . . . . . . . . . . . -- -- 2 -- 1 1 1
Ending sites . . . . . . . . . . . . 30 40 38 42 41 41 46
Comparable service center
sales increase (decrease)(9) . . . 4% (8%) 8% 19% 10% 7% 17%
</TABLE>
<TABLE>
<CAPTION>
MARCH 27, MARCH 26, MARCH 25, MARCH 31, MARCH 29, DECEMBER 27,
1992 1993 1994 1995 1996 1996
--------- -------- --------- --------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital . . . . . . . . . . . . . . . $ 6,307 $ 6,239 $ 7,004 $ 8,319 $10,319 $20,616
Total assets . . . . . . . . . . . . . . . . 30,489 29,718 34,531 36,664 43,035 53,528
Total current liabilities . . . . . . . . . . 19,935 18,653 23,046 22,640 26,711 22,386
Long-term debt, less current maturities . . . 165 729 416 1,215 813 428
Shareholders' equity . . . . . . . . . . . . 9.676 9.753 10,569 12,369 15,475 20,678
</TABLE>
- ------------------
(1) Fiscal 1995 contained 52 weeks.
(2) Certain charges represent general and administrative expenses which are
unusual or non-recurring in nature. Such costs are not expected to be
incurred in the future. Operating income before certain charges was
$3,877,000, $1,841,000, $2,869,000, $4,993,000 and $6,678,000 in fiscal
1992, 1993, 1994, 1995 and 1996, respectively.
(3) Reflects contributions to the ESOP to buy back shares from retiring
participants or those withdrawing from the ESOP. Keystone does not intend
to make contributions to the ESOP in the foreseeable future.
(4) Reflects compensation expense incurred in connection with the issuance of
stock under Keystone's Restricted Stock Option Plan for executives, which
plan was terminated in fiscal 1995.
(5) Reflects compensation paid to the founding shareholders whose compensation
terminated with their retirement effective March 31, 1996.
(6) Reflects payments made in June 1993 in settlement of litigation with Ford
Motor Company. See "Information concerning Keystone -- Ford Litigation."
(7) All share and per share amounts have been adjusted to reflect a 3.8467-for-
1 stock split effected in April 1996.
(8) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.
(9) Comparable service center sales have been computed using sales of service
centers that were open during both fiscal years being compared.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of Keystone's financial
condition and results of operations is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in
this Proxy Statement/Information Statement/Prospectus.
The following table sets forth, for the periods indicated, certain
selected income statement items as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------------------- --------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, DECEMBER 29, DECEMBER 27,
1993 1994 1995 1996 1995 1996
--------- -------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . 61.2 60.3 60.6 60.9 60.8 59.9
Gross profit . . . . . . . . . . . 38.8 39.7 39.4 39.1 39.2 40.1
Selling and distribution expenses . 30.3 29.8 28.1 27.1 27.2 26.8
General and administrative
expenses . . . . . . . . . . . . . 6.2 6.5 6.3 6.2 6.2 6.3
Merger Costs . . . . . . . . . . . -- -- -- -- -- 0.1
Certain charges . . . . . . . . . . 1.2 1.4 1.8 0.3 0.6 --
Income from operations . . . . . . 1.1 2.0 3.2 5.5 5.1 6.7
Interest expense . . . . . . . . . 1.0 0.8 1.0 1.0 1.0 0.6
--------- -------- --------- --------- ------------ -------------
Net income . . . . . . . . . . . . 0.1% 0.6% 1.4% 2.7% 2.5% 3.6%
--------- -------- --------- --------- ------------ -------------
--------- -------- --------- --------- ------------ -------------
</TABLE>
NINE MONTHS ENDED DECEMBER 29, 1995 COMPARED TO NINE MONTHS ENDED
DECEMBER 27, 1996. For the nine-month period ended December 27, 1996, net
sales were $98,967,000 compared to $82,187,000 for the nine-month period
ended December 29, 1995, an increase of $16,779,000 or approximately 20%.
Keystone recorded sales gains of $8,458,000 in automotive body parts
$4,565,000 in new and recycled bumpers, $1,533,000 in paint and related
materials and $1,509,000 in the sale of remanufactured alloy wheels. These
sales gains represent increases of 24%, 16%, 12% and 1444% for automotive
body parts, bumpers, paint and alloy wheels, respectively.
Management attributes the increased sales to the increased use of
aftermarket collision replacement parts, increased penetration of existing
product lines and the carryover of the severe winter weather experienced in
many parts of the northeast and midwest United States.
For the nine-month period ended December 27, 1996, gross profit
increased to $39,689,000 (40.1% of net sales) compared to $32,178,000 (39.2%
of net sales) for the nine months ended December 29, 1995, primarily as a
result of the increase in net sales.
Keystone's target gross profit margin has, and is expected to
continue to fluctuate depending on a number of factors, including but not
limited to, product mix, acquisitions, competition and new product
introductions.
For the nine-month period ended December 27, 1996, selling and
distribution expenses increased to $26,542,000 (26.8%) of net sales) compared
to $22,389,000 (27.2% of net sales) for the nine-month period ended December
29, 1995, an increase of 19%.
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<PAGE>
For the nine-month period ended December 27, 1996, general and
administrative expenses increased to $6,233,000 (6.3% of net sales) compared
to $5,573,000 (6.8% of net sales) for the nine-month period ended December
29, 1995, an increase of 12%.
Keystone's improvement in selling and distribution and general and
administrative expenses, as a percentage of sales, is generally the result of
certain fixed costs being absorbed over a larger revenue base, offset on a
short term basis by costs associated with consolidating and assimilating
acquisitions.
During the nine months ended December 29, 1995, Keystone incurred
certain charges that are not expected to continue into future periods in an
aggregate amount of $525,000, which were comprised of a $225,000 contribution
to the ESOP and $300,000 of compensation paid to Keystone's founders who
retired effective March 31, 1996.
FISCAL 1995 COMPARED TO FISCAL 1996. Net sales increased from
$101.6 million in fiscal 1995 to $115.3 million in fiscal 1996, an increase
of 13.5%. This increase was due primarily to (i) an increase of $7.9 million
in sales of automotive body parts, (ii) an increase of $3.3 million in sales
of bumpers and (iii) an increase of $3.1 million in sales of paint and
related supplies. Fiscal 1996 includes 52 weeks of operating results compared
to 53 weeks in fiscal 1995.
Gross profit increased from $40.1 million (39.4% of net sales) in
fiscal 1995 to $45.1 million (39.1% of net sales) in fiscal 1996, an increase
of 12.5%. The decrease in gross profit as a percentage of net sales was due
primarily to the increase in sales of paint and related supplies, which
generally have a lower gross profit margin than Keystone's other products.
Selling and distribution expenses increased from $28.6 million
(28.1% of net sales) in fiscal 1995 to $31.2 million (27.1% of net sales) in
fiscal 1996, an increase of 9.1%. Selling and distribution expenses as a
percentage of net sales were positively affected by operating efficiencies
due to increased sales.
General and administrative expenses increased from $6.4 million
(6.3% of net sales) in fiscal 1995 to $7.2 million (6.2% of net sales) in
fiscal 1996, an increase of 12.5%. The decrease in general and
administrative expenses as a percentage of net sales was due primarily to
efficiencies achieved by allocating Keystone's fixed expenses over the larger
revenue base.
During fiscal 1995 and fiscal 1996, Keystone incurred certain
charges that are not expected to continue into future periods. In fiscal
1995, these charges totaled $1.8 million compared to $393,000 in fiscal 1996.
For fiscal 1995, these charges were comprised of a $190,000 ESOP
contribution, $1.2 million of compensation pursuant to Keystone's Restricted
Stock Option Plan which expired in fiscal 1995 and $400,000 of compensation
paid to Keystone's founders who retired effective March 31, 1996. For fiscal
1996, these certain charges totaled $393,000, which consisted entirely of
compensation paid to Keystone's founders.
Interest expense increased from $962,000 in fiscal 1995 to $1.2
million in fiscal 1996, an increase of 20.2%, primarily due to increased
short-term debt incurred in connection with financing the purchase of
inventory, including inventory acquired in connection with the acquisition of
service centers.
FISCAL 1994 COMPARED TO FISCAL 1995. Net sales increased from
$84.9 million in fiscal 1994 to $101.6 million in fiscal 1995, an increase of
19.7%. This increase was due to an increase in comparable service center
sales of $15.3 million, primarily as a result of increases in sales of paint
and related supplies of $8.4 million and an increase in the sale of
automotive body parts of $7.4 million. Fiscal 1995 included 53 weeks of
operating results compared to 52 weeks in fiscal 1994.
Gross profit increased from $33.7 million (39.7% of net sales) in
fiscal 1994 to $40.1 million (39.4% of net sales) in fiscal 1995, an increase
of 19.0%. The dollar increase in gross profit and the decrease in gross
profit as a percentage of net sales in fiscal 1995 were adversely impacted by
an increased inventory reserve of $1.2 million and increased product costs
related to inventory acquired in connection with the acquisition of service
centers in October 1994.
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Selling and distribution expenses increased from $25.3 million
(29.8% of net sales) in fiscal 1994 to $28.6 million (28.1% of net sales) in
fiscal 1995, an increase of 13.0%. The decrease in selling and distribution
expenses as a percentage of net sales was due primarily to operating
efficiencies due to increased sales, which were offset in part at the
generally higher selling expenses initially incurred at service centers which
were acquired by Keystone in the third quarter of fiscal 1995.
General and administrative expenses increased from $5.5 million
(6.5% of net sales) in fiscal 1994 to $6.4 million (6.3% of net sales) in
fiscal 1995, an increase of 16.4%. The decrease in general and
administrative expenses as a percentage of net sales was due primarily to
efficiencies achieved by allocating Keystone's fixed expenses over the larger
revenue base.
During fiscal 1994, Keystone incurred certain charges totaling $1.1
million compared to $1.8 million for fiscal 1995. These charges were
comprised of a $174,000 ESOP contribution, $562,000 of compensation pursuant
to Keystone's Restricted Stock Option Plan and $356,000 of compensation paid
to Keystone's founders. For fiscal 1995, these certain charges totaled $1.8
million. The ESOP contribution was $190,000, the special stock compensation
was $1.2 million and the founders' compensation was $400,000.
Interest expense increased from $680,000 in fiscal 1994 to $962,000
in fiscal 1995, an increase of 41.5%, primarily due to higher interest rates
and increased short-term debt incurred in connection with financing the
purchase of inventory, including inventory acquired in connection with the
acquisition of service centers.
FISCAL 1993 COMPARED TO FISCAL 1994. Net sales increased from
$77.3 million in fiscal 1993 to $84.9 million in fiscal 1994, an increase of
9.8%. This increase was due primarily to an increase in comparable service
center sales of $5.4 million and to sales at eight service centers acquired
during fiscal 1993 totaling $2.2 million.
Although sales increased, they were adversely effected in fiscal
1993 and, to a lesser extent, in fiscal 1994 as a result of a corrective
advertising campaign required in connection with the settlement of Keystone's
lawsuit with Ford Motor Company and the action by certain insurance companies
to cease listing Keystone as an approved supplier of aftermarket collision
parts. See "Information Concerning Keystone -- Business -- Ford Litigation."
Gross profit increased from $30.0 million (38.8% of net sales) in
fiscal 1993 to $33.7 million (39.7% of net sales) in fiscal 1994, an increase
of 12.3%. The increase in gross profit as a percentage of net sales was due
primarily to increased competition among Keystone's foreign suppliers which
resulted in lower product costs, the introduction by Keystone of recycled
rubber bumpers which have a substantially higher gross profit margin than
Keystone's other products and improvements in the operating results at
certain acquired service centers.
Selling and distribution expenses increased from $23.4 million
(30.3% of net sales) for fiscal 1993 to $25.3 million (29.8% of net sales)
for fiscal 1994, an increase of 8.1%. The decrease in selling and
distribution expense as a percentage of net sales was due primarily to
operating efficiencies from increased sales, which were offset in part at the
generally higher selling and distribution expenses initially incurred at
service centers which were acquired by Keystone during fiscal 1993.
General and administrative expenses increased from $4.8 million
(6.2% of net sales) for fiscal 1993 to $5.5 million (6.5% of net sales) for
fiscal 1994, an increase of 14.6%. The increase in general and
administrative expenses as a percentage of net sales was due primarily to
expenses incurred in connection with integrating the fiscal 1993 acquisitions.
During fiscal 1993, Keystone incurred certain charges totaling
$958,000, which were comprised of a $300,000 contribution to the ESOP and
$658,000 of compensation paid to Keystone's founders who retired effective
March 31, 1996, as compared to aggregate certain charges totaling $1.1
million in fiscal 1994.
Interest expense declined from $767,000 in fiscal 1993 to $680,000
in fiscal 1994, a decline of 11.3%, due to a decline in interest rates
generally, which was offset in part by an increase in short-term debt
incurred in connection with financing the purchase of inventory, including
inventory purchased in connection with the acquired service centers and
financing the payment of taxes.
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VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
Keystone has experienced, and expects to continue to experience, a
substantial variation in its sales and profitability from quarter to quarter
due, in part, to the seasonal nature of Keystone's business and the timing
and integration of acquisitions. The number of collision repair jobs is
dependent on the weather. Accordingly, Keystone's sales generally are
highest during the five month period between December and April. Such
seasonality may be reduced somewhat in the future should Keystone become more
geographically diversified. Other factors, which influence quarterly
variations, include the reduced number of business days during the holiday
seasons, the timing of the introduction of new products, the level of
consumer acceptance of new products, general economic conditions that affect
consumer spending, the timing of supplier price changes and the timing of
expenditures in anticipation of increased sales and customer delivery
requirements.
The following unaudited table sets forth Keystone's net sales,
operating income and net income (loss) for the ten quarters ended December
27, 1996. The operating results for any quarter are not necessarily
indicative of the results of any future period. Each quarter includes 13
weeks of operations except for the first quarter of fiscal 1995 which
includes 14 weeks.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
--------------------------------- ------------------------------- ------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . $26,112 $23,937 $24,663 $26,884 $26,523 $26,969 $28,694 $33,140 $32,163 $31,373 $35,431
Certain charges(1). . 151 146 744 749 174 173 178 (132) -- -- --
Operating income . . 1,665 1,345 84 109 1,139 1,429 1,617 2,100 2,068 2,191 2,369
Net income (loss) . . 932 706 (115) (117) 517 686 792 1,111 1,080 1,229 1,272
</TABLE>
_____________
(1) Certain charges represent certain general and administrative expenses which
are unusual or non-recurring in nature, consisting of ESOP contributions to
buy back shares from retiring participants or those withdrawing from the
plan, compensation pursuant to Keystone's Restricted Stock Option Plan and
compensation for the founding shareholders whose compensation terminated
with their retirement effective March 31, 1996. Such costs are not
expected to be incurred in the future. Operating income before certain
charges was $4,993,000 and $6,678,000 in fiscal 1995 and 996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, Keystone completed an initial public offering of
3,105,000 shares of its Common Stock. In the offering, Keystone sold
1,500,000 shares of Common Stock and selling shareholders sold 1,605,000
shares of Common Stock at a price of $9.00 per share. The net proceeds to
Keystone after discounts, commissions and expenses were $11,622,000.
Approximately $10,884,000 of the proceeds were used to pay down
Keystone's revolving credit facility with a commercial bank and approximately
$738,000 of the proceeds were used to retire two outstanding mortgages on
Keystone facilities located in Bethlehem, Pennsylvania and Louisville,
Kentucky. Subsequently, $5,425,000 was reborrowed under the line of credit to
fund acquisitions.
Keystone's primary need for funds has been to finance the growth of
inventory, the result of an expanding product line, and the growth of
accounts receivable, the result of increased sales and the acquisition of new
service centers. At December 27, 1996, working capital was $20,616,000
compared to $10,319,000 at March 29, 1996. Historically, Keystone has
financed its working capital requirements from its cash flow from operations,
advances drawn under its line of credit and, to a limited extent,
indebtedness to certain of the sellers of its acquired service centers.
Subject to the size of the acquisitions which Keystone may complete
in the future, Keystone believes that its cash flow from operations and the
credit available under its line of credit will enable it to finance its
anticipated growth in sales for at least the next twelve months.
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<PAGE>
Net cash provided by operating activities for the nine months ended
December 27, 1996 was $1.1 million, compared to net cash used in operating
activities of $2.3 million for the nine months ended December 29, 1995.
Inventory increased from $22.2 million at March 29, 1996 to $26.4 million at
December 27, 1996.
Keystone has a secured line of credit with a commercial bank
pursuant to which Keystone may borrow from time to time up to 80% of the net
amount of eligible accounts receivable (as defined) and 50% of the value of
eligible inventory (as defined), up to $17.0 million at any time outstanding,
with a sublimit of $6.0 million for letters of credit for the importation of
automotive parts. Revolving credit advances up to $17.0 million bear
interest at the lender's reference rate (8.25% at December 27, 1996) plus
0.25%; provided, however, that at Keystone's option up to $6.0 million of
revolving credit advances, in increments of $500,000, may bear interest at
LIBOR (6.93% at December 27, 1996) plus 1.5%. Bankers' acceptances bear a
commission rate of 1% per annum over the lender's discount rate for
acceptance and mature 90 days from the date of issuance. Keystone currently
requires its suppliers to bear such commissions. Borrowings are secured by
Keystone's accounts receivable, inventory, general intangibles and cash
deposits. Keystone is subject to certain restrictive covenants, including,
but not limited to, a prohibition on the payment of dividends, a minimum
tangible net worth requirement, a minimum ratio of net profit to current
debt, a maximum inventory turnover, a prohibition on the sale of assets or
mergers, restrictions on executive compensation and restrictions on the
incurring of other indebtedness. The line of credit expires on August 1,
1997. At December 27, 1996, Keystone had reference rate based advances of
$6,650,000, no LIBOR based advances, and letters of credit outstanding and
bankers' acceptances outstanding of $3,011,000. At such date, $7,339,000 was
available under the line of credit. Keystone does not believe that the
merger of Keystone and North Star will have a material effect on the combined
company's liquidity and capital resources.
Keystone believes that consolidation among distributors of
aftermarket collision parts is creating opportunities for Keystone to acquire
and open service centers in new and existing markets. Keystone intends to
explore acquisition opportunities that may arise from time to time. At the
date of this Proxy Statement/Information Statement/Prospectus, there are no
existing commitments or agreements with respect to any acquisition, other
than the Merger. To date, Keystone's acquisitions have been financed by cash
flow from operations, advances drawn under its credit facility and
indebtedness to certain of the sellers of its acquired centers. To implement
its acquisition strategy, Keystone may incur indebtedness or issue additional
equity or debt securities to third parties or the sellers of the acquired
businesses. There can be no assurance that additional capitals, if and when
required, will be available on terms acceptable to Keystone, or at all. In
addition, future issuance of equity securities, if any, would dilute the
existing ownership of all shareholders of Keystone.
The four acquisitions completed during the nine months ended
December 27, 1996 were completed using cash and notes totaling approximately
$5,925,000.
In April 1996, Keystone opened its second wheel remanufacturing
facility in Bethlehem, Pennsylvania. Additional facilities have been opened
in Ontario, California; Chicago, Illinois; and Boston, Massachusetts.
Keystone's sixth facility will be located in Atlanta, Georgia and is expected
to be operational in February 1997.
INFLATION
Keystone does not believe that the relatively moderate rates of
inflation in the past three years have had a significant effect on its net
sales or its profitability.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF, which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Keystone has adopted
Statement 121 in fiscal 1997 and the effect of adoption was not material. In
October 1995, the FASB issued Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which establishes financial accounting and reporting standards
for stock-based compensation
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plans. Keystone has adopted Statement No. 123 in fiscal 1997, and has
elected to continue to measure compensation cost for its employee stock
compensation plans using the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES.
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<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The following table sets forth information regarding the directors,
executive officers and certain key personnel of Keystone.
<TABLE>
<CAPTION>
Years Employed
NAME AGE POSITION BY KEYSTONE
---- --- -------- -----------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Virgil K. Benton II . . . 40 Chairman of the Board and Chief 21
Executive Officer
Charles J. Hogarty . . . . 55 President, Chief Operating Officer 36
and Director
Al A. Ronco . . . . . . . 60 Executive Vice President, Secretary 37
and Director
Robert L. Blanton . . . . 53 Vice President - Finance 27
John M. Palumbo . . . . . 41 Vice President and Treasurer *
Christopher Northup . . . 37 Vice President -- Sales and Marketing 13
Timothy C. McQuay(1) . . . 45 Director --
George E. Seebart(1) . . . 68 Director --
</TABLE>
<TABLE>
<CAPTION>
YEARS EMPLOYED
NAME AGE POSITION BY KEYSTONE
---- --- -------- --------------
<S> <C> <C> <C>
KEY PERSONNEL
- -------------
Larry Bussard . . . . . . 53 National Computer Operations Director 18
Scott Haddon . . . . . . . 35 Director of Purchasing 12
</TABLE>
__________________
* Less than one year.
(1) Member of the Audit Committee and the Compensation Committee.
VIRGIL K. BENTON II has served as the Chairman of the Board and
Chief Executive Officer of Keystone since 1993 and has served as a director
since 1988. From his joining Keystone in 1975 until 1993, Mr. Benton held
various positions, including template maker, route salesman, production
manager, general manager, vice president and vice chairman.
CHARLES J. HOGARTY has served as the President, Chief Operating
Officer and a director of Keystone since 1987. From his joining Keystone in
1960 until 1987, Mr. Hogarty held various positions, including salesman,
sales manager, general manager and regional manager. Mr. Hogarty served as a
director of the ABPA from 1984 to 1993, President in 1989 and Chairman in
1990.
AL A. RONCO has served as the Executive Vice President, Secretary
and a director of Keystone since 1987. From his joining Keystone in 1959
until 1987, Mr. Ronco held various positions, including salesman, production
manager, general manager and regional manager.
ROBERT L. BLANTON has served as the Vice President - Finance since
1976. From his joining Keystone in 1969 until 1976, Mr. Blanton held various
positions, including as office manager of a wheel fabrication plant and staff
accountant.
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<PAGE>
JOHN M. PALUMBO joined Keystone as Vice President and Treasurer in
March 1996. From 1988 until he joined Keystone in 1996, Mr. Palumbo served
as Chief Financial Officer, Treasurer and Corporate Secretary of American
United Global, Inc., a public company engaged in the manufacture of certain
automotive parts.
TIMOTHY C. MCQUAY has served as a director since the completion of
Keystone's initial public offering in June 1996. Mr. McQuay joined the
Corporate Finance Department of Crowell, Weedon & Co. as Managing Director --
Corporate Finance in October 1994. From May 1993 to October 1994, Mr. McQuay
was Vice President, Corporate Development with Kerr Group, Inc., a NYSE-listed
plastics manufacturing company. From May 1990 to May 1993, Mr. McQuay was
Managing Director -- Merchant Banking with Union Bank.
GEORGE E. SEEBART has served as a director since the completion of
Keystone's initial public offering in June 1996. From 1964 until his retirement
in 1993, Mr. Seebart was employed in various executive positions with Farmers
Group, Inc., including as Senior Vice President - California Zone since 1992 and
President of Mid-Century Insurance Company from 1987 to 1992.
CHRISTOPHER NORTHUP has served as Vice President -- Sales and
Marketing since October 29, 1996. From 1987 to October 29, 1996, Mr. Northup
served as the National Marketing Director. From his joining Keystone in 1983
until 1987, Mr. Northup held the position of Publications Manager.
LARRY BUSSARD has served as the National Computer Operations Director
since 1986. From his joining Keystone in 1978 until 1986, Mr. Bussard held
various positions, including salesman and branch manager.
SCOTT HADDON has served as the Director of Purchasing since 1987.
From his joining Keystone in 1984 until 1987, Mr. Haddon held various positions,
including salesman and assistant manager.
All directors are elected annually and serve until the next annual
meeting of shareholders or until their successors have been elected and
qualified. Keystone's Restated Articles of Incorporation provide that, upon the
satisfaction of certain conditions, the Board of Directors will be divided into
three classes of directors, each serving for staggered three-year terms.
The Board of Directors has established an Audit Committee and a
Compensation Committee, each of which consists of two or more directors who
serve at the pleasure of the Board of Directors.
The members of the Audit Committee are Mr. McQuay and Mr. Seebart.
The primary purposes of the Audit Committee are (i) to review the scope of the
audit and all non-audit services to be performed by Keystone's independent
certified public accountants and the fees incurred by Keystone in connection
therewith, (ii) to review the results of such audit, including the independent
accountants' opinion and letter of comment to management and management's
response thereto, (iii) to review with Keystone's independent accountants
Keystone's internal accounting principles, policies and practices and financial
reporting, (iv) to make recommendations regarding the selection of Keystone's
independent accountants and (v) to review Keystone's quarterly financial
statements prior to public issuance.
The members of the Compensation Committee are Mr. McQuay and Mr.
Seebart. The purposes of the Compensation Committee are (i) to review and
recommend to the Board of Directors the salaries, bonuses and perquisites of
Keystone's executive officers, (ii) to determine the individuals to whom, and
the terms upon which, awards under Keystone's stock incentive plan will be
granted, (iii) to make periodic reports to the Board of Directors as to the
status of the such plan and (iv) to review and recommend to the Board of
Directors additional compensation plans.
EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION. Keystone pays to each director who is not
employed by it an annual retainer of $7,500 per year, payable in equal
quarterly installments, and $1,000 for each board meeting and $500 for each
committee meeting attended, and reimburses such person for all reasonable and
documented expenses incurred by him in his capacity as a director. The Board
of Directors may modify such compensation in the future. In
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<PAGE>
addition, each director not employed by Keystone, upon joining the Board of
Directors, will receive an option to purchase 10,000 shares of the Common
Stock of Keystone. Such options will have an exercise price equal to the
market price of such shares on the date of grant, will be immediately
exercisable and will have a term of ten years.
EXECUTIVE COMPENSATION. The following table sets forth the
compensation paid or accrued by Keystone for services rendered in all capacities
during the fiscal year ended March 29, 1996 to each person who acted in the
capacity of an executive officer (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
-------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(2) COMPENSATION ($)(3)
- --------------------------- ---- ---------- ---------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Virgil K. Benton, Sr.(4) 1996 150,000 -- 8,299 10,000
1995 137,500 -- 8,299 10,000
1994 150,000 -- 8,299 10,000
John G. Jordan(4) 1996 268,458 -- 9,866 5,165
1995 255,655 -- 9,866 1,793
1994 255,655 -- 9,866 6,639
Virgil K. Benton II 1996 425,000 185,744 20,718 9,069
1995 383,685 -- 20,718 2,930
1994 81,900 -- 20,718 1,465
Charles J. Hogarty 1996 145,000 214,395 11,616 310
1995 127,625 184,836 11,616 1,518
1994 127,625 53,380 11,616 1,203
Al Ronco 1996 125,000 187,787 11,640 3,682
1995 117,258 117,258 11,640 10,000
1994 111,674 111,624 11,640 898
Robert L. Blanton 1996 102,000 25,000 3,195 5,391
1995 68,250 94,403 3,195 3,170
1994 65,000 27,263 3,195 3,833
________________
</TABLE>
(1) Consists of compensation paid for services rendered in fiscal 1996, 1995
and 1994, respectively.
(2) Consists of automobile lease and related expenses.
(3) Consists of reimbursement of medical and dental expenses not covered by
insurance plans provided to employees generally.
(4) Virgil K. Benton, Sr. and John G. Jordan, Keystone's founders, resigned as
directors and employees effective as of March 31, 1996.
Effective as of June 20, 1996, Keystone entered into three-year
employment agreements with Messrs. Benton, Hogarty, Ronco and Blanton pursuant
to which each such person is entitled to (i) receive an annual base salary of
$295,000, $250,000, $185,000 and $100,000, respectively, (ii) receive such
performance-based bonus, if any, as may be determined by the Board of Directors,
(iii) participate in all plans sponsored for employees in
77
<PAGE>
general and (iv) receive the use of an automobile leased and maintained by
Keystone. For fiscal 1997, Messrs. Benton, Hogarty, Ronco and Blanton shall
be entitled to a bonus of up to 35%, 30%, 25% and 10%, respectively, of a
bonus pool. The bonus pool ranges from 20% of such executive officers'
aggregate annual base salaries if Keystone's pre-tax profit margin equals or
exceeds 5% to 70% of such aggregate annual base salaries if Keystone's
pre-tax profit margin equals or exceeds 10%. In the event Keystone terminates
employment before the end of the stated term without cause or the individual
terminates his employment for specified causes, Keystone is obligated to pay
the base salary through the stated term of the agreement. In the event
Keystone terminates employment before the end of the stated term with cause,
Keystone is obligated to pay the base salary only through the date of
termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the initial public offering of Keystone's Common Stock,
all decisions involving executive officer compensation were made by
Keystone's Board of Directors, which consisted of Virgil K. Benton, Sr., John
G. Jordan, Virgil K. Benton II, Charles J. Hogarty, Al A. Ronco and Robert L.
Blanton, as the Board of Directors did not then have a Compensation
Committee. Since completion of the initial public offering of Keystone's
Common Stock in June 1996, Keystone's Compensation Committee, consisting of
Timothy C. McQuay and George E. Seebart, has made all decisions regarding
executive compensation.
EMPLOYEE BENEFIT PLANS
STOCK INCENTIVE PLAN
GENERAL. The Board of Directors of Keystone has adopted the 1996
Employee Stock Incentive Plan (the "Option Plan") pursuant to which officers,
directors, employees and independent contractors are eligible to receive
shares of the Common Stock of Keystone or other securities or benefits with a
value derived from the value of the Common Stock of Keystone. The purpose of
the Option Plan is to enable Keystone to attract, retain and motivate
officers, directors, employees and independent contractors by providing for
or increasing their proprietary interests in Keystone and, in the case of
non-employee directors, to attract such directors and further align their
interests with those of Keystone's shareholders by providing for or
increasing their proprietary interests in Keystone. The maximum number of
shares of Common Stock that may be issued pursuant to awards granted under
the Option Plan is 730,000 (subject to adjustments to prevent dilution).
ADMINISTRATION. The Option Plan is administered by a committee of
two or more disinterested directors appointed by the Board of Directors (the
"Committee"), except that grants to non-employee directors are made by the
Board of Directors pursuant to a predetermined formula. The Committee has
full and final authority to select the recipients of awards and to grant such
awards. Subject to the provisions of the Option Plan, the Committee has a
wide degree of flexibility in determining the terms and conditions of awards
and the number of shares to be issued pursuant thereto, including
conditioning the receipt or vesting of awards upon the achievement by
Keystone of specified performance criteria. The expenses of administering
the Option Plan are borne by Keystone.
TERMS OF AWARDS. The Option Plan authorizes the Committee to enter
into any type of arrangement with an eligible recipient that, by its terms,
involves or might involve the issuance of Common Stock or any other security
or benefit with a value derived from the value of Common Stock. Awards are
not restricted to any specified form or structure and may include, without
limitation, sales or bonuses of stock, restricted stock, stock options,
reload stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares. An award may consist of one such security or benefit or two or more
of them in tandem or in the alternative.
An award granted under the Option Plan may include a provision
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of Keystone or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of
Keystone or other significant corporate transactions. The Committee may grant
options that either are intended to be "incentive stock options" as defined
under Section 422 of the Internal Revenue Code of 1986, as amended, or are not
intended to be incentive stock options ("non-qualified stock options"). Awards
to non-employee directors may only be non-qualified stock options.
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<PAGE>
An award may permit the recipient to pay all or part of the purchase
price of the shares or other property issuable pursuant thereto, or to pay all
or part of such employee's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of Keystone
or other property, (ii) reducing the amount of shares or other property
otherwise issuable pursuant to the award or (iii) delivering a promissory note,
the terms and conditions of which will be determined by the Committee. If an
option permits the recipient to pay for the shares issuable pursuant thereto
with previously owned shares, the recipient would be able to exercise the option
in successive transactions, starting with a relatively small number of shares
and, by a series of exercises using shares acquired from each such transaction
to pay the purchase price of the shares acquired in the following transaction,
to exercise an option for a large number of shares with no more investment than
the original share or shares delivered. The exercise price and any withholding
taxes are payable in cash by non-employee directors, although the Board of
Directors at its discretion may permit such payment by delivery of shares of
Common Stock, or by delivery of broker instructions authorizing a loan secured
by the shares acquired upon exercise or payment of proceeds from the sale of
such shares.
Subject to limitations imposed by law, the Board of Directors may
amend or terminate the Option Plan at any time and in any manner. However, no
such amendment or termination may deprive the recipient of an award previously
granted under the Option Plan of any rights thereunder without his consent.
1996 AWARDS. Upon the completion of Keystone's initial public
offering in June 1996, options were granted to (i) Messrs. McQuay and Seebart,
upon their election to the Board of Directors, to purchase up to 10,000 shares
of Common Stock and (ii) 25 employees to purchase up to an aggregate of 200,000
shares of Common Stock, all at an exercise price equal to the initial public
offering price of the Common Stock. The options granted to Messrs. McQuay and
Seebart became exercisable immediately upon grant. The options granted to
employees will become exercisable in four equal annual installments commencing
on the first anniversary of the effective date of the offering. All such
options will expire on the tenth anniversary of the date of grant.
Keystone intends to register under the Securities Act the shares of
its Common Stock issuable upon exercise of options granted pursuant to the
Option Plan.
EMPLOYEE DEFINED BENEFIT PENSION PLAN
GENERAL. The Board of Directors adopted the Employee Defined Benefit
Pension Plan (the "Pension Plan"), originally effective as of April 1, 1978, for
the benefit of the eligible employees of Keystone. Since the implementation of
the Pension Plan, Keystone has amended the Pension Plan from time to time. Most
recently, Keystone amended and restated the Pension Plan in order to comply with
the requirements of the Tax Reform Act of 1986 and later legislation, generally
effective as of April 1, 1989. The primary purpose of the Pension Plan is to
provide a retirement benefit for participating employees who continue in the
employ of Keystone until their retirement. All employees who have completed at
least one year of service and attained 21 years of age are eligible to
participate in the Pension Plan on the April 1 or October 1 falling on or next
following the date they meet the Pension Plan's service and age requirements.
Employees who are covered by collective bargaining units and whose retirement
benefits are the subject of good faith bargaining, however, are not eligible to
participate in the Pension Plan.
ADMINISTRATION. The Pension Plan is administered by a committee (the
"Plan Committee") whose members are appointed by the Board of Directors. The
Committee oversees the day-to-day administration of the Pension Plan and is
responsible for making determinations on questions of administration,
interpretation and application of Pension Plan terms, including questions of
eligibility, service and distribution of plan benefits to participants.
NORMAL RETIREMENT BENEFITS AND VESTING. The Pension Plan provides for
employer contributions only. Each year, Keystone makes a contribution to the
Pension Plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis equal to
1 1/2% of a participant's average monthly compensation multiplied by his years
of service, to a maximum of 30 years, offset by 74% of the monthly primary
social security benefit. This benefit formula was frozen as of March 31, 1989.
Effective April 1, 1989, the new benefit formula provides a participant with a
normal retirement benefit equal to 3/4% of his average monthly compensation
multiplied by his years of service. For purposes of calculating a participant's
normal retirement
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<PAGE>
benefit, average monthly compensation is defined in the Pension Plan as
average monthly compensation during the five consecutive years or 60
consecutive months of the participant's employment which yields the highest
average compensation.
The maximum monthly benefit provided under the Pension Plan is not to
exceed the lesser of $7500 or 100% of the average for the highest three years of
the participant's compensation. The monthly retirement benefit payable by the
Pension Plan is a benefit payable in the form of a straight life annuity with no
ancillary benefits. For a participant who is to receive benefits other than in
the form of a straight life annuity, the monthly retirement benefit will be
adjusted to an equivalent benefit in the form of a straight life annuity on an
actuarial equivalent basis.
A participant becomes fully vested in his accrued benefits under the
Pension Plan upon his attainment of normal retirement age (age 65), or the
termination of the Pension Plan. If a participant terminates employment with
Keystone prior to his retirement, the vested interest he has in his accrued
benefits under the Pension Plan is based on his years of service, with 20% after
three years of service, 20% for each year of service thereafter, with 100%
vesting after seven or more years of service.
PENSION PLAN INVESTMENTS. The Committee selects vehicles for the
investment of plan assets. The Committee then directs the trustee to invest
employer contributions in the investment option selected under the Pension Plan.
PENSION PLAN AMENDMENT OR TERMINATION. Under the terms of the Pension
Plan, Keystone reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit he has accrued under the Pension Plan prior to the
effective date of the amendment or termination.
ESTIMATED MONTHLY BENEFITS. The following table sets forth the
estimated monthly benefit under the Pension Plan based on the current benefit
structure.
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------
REMUNERATION 15 20 25 30 35
- -------------------------------------------------------------------------------
$ 125,000 . . . . . . . . . . . . . . $1,172 $1,563 $1,953 $2,344 $2,734
150,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
175,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
200,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
225,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
250,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
300,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
400,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
450,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
500,000 . . . . . . . . . . . . . 1,407 1,875 2,344 2,813 3,281
The compensation covered by the Pension Plan includes basic salary or
wages, overtime payments, bonuses, commissions and all other direct current
compensation, but does not include contributions by Keystone to Social Security,
benefits from stock options (whether qualified or not), contributions to this or
any other retirement plans or programs, or the value of any other fringe
benefits provided at the expense of Keystone. For benefit
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calculation purposes, a "highest-five-year" average of compensation is used.
Benefits are paid as straight-life annuities with no subsidies or offsets.
The compensation covered by the Pension Plan for all of the Named Executive
officers was limited to $150,000 in accordance with Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended.
The years of credited service for each Named Executive who
participates in the Pension Plan are as follows.
NAME YEARS
---- -----
Virgil K. Benton II 22 years
Charles J. Hogarty 37 years
Al A. Ronco 38 years
Robert L. Blanton 28 years
EMPLOYEE STOCK OWNERSHIP PLAN
GENERAL. The Board of Directors adopted the Employee Stock Ownership
Plan (the "ESOP"), originally effective as of April 1, 1975, for the benefit of
the eligible employees of Keystone. Since the implementation of the ESOP,
Keystone has amended the ESOP from time to time. Most recently, Keystone
amended and restated the ESOP in order to comply with the requirements of the
Tax Reform Act of 1986 and later legislation, generally effective as of April 1,
1989. The primary purpose of the ESOP is to permit participating employees to
share in the growth and prosperity of Keystone through the ownership of
Keystone's Common Stock under the ESOP. All employees of Keystone are eligible
to participate in the ESOP as of their date of hire. Keystone does not intend
to make contributions to the ESOP for the foreseeable future.
ADMINISTRATION. The ESOP is administered by a committee (the
"Committee") that is appointed by the Board of Directors. The Committee
oversees the day-to-day administration of the ESOP and is responsible for making
determinations on questions of administration, interpretation and application of
ESOP terms, including questions of eligibility, service and distribution of plan
benefits to participants. The Committee will carry out its responsibilities
under the ESOP in a uniform and nondiscriminating manner.
ESOP CONTRIBUTIONS AND VESTING. The ESOP provides for employer
contributions only, the amount of which is determined by the Board of Directors
on an annual basis. In the absence of a Board determination in any year, the
amount of contribution Keystone will make to the ESOP will be 10% of the
compensation of participants. Tax law limits deductible contributions to the
ESOP to 15% of the total compensation paid during the year to participating
employees.
For purposes of calculating the amount of a participant's employer
contributions in any year, compensation means all wages and salaries paid to the
participant during the year, including bonuses, overtime and commissions.
A participant will become fully vested in his employer contributions
upon the attainment of normal retirement age, death or termination of the ESOP.
If the participant terminates employment prior to retirement age, the vested
interest he has in his employer contributions will be based on his years of
service, with 20% of vesting upon the completion of three years of service, and
20% for each additional year thereafter, with 100% vesting after seven or more
years of service.
ESOP INVESTMENTS. Because the ESOP is an employee stock ownership
plan, it is designed to comply with the legal requirement that all plan assets
be invested primarily in Keystone's Common Stock. Cash contributions made by
Keystone to the ESOP, therefore, are used by the trustee to purchase Keystone's
Common Stock at such time as the trustee deems it prudent to do so.
In compliance with applicable legal requirements, the ESOP also
permits eligible participants to diversify the investment of their plan assets
under the ESOP. An eligible participant is a participant who has attained age
55 and who has at least ten years of participation in the ESOP. An eligible
participant is entitled to diversify
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up to 25% of his account balance for a six-year period, and at the end of the
six-year period, he will be entitled to diversify up to 50% of his account
balance. For purposes of meeting diversification requirements, Keystone will
either make a distribution to the eligible participant of his diversified
amount, or provide three investment funds under the ESOP to enable the
eligible participant to diversify the investment of his plan assets.
ESOP AMENDMENT OR TERMINATION. Under the terms of the ESOP, Keystone
reserves the right to amend or terminate the ESOP at any time and in any manner.
No amendment or termination, however, may deprive a participant of any benefit
he has accrued under the ESOP prior to the effective date of the amendment or
termination.
OWNERSHIP OF KEYSTONE COMMON STOCK
The following table sets forth certain information regarding the
shares of the Common Stock of Keystone beneficially owned as of the Keystone
Record Date by (i) each person known to Keystone to be the beneficial owner of
more than five percent of the outstanding Common Stock (other than
depositories), (ii) each director and executive officer and (iii) all directors
and executive officers as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS(3)
- -------------------------------- ----------------------- -----------
Employee Stock Ownership Plan(4) 1,420,363 19.5%
Virgil K. Benton II(5) 1,262,019 17.3%
Charles J. Hogarty(6) 504,014 6.9%
Al A. Ronco(7) 399,570 5.5%
JFJ Partners Ltd.(8) 321,636 4.4%
Robert L. Blanton(9) 93,559 1.3%
John M. Palumbo 25,000 *
Timothy C. McQuay(10) 10,000 *
George E. Seebart(10) 10,000 *
Christopher Northup(11) 1,000 *
All directors and executive
officers as a group (8 persons)(12) 2,463,134 33.7%
_______________________
* Less than one percent.
(1) The business address of each beneficial owner is 700 East Bonita Avenue,
Pomona, California 91767.
(2) Except as set forth below, each person has sole voting and investment power
over the shares of Common Stock shown as beneficially owned, subject to
community property laws where applicable.
(3) Shares of Common Stock which the person (or group) has the right to acquire
within 60 days after the Keystone Record Date are deemed to be outstanding
in calculating the percentage ownership of the person (or group), but are
not deemed to be outstanding as to any other person or group.
(4) Shares of Common Stock allocated to participants' accounts in the Employee
Stock Ownership Plan are voted by the participants themselves on matters
presented at meetings of shareholders, while unallocated shares and shares
with respect to which no participant directions are received are voted by
the trustee, Wells Fargo Bank, N.A. The trustee has authority and
responsibility for the disposition of both allocated an unallocated shares
of Common Stock.
(5) Excludes 261,887 shares held by or in trust for members of the Benton
family, as to which shares Mr. Benton disclaims beneficial ownership.
Includes 22,078 shares held for the benefit of Mr. Benton by the ESOP.
(6) Includes 56,788 shares held for the benefit of Mr. Hogarty by the ESOP.
(7) Includes (i) 347,677 shares held by the Ronco Family Trust, and (ii) 51,893
shares held for the benefit of Mr. Ronco by the ESOP.
(8) Excludes 160,258 shares held by or in trust for members of the Jordan
family.
(9) Includes 27,183 shares held for the benefit of Mr. Blanton by the ESOP.
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(10) Consists of shares issuable upon the exercise of stock options granted to
the named individual upon his election to the Board of Directors pursuant
to Keystone's stock incentive plan.
(11) Excludes 20,000 shares issuable upon the exercise of stock options granted
to Mr. Northup on June 20, 1996, which vest in four equal annual
installments commencing on June 20, 1997.
(12) Includes an aggregate of 157,972 shares held for the benefit of directors
and executive officers by the ESOP.
CERTAIN TRANSACTIONS
Keystone has entered into three lease agreements with two partnerships
whose partners include certain of Keystone's directors and officers and two
lease agreements with a corporation which is owned by a family member of an
officer and director of Keystone. Keystone believes that the terms and
conditions of such leases with affiliated parties are no less favorable than
could have been obtained from unaffiliated parties in arm's length transactions
at the time such leases were entered into.
Keystone has entered into a lease dated January 5, 1995, with V-JAC
Properties, Ltd. for an 8,000 square feet warehouse facility in Ontario,
California, with a lease term of three years (with option to renew the lease for
an additional three years on the same terms and conditions), for a monthly rent
of $3,494. V-JAC Properties, Ltd. is a partnership whose interests are held
equally by Virgil K. Benton, Sr., John G. Jordan, Al A. Ronco and Charles J.
Hogarty, each of whom is a co-founder, director and executive officer of
Keystone.
Keystone has also entered into a lease dated January 5, 1995, with V-
JAC Properties, Ltd. for a 10,000 square feet warehouse facility in Palmyra, New
Jersey, with a lease term of three years (with option to renew the lease for an
additional three years on the same terms and conditions), for a monthly rent of
$2,985.
Keystone has entered into a lease dated January 5, 1995, with B-J
Properties, Ltd. for a 25,000 square feet warehouse facility in St. Louis,
Missouri, with a lease term of three years (with option to renew the lease for
an additional three years on the same terms and conditions), for a monthly rent
of $5,067. B-J Properties, Ltd. is a partnership whose interests are held
61.75% by Virgil K. Benton, Sr., Keystone's founder, and 38.25% by John G.
Jordan, Keystone's co-founder, both of whom retired as directors effective
March 31, 1996.
Keystone has entered into a lease dated April 1, 1995, with Benton
Real Properties, Inc. relating to approximately 24,082 square feet in Ontario,
California, with a lease term of five years, for a monthly rent of $6,088 in the
first year of the lease, increasing to $6,271, $6,549, $6,653 and $6,853,
respectively, in each year thereafter. Benton Real Properties, Inc. is wholly
owned by Bertha Benton, the mother of Virgil Benton II, Keystone's Chief
Executive Officer and a director.
In January 1996, Keystone exercised a five year lease option expiring
December 31, 2000, with respect to a lease dated January 1, 1991, with Benton
Real Properties, Inc. relating to approximately 20,000 square feet in Ontario,
California for a monthly rent of $5,470 in the first year of the lease,
increasing to $5,803, $5,977, $6,157 and $6,341, respectively, in each year
thereafter.
From time to time, Keystone has borrowed funds from its directors,
officers and principal shareholders for general working capital purposes. In
March 1996, all such indebtedness was repaid. During the last three fiscal
years, the maximum principal amount outstanding under each such loan was
$123,668 and $240,596 to John G. Jordan, who retired as a director effective
March 31, 1996, and Charles J. Hogarty, respectively. Keystone believes the
terms of such transactions were no less favorable to Keystone than could have
been obtained from an unaffiliated party.
Crowell, Weedon & Co., one of the representatives of the underwriters
of Keystone's initial public offering, provided certain financial advisory
services to Keystone during fiscal 1996. In January 1996, Keystone entered into
an agreement with Crowell, Weedon & Co., one of the representatives of the
underwriters of Keystone's initial public offering, to provide certain financial
advisory services to Keystone in connection with evaluating the Merger. Upon
the consummation of the Merger, Crowell, Weedon & Co. will be entitled to
receive $125,000 in consideration of such services. Timothy C. McQuay, a
director of Keystone, is a Managing Director -- Corporate Finance of Crowell,
Weedon & Co.
Keystone has adopted a policy that it will not enter into any material
transaction in which a director or officer of Keystone has a direct or indirect
financial interest, unless the transaction is determined by Keystone's
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Board of Directors to be fair to Keystone and is approved by a majority of
Keystone's disinterested directors or by Keystone's shareholders, as provided
for under California law.
LIMITATION ON LIABILITY AND INDEMNIFICATION
For a description of certain limitations on the liability of
Keystone's officers, directors and agents, see "The Merger -- Comparison of
Rights of Shareholders of Keystone and North Star."
DESCRIPTION OF CAPITAL STOCK
For a description of Keystone's Common Stock, Preferred Stock and
certain provisions of its Articles of Incorporation and Bylaws, see "The Merger
- -- Comparison of Rights of Shareholders of Keystone and North Star."
TRANSFER AGENT AND REGISTRAR
Keystone has appointed U.S. Stock Transfer Corporation, Glendale,
California as the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Common Stock of Keystone in
the public market could adversely affect prevailing market prices.
Upon the completion of the Merger, there will be 9,750,000 shares of
Common Stock outstanding, excluding shares issuable under Keystone's stock
incentive plan. Of these shares, the 3,105,000 shares sold in Keystone's
initial public offering are freely tradeable without restriction or further
registration under the Securities Act, except for any such shares held by an
"affiliate" of Keystone. The remaining shares (the "Restricted Shares"), and
any shares held by an "affiliate" of Keystone, may not be sold without
registration under the Securities Act or pursuant to an applicable exemption
therefrom.
In general, under Rule 144 promulgated under the Securities Act, as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years (including the
holding period of any prior owner other than an "affiliate" of Keystone), or who
is an "affiliate" of Keystone, is entitled to sell within any three-month period
a number of such Restricted Shares or, in the case of an "affiliate," a number
of such Restricted Shares and shares purchased in the public market, that does
not exceed the greater of (i) 1% of the then outstanding shares of Keystone's
Common Stock (approximately 97,500 shares immediately after the Merger) or
(ii) the average weekly trading volume of Keystone's Common Stock in the public
market during the four calendar weeks immediately preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and availability of current public information regarding Keystone.
A person who has not been an "affiliate" of Keystone at any time during the
three months preceding a sale, and who has beneficially owned Restricted Shares
for at least three years, is entitled to sell such shares under Rule 144 without
regard to the volume limitations, manner of sale provisions or notice
requirements. On the date of this Proxy Statement/Information
Statement/Prospectus, and substantially all of the Restricted Shares may be
deemed to have been held for more than three years. Of the outstanding shares
of Keystone's Common Stock, 2,767,047 shares are held by officers, directors or
principal shareholders of Keystone who may be deemed to be "affiliates" of
Keystone.
Keystone and certain of its officers, directors and principal
shareholders have agreed, in connection with Keystone's initial public offering,
not to, directly or indirectly, sell or otherwise dispose of the 4,600,000
shares of Common Stock held by them in the public market, without the prior
written consent of Morgan Keegan & Company, Inc. and Crowell, Weedon & Co., the
managing underwriters of such offering. The lock-up period expires on March 20,
1997 at which time such shares will become eligible for sale in the public
market under Rule 144. Upon expiration of the lock-up period, the market price
for Keystone's Common Stock could be materially and adversely affected by the
sale or availability for sale of such shares.
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Up to 730,000 shares are reserved for issuance under Keystone's stock
incentive plan. Keystone intends to register the sale of such shares under the
Securities Act. Accordingly, as awards under Keystone's stock incentive plan
vest, shares issued pursuant thereto will be freely tradeable, except such
shares as may be acquired by an "affiliate" of Keystone.
INFORMATION CONCERNING NORTH STAR
GENERAL
North Star is a leading regional wholesale distributor of aftermarket
automobile and light truck collision replacement parts produced by independent
manufacturers and is one of the nation's largest recyclers and producers of non-
OEM chrome plated and plastic bumpers. North Star distributes automotive body
parts, bumpers and automotive paint, as well as other materials used in
repairing damaged vehicles. North Star sells approximately 24,000 different
stock keeping units to over 7,000 collision repair shops located in twelve
states in the Midwest and the mid-Atlantic region. North Star distributes
replacement parts using a "hub and spoke" distribution system consisting of four
regional distribution hubs and 20 service centers. In addition to its use of
the "hub and spoke" distribution system, North Star sells chrome plated bumpers
to wholesale bumper distributors and directly to a manufacturer of truck
accessories.
North Star was founded in 1968 as a chrome bumper recycler serving
primarily one customer and conducted its operations in Brainerd, Minnesota.
Since January 1, 1992, North Star has completed four acquisitions of 11 service
centers in the Midwest and mid-Atlantic states, of which one has been
consolidated with existing locations, and it has opened five additional service
centers. The aggregate consideration for the acquired centers was approximately
$7 million, and each acquisition was structured as a purchase of assets in which
North Star assumed no significant liabilities, other than leases. The largest
of these acquisitions was completed on January 1, 1996, when North Star
purchased substantially all of the assets of the Carolina Automotive Group,
which consisted of the assets of Carolina Bumper, Inc., Carolina Autobody &
Paint Supply, Inc., Carolina Truck Specialties/Automotive Colors, Inc. and
Carolina Bumper/Automotive Colors, Inc. North Star presently distributes and
sells collision replacement parts in the states of Minnesota, Iowa, Missouri,
Illinois, Wisconsin, North Carolina, South Carolina, Michigan, Kansas, Nebraska,
North Dakota and South Dakota.
BUSINESS
PRODUCTS
North Star distributes approximately 24,000 different stock keeping
units of collision replacement parts and repair materials for most of the
popular models of domestic and foreign automobiles and light trucks generally
for the seven most recent model years. North Star's principal product lines
consist of automotive body parts, bumpers, automotive paint and other materials
and light truck accessories.
AUTOMOTIVE BODY PARTS. North Star distributes more than 4,900
automotive and light truck body parts manufactured by six foreign and nine
domestic manufacturers, including fenders, hoods, radiators and condensers and
head and tail light assemblies. For fiscal year 1996, sales of automotive body
parts accounted for approximately $12.2 million, or 23% of North Star's net
sales.
BUMPERS AND COMPONENTS. North Star recycles, produces and distributes
new and remanufactured plastic and chrome plated bumpers and components. North
Star operates four plastic bumper recycling and production facilities, including
its largest facility located in Brainerd, Minnesota, which recycles and produces
chrome plated bumpers. For fiscal 1996, sales of bumpers and components
accounted for approximately $24.5 million, or 47% of North Star's net sales.
North Star's chrome bumper plating operation has steadily grown and
expanded to become, in management's belief, one of the nation's largest non-OEM
producers of new and recycled chrome plated bumpers to the collision repair and
restoration markets. North Star annually electro-plates approximately 150,000
steel plated bumpers for automobiles and light trucks. The bumpers are a
combination of new steel stampings, collision-damaged bumpers that require
straightening and replating and older model or antique bumpers that require
restoration and replating. The bumper repair and replating process generally
includes some or all of the following steps:
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straightening or reforming to original dimensions; welding breaks or cracks;
surface grinding to remove rust and corrosion; chemical stripping to remove
the original electro-plated finishes; metal polishing and buffing;
electro-plating layers of copper, nickel and chromium; inspecting and
packaging.
From the 1930's until the mid-1970's, most automobile and light truck
manufacturers used only chrome plated steel bumpers. In the late 1940's and
early 1950's, processes were developed to repair and replate damaged bumpers.
Due to the cost savings as compared to purchasing new OEM bumpers, the
automobile insurance and collision repair industries actively supported bumper
recycling. The collision repair industry continued steady growth and OEM market
penetration and reached its peak in the late 1970's and early 1980's. During
this period, manufacturers of new automobiles had changed from almost exclusive
use of chrome plated steel bumpers to a combination of chrome plated steel, as
well as anodized aluminum and painted plastic bumpers. By the 1996 model year,
manufacturers of new automobiles have evolved to almost exclusive use of painted
plastic bumpers on passenger vehicles and extensive use of chrome plated steel
bumpers on light trucks and sport utility vehicles. For the 1996 model year,
approximately 4,000,000 new vehicles with chrome plated steel bumpers will be
sold in the United States. North Star's management believes that a strong
demand for repairing and replating chrome bumpers after they are damaged will
continue in the foreseeable future.
AUTOMOTIVE PAINT AND OTHER MATERIALS. North Star places significant
emphasis on the sale of automotive paint and other materials used in repairing
damaged vehicles. Other materials include sandpaper, abrasives, masking
products and plastic fillers. North Star distributes approximately 15,000 stock
keeping units of automotive paint and other materials. For fiscal 1996, sales
of paint and other materials, which are purchased from over 20 domestic
suppliers, accounted for approximately $12.6 million, or 24% of North Star's net
sales.
LIGHT TRUCK ACCESSORIES. North Star distributes approximately 1,200
parts and accessories for light trucks, including grills, step bumpers and
bedliners. For fiscal 1996, sales of parts and accessories for light trucks
accounted for approximately $3.0 million, or 6% of North Star's net sales.
DISTRIBUTION, MARKETING AND SALES
DISTRIBUTION SYSTEM. North Star utilizes a "hub and spoke"
distribution system consisting of four regional distribution hubs and 20 service
centers. Each regional hub receives large shipments of products directly from
foreign and domestic manufacturers, and sorts and delivers such products to
service centers in each regional "hub's" territory. The service centers deliver
the products to repair shop customers. North Star uses its own fleet of
delivery trucks to ensure that its products are quickly delivered within its
distribution system to the ultimate customers. North Star manages the ordering,
shipment, storage and delivery of products through a centralized information
system that allows North Star's corporate headquarters, regional hubs and
service centers to obtain up-to-date information regarding the location and
availability of products within the distribution system. North Star believes
that its "hub and spoke" distribution system allows it to provide its customers
with a broad selection of aftermarket collision parts.
In addition to distributing its products, including chrome plated
bumpers, through North Star's "hub and spoke" distribution system, North Star
sells its chrome plated bumpers directly to wholesale bumper distributors and to
a manufacturer of truck accessories.
North Star sells its chrome plated bumpers directly to wholesale
bumper distributors, including Keystone. Sales to wholesale distributors is a
large and growing market for North Star, representing approximately 11% of North
Star's total sales in fiscal year 1996. Due to a significant reduction in the
number of small local bumper platers during the last 10 years and North Star's
emergence as one of a few large regional chrome bumper platers, this segment of
North Star's bumper sales is expected to increase in the future.
North Star also serves as the exclusive chrome bumper plating
subcontractor for a manufacturer of new rear step bumpers and accessories for
the light truck aftermarket. In fiscal 1996, sales to this manufacturer
represented approximately 3% of North Star's net sales. North Star's management
believes opportunities exist to serve as a subcontractor to produce chrome
plated bumpers or other chrome plated products for other manufacturers; however,
North Star's chrome plating facility is currently operating at or near its
current production capacity and there is no current plan to increase that
capacity.
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SALES AND MARKETING. North Star employs a five-person management
staff and 25 sales representatives and 60 route salespersons operating from its
service centers. The management staff develops all promotional materials and
provides assistance to the service centers. In addition, the management staff
meets with regional insurance executives and claims adjusters to market and
provide for the coverage of aftermarket collision repair parts. North Star
generally warrants its products against defects in material and workmanship for
as long as the repair shop's customer owns the vehicle.
CUSTOMERS
North Star currently markets its products to more than 7,000 collision
repair shops, wholesale distributors and manufacturers, none of whom, other than
Keystone, Luverne Truck Equipment, Inc., The Colonel's, Fargo Bumper Exchange,
and Bumper and Auto of Omaha, Inc. accounted for more than 1% of North Star's
net sales in fiscal 1996. North Star believes the size of its customer base
reduces North Star's dependence on any single customer. North Star's regional
hubs also sell collision parts to local distributors who may compete with North
Star. In fiscal 1996, approximately 21% of North Star's net sales were
attributable to sales to other local distributors.
SUPPLIERS
The products distributed by North Star are manufactured by over 60
manufacturers, the ten largest of which provided approximately 58% of the
products purchased by North Star during fiscal 1996. North Star believes it is
one of the larger customers of each of its ten largest suppliers. Approximately
72% of the products distributed by North Star is manufactured in the United
States or Canada and 28% is manufactured abroad, substantially all of which were
imported from Taiwan.
North Star has entered into standard agreements with PPG Industries,
Inc. ("PPG") to sell only PPG brand automotive paint at select service centers.
North Star derived approximately 9% of its revenues from the sale of PPG paint
in fiscal year 1996. The agreement may not be assigned by North Star without
the consent of PPG. Furthermore, upon consummation of the Merger, PPG has the
option to terminate the agreement, in whole or in part, with respect to any
particular product line or location upon notice. In any event, either party may
terminate the agreement upon 90 days' written notice. PPG has agreed to consent
to the Merger and assign all existing agreements with North Star. There is no
assurance that North Star will maintain its relationship with PPG whether or not
the merger with Keystone is consummated. In the event North Star's agreement
with PPG terminates for any reason, North Star believes it could replace its use
of PPG paint by using a different company's paint products; however, termination
of its agreement with PPG would have an adverse affect on North Star's
operations until an alternative supplier is found.
The raw materials and unfinished steel bumpers used by North Star to
manufacture chrome plated bumpers are purchased from approximately 15 suppliers.
Metal finishing abrasives and electro-plating chemicals and materials are
available from numerous industrial suppliers and plating supply companies. New
unfinished steel bumper stampings are purchased from three manufacturers, two of
which are located in Taiwan.
North Star's orders from domestic suppliers generally are received
within ten days, and orders from foreign manufacturers generally are received
within 45 to 60 days. North Star has no manufacturing agreements with any of
its suppliers. North Star believes that its sources of supply and its
relationships with its suppliers are satisfactory. Although alternative
suppliers exist for substantially all products distributed by North Star, the
loss of any one supplier could have a material adverse effect on North Star
until alternative suppliers are located and have commenced providing products.
See "Risk Factors -- Risk Factors Relating to North Star -- Dependence on Key
and Foreign Suppliers."
COMPETITION
North Star is subject to the same form of and levels of competition as
Keystone. See "Information Concerning Keystone -- Competition." However, as a
recycler and manufacturer of chrome plated bumpers, North Star faces additional
competitive pressures.
North Star's chrome bumper plating operation competes in the wholesale
bumper distribution segment of the market with four companies who are considered
larger regional chrome bumper platers. It also
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competes with small chrome bumper platers or distributors in virtually every
geographical market in which it operates. North Star competes with small
chrome bumper platers and distributors primarily on the basis of quality and
service. Over the last 10 years, there has been a significant decrease in the
number of small bumper platers as a result of the decreasing use of chrome
plated bumpers on new automobiles and the increasing environmental
requirements for electro platers. Bumper Recyclers Association of North
America ("BRANA"), the nation's only bumper trade association, membership
decreased from approximately 100 companies in 1982 to approximately 32
companies in 1996. North Star believes that the decrease in BRANA's
membership is evidence of the decrease in the number of small chrome bumper
platers and believes that this trend will continue, creating more sales
opportunities for larger regional chrome bumper platers, who are capable of
meeting the increased financial and environmental requirements in the future.
North Star also encounters competition from the OEM's who supply new
replacement bumpers to the collision repair market, and have greater resources
than North Star. North Star competes with the OEM's primarily on the basis of
price.
GOVERNMENT REGULATION AND ENVIRONMENTAL HAZARDS
North Star is subject to many of the same government regulations as
Keystone. See "Information Concerning Keystone -- Government Regulation and
Environmental Hazards." However, North Star's chrome plating recycling and
manufacturing operation subjects North Star to additional regulations.
North Star generates and properly disposes of hazardous substances at
its chrome plating recycling and production facility located in Brainerd,
Minnesota. North Star believes it currently is in substantial compliance with
all applicable laws and regulations, and is not aware of any material
environmental problem at any of its facilities. No assurances can be given,
however, that North Star's prior activities did not create a material
environmental problem or that future uses or conditions (including, without
limitation, changes in applicable laws and regulations) will not result in the
imposition of material environmental liability upon North Star. Furthermore,
compliance with legislative or regulatory changes may cause future increases in
North Star's operating costs or otherwise adversely affect operations. See
"Risk Factors -- Risk Factors Relating to North Start -- Compliance with
Government Regulation."
EMPLOYEES
At September 30, 1996, North Star had approximately 460 full-time
employees, of whom five were engaged in corporate management, 62 in management
and administration, 203 in production, 90 in sales and 105 in sales support,
warehousing and shipping. North Star considers its relations with its employees
to be satisfactory.
PROPERTIES
North Star's principal executive offices are located at 3621 Marshall
Street NE, Minneapolis, Minnesota 55418 and has approximately 75,000 square
feet. North Star leases all of its facilities. See "Information Concerning
North Star -- Certain Transactions."
North Star's regional hubs range from approximately 25,000 square feet
to 75,000 square feet. Its service centers range from approximately 2,500
square feet to 25,000 square feet. All of its leased properties are leased for
terms expiring on dates varying from the date of this Proxy
Statement/Information Statement/Prospectus to February 2005, many with options
to extend the lease term. North Star believes that no single lease, other than
its Brainerd, Minnesota lease, is material to its operations, its facilities are
adequate for the foreseeable future and alternative sites presently are
available at market rates. Five of North Star's manufacturing or service
centers are leased from parties in whom officers, directors or shareholders of
North Star have an interest. North Star believes that the terms and conditions
of leases with affiliated parties are no less favorable than could have been
obtained from unaffiliated parties in arms-length transactions at the time of
the execution of such leases. See "Information Concerning North Star --
Management -- Certain Transactions."
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LEGAL PROCEEDINGS
North Star is from time to time involved in litigation incidental to
the conduct of its business. North Star currently is not a party to any
material pending litigation.
SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of,
each of the fiscal years in the two-year period ended September 30, 1996 have
been derived from financial statements of North Star, which have been audited by
Ernst & Young LLP, independent auditors, appearing elsewhere in this Proxy
Statement/Information Statement/Prospectus. The selected financial data
presented below, as of September 30, 1994, have been derived from the unaudited
balance sheet of North Star Plating Company as of that date. The selected
financial data as of December 31, 1996 and 1995 and the three-month periods then
ended have been derived from unaudited financial statements which, in the
opinion of management, include all adjustments, consisting of normal recurring
accruals necessary to present fairly the information set forth therein. The
operating data were derived from unaudited information maintained by North Star.
The selected financial data presented below for, and as of the end of, each of
the fiscal years in the two-year period ended September 30, 1993, have been
derived from unaudited financial statements of North Star, which in the opinion
of management, include all adjustments, consisting of normal recurring accruals,
necessary to present fairly the information set forth therein. The following
data is qualified in its entirety, and should be read in conjunction with, the
other information and financial statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/Information Statement/Prospectus.
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (UNAUDITED)
Net sales . . . . . . . . . . . . . $21,905 $25,899 $29,612 $34,838 $52,152 $10,468 $15,071
Cost of sales . . . . . . . . . . . 13,096 15,296 17,447 20,781 31,284 6,121 8,912
------- ------- ------- ------- ------- ------- -------
Gross profit . . . . . . . . . . . 8,809 10,603 12,165 14,057 20,868 4,347 6,159
Selling and distribution expenses . 6,676 8,025 9,512 10,364 15,121 2,952 4,164
Merger costs . . . . . . . . . . . -- -- -- -- -- -- 149
Certain charges (1) . . . . . . . . 134 137 161 180 230 -- --
General and administrative expenses 584 888 1,046 1,521 2,011 316 595
------- ------- ------- ------- ------- ------- -------
Income from operations . . . . . . 1,415 1,553 1,446 1,992 3,506 1,079 1,251
Interest expense . . . . . . . . . 117 179 183 220 535 57 139
Other (income) expense . . . . . . (17) (15) 3 (29) 28 (6) (5)
------- ------- ------- ------- ------- ------- -------
Income before income taxes . . . . 1,315 1,389 1,260 1,801 2,943 1,028 1,117
Income taxes . . . . . . . . . . . 526 574 496 728 1,150 401 436
Net income . . . . . . . . . . . . $ 789 $ 815 $ 764 $ 1,073 $ 1,793 $ 627 $ 681
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income per share . . . . . . . $ 104 $ 122 $ 113 $ 159 $ 265 $ 93 $ 101
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Average shares outstanding . . . . 7,553 6,662 6,737 6,762 6,762 6,762 6,762
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
OPERATING DATA (UNAUDITED)
Number of service centers
Starting sites . . . . . . . . 5 7 9 11 11 11 20
Sites acquired . . . . . -- 2 2 -- 7 -- --
Sites opened . . . . . . 2 -- -- 1 2 1 --
Sites consolidated . . . -- -- -- 1 -- -- --
Sites closed . . . . . . -- -- -- -- -- -- --
Ending sites . . . . . . . . . 7 9 11 11 20 12 --
------- ------- ------- ------- ------- ------- -------
Comparable service center sales
increase (decrease) . . . . . . . -- 11% 10% 17% 26% 22% 17%
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
89
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
---------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (UNAUDITED)
Working capital . . . . . . . . . . . . $3,915 $4,798 $ 4,642 $ 5,652 $ 7,371 $ 7,858
Total assets . . . . . . . . . . . . . 8,129 9,896 11,584 12,556 22,104 24,274
Total current liabilities . . . . . . . 2,106 2,954 3,988 4,344 8,821 10,658
Long-term debt, less current maturities 1,372 1,375 1,549 1,112 4,323 3,976
Shareholders' equity . . . . . . . . . 4,411 5,308 5,758 6,831 8,624 9,305
</TABLE>
__________________________
(1) Certain charges represent certain general and administrative expenses that
are non-recurring and comprised of charitable contributions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of North Star's financial
condition and results of operations is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and
financial statements, including the notes to such financial statements,
appearing elsewhere in this Proxy Statement/Information Statement/Prospectus.
The following table sets forth, for the periods indicated, certain
selected income statement items as a percentage of net sales.
THREE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30 DECEMBER 31,
------------------------------ -----------
1993 1994 1995 1996 1995 1996
----- ----- ----- ----- ----- -----
Net sales . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . 59.1 58.9 59.6 60.0 58.5 59.1
Gross profit . . . . . . . . . . . 40.9 41.1 40.4 40.0 41.5 40.9
Selling and distribution expenses . 31.0 32.1 29.7 29.0 28.2 27.6
Certain charges . . . . . . . . . . 0.5 0.5 0.5 0.4 -- --
General and administrative expenses 3.5 3.6 4.4 3.9 3.0 3.9
Income from operations . . . . . . 6.0 4.9 5.7 6.7 10.3 8.3
Interest expense . . . . . . . . . 0.7 0.6 0.6 1.0 0.5 0.5
----- ----- ----- ----- ----- -----
Net income . . . . . . . . . . . . 3.1 2.6 3.1 3.4 6.0 4.5
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1995.
Net sales increased from $10.5 million for the three months ended
December 31, 1995 to $15.1 million for the three months ended December 31, 1996,
an increase of 44%. The increase in net sales included: (i) a $1.2 million
increase in sales of automotive body parts; (ii) a $1.2 million increase in
sales of bumpers; and (iii) a $2.3 million increase in sales of paint and
related supplies. The increase was primarily due to North Star's purchase of
substantially all the assets of the Carolina Automotive Group in January 1996,
the opening of two new service centers, and a 17% increase in comparable service
center sales. Comparable service center sales increased due to an expansion of
North Star's distribution network.
Gross profit increased from $4.3 million (41.5% of net sales) for the
three months ended December 31, 1995 to $6.2 million (40.9%) for the three
months ended December 31, 1996, an increase of 42%. The increase in gross profit
was due to an increase in net sales, while the gross profit as a percentage of
net sales decreased slightly due to increased competition in the aftermarket
parts industry.
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<PAGE>
Selling and distribution expenses increased from $2.9 million (28.2%
of net sales) for the three months ended December 31, 1995 to $4.2 million
(27.6%) for the three months ended December 31, 1996, an increase of 41%.
Selling and distribution expenses increased due to the acquisition of the
Carolina Automotive Group and the opening of two new service centers; but were
positively affected by economies of scale and operating efficiencies in North
Star's service centers.
General and administrative expenses increased from $316,000 (3.0% of
net sales) for the three months ended December 31, 1995 to $595,000 (3.9%) for
the three months ended December 31, 1996, an increase of 88%. The increase in
general and administrative expenses as a percentage of net sales was due to the
acquisition of the Carolina Automotive Group and the opening of two new service
centers.
Interest expense increase from $57,000 for the three months ended
December 31, 1995 to $139,000 for the three months ended December 31, 1996, an
increase of 146%, primarily due to borrowing incurred in connection with North
Star's acquisition of the Carolina Automotive Group and financing the purchase
of inventory.
FISCAL 1995 COMPARED TO FISCAL 1996. Net sales increased from $34.8
million in fiscal 1995 to $52.2 million in fiscal 1996, an increase of 50%. The
increase in net sales included: (i) a $3.8 million increase in sales of
automotive body parts; (ii) a $5.3 million increase in sales of bumpers; and
(iii) a $6.8 million increase in sales of paint and related supplies. The
increase in net sales was primarily due to North Star's purchase of
substantially all the assets of the Carolina Automotive Group, the opening of
two new service centers, and an increase in comparable service center sales.
Comparable service center sales increased partly due to a geographical expansion
of each service center's distribution network.
Gross profit increased from $14.1 million (40.4% of net sales)in
fiscal 1995 to $20.9 million (40.0% of net sales) in fiscal 1996, an increase of
48%. The increase in gross profit was due to an increase in net sales, while
the gross profit as a percentage of net sales remained relatively unchanged.
Selling and distribution expenses increased from $10.4 million (29.7%
of net sales) in fiscal 1995 to $15.1 million (29.0% of net sales) in fiscal
1996, an increase of 46%. Selling and distribution expenses increased due to
the acquisition of the Carolina Automotive Group and the opening of two new
service centers, but were positively affected by economies of scale and
operating efficiencies achieved in North Star's existing service centers.
General and administrative expenses increased from $1.5 million (4.4%
of net sales) in fiscal 1995 to $2.0 million (3.9% of net sales) in fiscal 1996,
and increase of 33%. The decrease in general and administrative expenses as a
percentage of net sales was due primarily to operating efficiencies achieved by
economies of scale experienced from increased net sales, resulting in allocating
North Star's fixed expenses over the increased revenue base.
Interest expense increased from $221,000 in fiscal 1995 to $535,000 in
fiscal 1996, an increase of 142%, primarily due to borrowings incurred in
connection with North Star's acquisition of the Carolina Automotive Group and
financing the purchase of inventory. Long-term debt, including current
maturities, increased approximately $4.2 million from fiscal 1995 to fiscal
1996.
FISCAL 1994 COMPARED TO FISCAL 1995. Net sales increased from $29.6
million in fiscal 1994 to $34.8 million in fiscal 1995, an increase of 18%. The
increase in net sales included: (i) a $775,000 increase in sales of bumpers;
(ii) a $2.0 million increase in sales of paint and related supplies; and (iii) a
$2.2 million increase in sales of automotive parts. The increase was primarily
due to North Star's purchase of a service center in Dubuque, Iowa and the
opening of a new service center in Stevens Point, Wisconsin. Comparable service
centers sales also increased 17%, as a result of the expansion of North Star's
service centers' inventory and geographic service areas.
Gross profit increased from $12.2 million (41.1% of net sales) in
fiscal 1996 to $14.1 million (40.4% of net sales) in fiscal 1995, an increase of
16%, but a decrease in gross profit as a percentage of net sales. The decrease
in gross profit as a percentage of net sales was attributable to an increase in
competition in the aftermarket parts industry. Gross profit also was affected
by the consolidation of one service center during fiscal 1995.
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<PAGE>
Selling and distribution costs increased from $9.5 million in fiscal
1994 (32.1% of net sales) to $10.4 million (29.7% of net sales) in fiscal 1995,
an increase of 9%. The decrease as percentage of net sales was achieved through
efficiencies in operations achieved at existing service centers. No new service
centers were opened or purchased in fiscal 1995, and therefore North Star was
able to concentrate on improving operations.
General and administrative expenses increased from $1.0 million in
fiscal 1994 (3.5% of net sales) to $1.5 million (4.4% of net sales) in fiscal
1995, an increase of 46%. The increase in general and administrative expenses
as a percentage of net sales was due primarily to an increase in executive
compensation expenses.
Interest expense increased from $183,000 in fiscal 1994 to $221,000 in
fiscal 1995, an increase of 21%. This increase was primarily due to: (i) the
opening of a new service center in Stevens Point, Wisconsin; (ii) interest
expense related to North Star's purchase of a service center in Dubuque, Iowa;
and (iii) an increase in short-term debt in connection with increased inventory
levels.
FISCAL 1993 COMPARED TO FISCAL 1994. Net sales increased from $25.9
million in fiscal 1993 to $29.6 million in fiscal 1994, an increase of 14%.
This increase was primarily due to an increase in net sales in comparable
service centers, and the realization of a full year of sales at the Peoria and
Springfield service centers acquired in fiscal 1993.
Gross profit increased from $10.6 million (40.9% of net sales) in
fiscal 1993 to $12.2 million (41.1% of net sales) in fiscal 1994, an increase of
14%. The increase in gross profit was due to an increase in net sales, while
the gross profit as a percentage of net sales remained relatively unchanged.
Selling and distribution expenses increased from $8.0 million in
fiscal 1993 (31.0% of net sales) to $9.5 million (32.1% of net sales) in fiscal
1994, an increase of 19%. Selling and distribution expenses as a percentage of
net sales was affected by the expenses related to the acquisition of service
centers in Peoria and Springfield, Illinois and the related expansion of these
businesses in fiscal 1993.
General and administrative expenses increased from $900,000 in fiscal
1993 (3.3% of net sales) to $1.0 million (3.5% of net sales) in fiscal 1994, an
increase of 21%. The increase in general and administrative expenses as a
percentage of net sales is due to the hiring of additional administrative
personnel and related payroll expenses.
SEASONALITY
North Star has experienced, and expects to continue to experience, the
same variations as Keystone. See "Information Concerning Keystone --
Management's Discussion and Analyses of Financial Information and Results of
Operation -- Variability of Quarterly Results and Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
North Star's working capital was approximately $7.9 million as of
December 31, 1996, compared to approximately $6.2 million as of December 31,
1995. North Star has financed its working capital requirements from its cash
flow from operations, advances drawn under its line of credit and from other
secured and unsecured borrowings. North Star believes its cash flow from
operations, along with its ability to obtain additional financing, will be
sufficient to fund its operations for the foreseeable future.
North Star's cash and cash equivalents were $440,000 at December 31,
1996, compared to $430,000 at December 31, 1995. In January 1996, North Star
entered into a credit agreement (the "Credit Agreement") and $4,000,000 term
note (the "Term Note") with a bank to finance North Star's purchase of
substantially all the assets of the Carolina Automotive Group. The Term Note is
payable in monthly installments of $62,877 until December 31, 2000, at which
time the remaining balance is due and payable. The Term Note bears interest at
8.23%. The Credit Agreement limits the compensation North Star may pay Mr.
Brown and requires that Messrs. Brown and Wood or their families to continue to
own substantially all of North Star's stock. North Star is prohibited from
consolidating or merging with another company, including Keystone, without the
prior written consent of the bank. As of December 31, 1996 the principal
balance owed under the Term Note was approximately $3.5 million.
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<PAGE>
Net cash provided by operating activities for fiscal 1996 was
approximately $2.5 million compared to approximately $900,000 for fiscal 1995.
This increase was primarily due to the increase in net income and accounts
payable net of accounts receivable and inventory. Inventory increased from $6.3
million as of December 31, 1995 to $11.3 million as of December 31, 1996, an
increase of 79%. This increase is a result of North Star's purchase of
substantially all the assets of the Carolina Automotive Group, the opening of
new service centers and an increase in demand for North Star's products.
As of December 31, 1996, North Star had long-term debt outstanding of
approximately $3.9 million, including approximately $3.5 million outstanding
under the Term Note and approximately $400,000 outstanding under certain
installment notes to finance the acquisition of vehicles.
North Star has $1 million of credit (the "Line of Credit") with a bank
which is secured by substantially all the assets of North Star. The Company is
prohibited from selling, leasing or otherwise disposing of its assets other than
in the ordinary course of business and at a price equal to the fair market value
of such assets. North Star's borrowing under the line of credit is subject to
the bank's discretion, bears interest at 0.5% over the bank's reference rate and
is due March 1, 1997. The Line of Credit is subject to annual renewal on March
1 of each year. The outstanding balance of the Line of Credit as of December
31, 1996 was $1.0 million.
Pursuant to the Credit Agreement, Ron Brown has personally guaranteed
North Star's obligations to the bank including the Term Note, Line of Credit and
any other existing and future borrowings with such bank. The personal guarantee
initially covers all of North Star's debts to the bank until North Star's
leverage ratio reaches certain agreed upon levels at which time the bank, in its
discretion, may first reduce the amount guaranteed to a specified level and,
when the leverage ratio reaches a lower specified level, release the guarantee
entirely. The obligation of North Star to consummate the Merger is conditioned
upon the release of Mr. Brown from his personal guarantee with the bank and the
bank shall have consented to the Merger.
INFLATION
North Star does not believe the rates of inflation experienced by it
over the last three years have had a significant effect on its net sales or its
profitability.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of North Star.
NAME AGE POSITION
--------------- --- ---------
Ronald G. Brown 59 President and Director
Kim D. Wood 40 Vice President, Secretary, Treasurer and Director
RONALD G. BROWN has served as President of North Star since its
founding in 1968. From 1982 to the present he has been a member of the Board of
Directors of First Bank N.A. of Brainerd, Minnesota, an affiliate of North
Star's primary bank lender. Mr. Brown has served as a member of the Board of
Directors and vice president of the Bumper Recycling Association of North
America.
KIM D. WOOD has served as Vice President of North Star since 1982.
Mr. Wood is a member of the Board of Directors of the Automotive Body Parts
Association (ABPA) and the Certified Auto Body Parts Association (CAPA). From
1993 through 1995, he was the Chairman of the Board of ABPA.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by
North Star for services rendered in all capacities during each of the three
fiscal years ended September 30, 1996 to each person who acted in the capacity
of an executive officer.
ANNUAL COMPENSATION(1)
------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL SALARY(2) BONUS COMPENSATION COMPENSATION
POSITION YEAR ($) ($) ($) ($)
- ---------------------------- ---- ------ ------- ------------ ------------
Ronald G. Brown, President 1996 420,871 -- -- --
1995 505,006 310,000 -- --
1994 420,767 -- -- --
Kim D. Wood, Vice President, 1996 260,308 -- -- 3,389(4)
Secretary and Treasurer 1995 202,468 3,716 -- 6,887(5)
1994 191,909 87,626(3) -- --
____________________________
(1) Does not include personal benefits, the aggregate amount of which for any
fiscal year was less than 10% of the individual's listed compensation for
such year.
(2) Amount reflects commissions based upon a percentage of net sales.
(3) Amount includes the issuance of 100 shares of North Star's Common Stock
having a fair market value of $84,877 on the date of grant.
(4) Amount reflects North Star's contribution to its 401(k) plan.
(5) Amount reflects cash value of whole life insurance policy assumed by the
executive, who pays the remaining premiums on such policy.
Upon the consummation of the Merger, Keystone will enter into a
five-year employment agreement with Mr. Brown and a three-year employment
agreement with Mr. Wood. See "The Merger -- Interests of Certain Persons in the
Merger."
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OWNERSHIP OF NORTH STAR COMMON STOCK
The following table sets forth the number of shares of the Common
Stock of North Star beneficially owned as of the North Star Record Date by (i)
each person known to North Star to be the beneficial owner of more than 5% of
outstanding Common Stock, (ii) each executive officer, (iii) each current
director and (iv) all directors and executive officers (including the named
individuals) as a group.
Unless otherwise indicated, all persons listed have sole voting and
dispositive power over the shares identified as beneficially owned by them.
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- -------------------- ------------------ ---------
Ronald G. Brown (2) 4,272.26 63.18%
Kim D. Wood (2) 696.00 (1) 10.29%
Vincent Brown 515.75 7.63%
Rhonda J. Brown 515.75 7.63%
Vanessa M. Brown 515.75 7.63%
All directors and current executive
officers as a group (2 persons) 4,968.26 73.47%
_____________________
(1) Includes (i) 112.75 shares beneficially owned by Mr. Wood's spouse, (ii)
112.75 shares held by Kim Wood as Trustee under the Kristine Wood
Irrevocable Trust Agreement dated August 15, 1990 and (iii) 112.75 shares
held by Kim Wood as Trustee under the Kathryn Wood Irrevocable Trust
Agreement dated August 15, 1990.
(2) The address of Messrs. Brown and Wood is 3621 Marshall Street, NE,
Minneapolis, Minnesota 55418.
CERTAIN TRANSACTIONS
On January 1, 1995, North Star entered into a ten (10) year lease
agreement with a partnership owned by the spouses of Ronald G. Brown and Kim
D. Wood to lease property occupied by North Star's East Peoria, Illinois service
center. The initial base rent under the lease was $6,975 per month which is
subject to increase on the anniversary of the lease term by the percentage
increase in the Consumer's Price Index during the preceding year. In addition
to the base rent, North Star pays real estate taxes, maintenance, utilities and
insurance costs associated with the property.
On January 1, 1995, North Star entered ten (10) year lease agreement
with a partnership owned by the spouse of Raymond Wood, a former shareholder,
officer and director of North Star, and the spouse of Ronald G. Brown to lease
the property occupied by North Star's Brainerd, Minnesota chrome bumper plating
center. The initial base rent under the lease was $21,300 per month which is
subject to increase on the anniversary of the lease term by the percentage
increase in the Consumer's Price Index during the preceding year. In addition
to the base rent, North Star pays real estate taxes, maintenance, utilities and
insurance costs associated with the property. Pursuant to the lease agreement,
North Star is responsible for certain occurrences on the premises, including any
environmental contamination.
On January 1, 1995, North Star entered into a ten (10) year lease
agreement with the spouse of Raymond Wood, a former shareholder, officer and
director of North Star, to lease the property occupied by North Star's Brainerd,
Minnesota plastic bumper recycling center. The initial base rent under the
lease was $1,150 per
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month which is subject to increase on the anniversary of the lease term by
the percentage increase in the Consumer's Price Index during the preceding
year. In addition to the base rent, North Star pays real estate taxes,
maintenance, utilities and insurance costs associated with the property.
On January 1, 1995, North Star entered into a ten (10) year lease
agreement with a partnership owned by Kim D. Wood and Richard Monson, the
general manager of North Star's Brainerd, Minnesota chrome bumper manufacturing
and recycling center to lease the property occupied by North Star's St. Cloud,
Minnesota service center. The initial base rent under the lease was $5,000 per
month which is subject to increase on the anniversary of the lease term by the
percentage increase in the Consumer's Price Index during the preceding year. In
addition to the base rent, North Star pays real estate taxes, maintenance,
utilities and insurance costs associated with the property.
On May 20, 1996, North Star entered into a ten (10) year lease
agreement with a partnership owned by the spouses of Ronald Brown and Kim Wood
and the Brown Family Limited Partnership to lease property occupied by North
Star's headquarters and Minneapolis, Minnesota service center hub. The initial
base rent under the lease was $12,000 per month, which is subject to increase on
the anniversary of the lease term by the percentage increase in the Consumer's
Price Index during the preceding year. In addition to the base rent, North Star
pays real estate taxes, maintenance, utilities and insurance costs associated
with the property. In an amendment to the lease dated September 23, 1996, the
partnership agreed to construct a 37,260 square foot addition to the existing
building. Beginning at the time North Star may occupy the addition, the base
rent increases to $25,627.08 per month.
COMBINED UNAUDITED PRO FORMA FINANCIAL STATEMENTS
GENERAL
The following combined unaudited pro forma historical financial
statements are based upon the historical financial statements of Keystone,
included herein, and the historical financial statements of North Star should be
read in conjunction with those financial statements and related notes. These
combined unaudited pro forma historical financial statements are not necessarily
indicative of the operating results that would have been achieved had the Merger
been consummated as of the beginning of the periods presented and should not be
construed as representative of future operating results. These combined
unaudited pro forma historical financial statements give effect to the Merger by
combining the results of operations of Keystone and North Star using the
"pooling-of-interests" method of accounting as if the companies had been
combined since their inception.
In connection with the Merger, North Star will change its fiscal year
end from September 30 to March 31 to conform with Keystone's year end. In the
accompanying combined unaudited pro forma historical financial statements, North
Star's operating results for the six months ended September 30, 1995 were
included in the statements of income for its fiscal year ended September 30,
1995 and the twelve months ended March 31, 1996. North Star's sales and
operating income for the six months ended September 30, 1995 were $17,318,000
and $172,000, respectively.
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COMBINED UNAUDITED PRO FORMA HISTORICAL BALANCE SHEET
The following combined unaudited pro forma historical balance sheet
presents the combined financial position of Keystone and North Star as of
December 27, 1996. Such combined unaudited pro forma information is based on
the historical consolidated balance sheets of Keystone and North Star as of
December 27, 1996 after giving effect to the Merger using the "pooling-of-
interests" method of accounting and to the pro forma adjustments as described in
the notes to combined unaudited pro forma historical financial statements.
<TABLE>
<CAPTION>
PRO FORMA
KEYSTONE NORTH STAR ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
(In thousands, except share data)
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,267 $ 440 $ $ 3,707
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 11,753 5,699 (269)(a) 17,183
Inventories, primarily finished goods . . . . . . . . . . . . 26,357 11,280 (86)(b) 37,551
Other current assets . . . . . . . . . . . . . . . . . . . . . 1,625 1,095 2,720
------- ------- ------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . 43,002 18,514 (355) 61,161
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 6,565 3,787 10,352
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961 1,973 5,934
------- ------- ------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $53,528 $24,274 $ (355) $77,447
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . $ 6,750 $ 1,000 $ $ 7,750
Bankers acceptances and other
short-term debt . . . . . . . . . . . . . . . . . . . . . . . 6,057 -- 6,057
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 7,360 6,790 (269)(a) 13,881
Note payable to related party . . . . . . . . . . . . . . . . 150 -- 150
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 1,934 1,392 (34) 3,292
Long-term debt, due within one year . . . . . . . . . . . . . 135 1,476 1,611
------- ------- ------- -------
Total current liabilities . . . . . . . . . . . . . . . . . 22,386 10,658 (303) 32,741
Long-term debt, less current portion . . . . . . . . . . . . . 428 3,976 4,404
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . 36 -- 36
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . -- 335 335
Shareholders' equity
Preferred stock, no par value:
Authorized shares - 3,000,000
None issued and outstanding
Common stock, no par value:
Keystone: authorized shares - 20,000,000
Issued and outstanding shares - 7,300,000
(9,750,000 pro forma shares issued) at stated value . . . 15,921 -- 1 (c) 15,922
Common stock, $.01 par value:
North Star authorized shares - 100,000
Issued and outstanding shares - 6,762 -- 1 (1)(c) --
Additional paid-in capital . . . . . . . . . . . . . . . . . . 436 117 -- 553
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 14,321 9,187 (52)(a) 23,456
------- ------- ------- -------
Total shareholders' equity . . . . . . . . . . . . . . . 30,678 9,305 (52) 39,931
------- ------- ------- -------
Total liabilities and
shareholders' equity . . . . . . . . . . . . . . . . . $53,528 $24,274 $ (355) $77,447
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to combined unaudited pro forma financial statements.
97
<PAGE>
COMBINED UNAUDITED PRO FORMA HISTORICAL STATEMENT OF INCOME
The following combined unaudited pro forma historical statement of
income for the nine months ended December 27, 1996 was prepared based upon
the historical statement of income for Keystone for such period and the
historical statement of income for North Star for the nine months ended
December 31, 1996 after giving effect to the Merger using the
"pooling-of-interests" method of accounting and to the pro forma adjustments
described in the notes to combined unaudited pro forma historical financial
statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 27, 1996
---------------------------------------------------------
PRO FORMA
KEYSTONE NORTH STAR ADJUSTMENTS PRO FORMA
------------ ------------ ------------- -----------
(In thousands, except per share and share amounts)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . .$ 98,967 $ 42,060 $ (1,395)(a) $ 139,632
Cost of sales . . . . . . . . . . . . . . 59,278 25,236 (1,309)(a) 83,205
----------- ------------ ------------ -----------
Gross profit . . . . . . . . . . . . . . 39,689 16,824 (86) 56,427
Operating expense
Selling and distribution expenses . . 26,542 11,968 -- 38,510
Merger costs . . . . . . . . . . . . 286 149 -- 435
Certain charges . . . . . . . . . . -- 140 -- 140
General and administrative expenses . 6,233 1,897 -- 8,130
----------- ------------ ------------ -----------
Operating income . . . . . . . . . . . . 6,628 2,670 (86) 9,212
Interest expense . . . . . . . . . . . . 561 475 -- 1,036
----------- ------------ ------------ -----------
Income before income taxes . . . . . . . 6,067 2,195 (86) 8,176
Income taxes . . . . . . . . . . . . . . 2,486 858 (34)(a) 3,310
----------- ------------ ------------ -----------
Net income . . . . . . . . . . . . . . .$ 3,581 $ 1,337 $ (52) $ 4,866
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Net income per share . . . . . . . . . .$ 0.53 $ 198 $ 0.53(d)
----------- ------------ -----------
----------- ------------ -----------
Weighted average shares outstanding . . . 6,789,000 6,762 2,443,238 9,239,000
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
See accompanying notes to combined unaudited
pro forma historical financial statements.
98
<PAGE>
COMBINED UNAUDITED PRO FORMA HISTORICAL STATEMENT OF INCOME
The following combined unaudited pro forma historical statement of
income for the year ended March 29, 1996 was prepared based upon the
historical statements of income for Keystone for such year and the historical
statement of income for North Star for the twelve months ended March 31, 1996
after giving effect to the Merger using the "pooling-of-interests" method of
accounting and to the pro forma adjustments described in the notes to
combined unaudited pro forma historical financial statements. North Star's
operating results for the six months ended September 30, 1995 were included
in both the combined unaudited pro forma historical statement of income for
the year ended September 30, 1995 and for the twelve months ended March 29,
1996. North Star's operating revenues and income from operations for the six
months ended September 30, 1995 were $17,318,000 and $172,000, respectively.
<TABLE>
<CAPTION>
KEYSTONE NORTH STAR
YEAR ENDED TWELVE MONTHS
MARCH 29, ENDED MARCH 31, PRO FORMA
1996 1996 ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
(In thousands, except per share and share data)
Net sales . . . . . . . . . . . . . . . . $ 115,326 $ 42,482 $ (1,622)(a) $ 156,186
Cost of sales . . . . . . . . . . . . . . 70,246 25,674 (1,521)(a) 94,399
----------- -------------- ----------- -----------
Gross profit . . . . . . . . . . . . . . 45,080 16,808 (101) 61,787
Operating expenses
Selling and distribution expenses . 31,230 12,530 -- 43,760
Certain charges . . . . . . . . . . 393 205 -- 598
General and administrative expenses 7,172 1,704 -- 8,876
----------- -------------- ----------- -----------
Operating income . . . . . . . . . . . . 6,285 2,369 (101) 8,553
Interest expense . . . . . . . . . . . . 1,156 286 -- 1,442
----------- -------------- ----------- -----------
Income before income taxes . . . . . . . 5,129 2,083 (101) 7,111
Income taxes . . . . . . . . . . . . . . 2,023 932 (41)(a) 2,914
----------- -------------- ----------- -----------
Net income . . . . . . . . . . . . . . . $ 3,106 $ 1,151 $ (60) $ 4,197
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
Net income per share . . . . . . . . . . $ 0.54 $ 170 $ 0.51(d)
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
Weighted average shares outstanding . . . 5,800,000 6,762 2,443,238 8,250,000
----------- -------------- ----------- -----------
----------- -------------- ----------- -----------
</TABLE>
See accompanying notes to combined unaudited
pro forma historical financial statements.
99
<PAGE>
COMBINED UNAUDITED PRO FORMA HISTORICAL STATEMENT OF INCOME
The following combined unaudited pro forma historical statement of
income for the year ended March 31, 1995 was prepared based upon the
historical statements of income for Keystone for such year and the historical
statement of income for North Star for its fiscal year ended September 30,
1995 after giving effect to the Merger using the "pooling-of-interests"
method of accounting and to the pro forma adjustments described in the notes
to combined unaudited pro forma historical financial statements.
<TABLE>
<CAPTION>
KEYSTONE
YEAR ENDED NORTH STAR
MARCH 31, YEAR ENDED PRO FORMA
1995 SEPTEMBER 30, 1995 ADJUSTMENTS PRO FORMA
---------- ------------------ ----------- -----------
(In thousands, except per share and share amounts)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $ 101,596 $ 34,838 $ (1,480)(a) $ 134,954
Cost of sales . . . . . . . . . . . . . . 61,532 20,781 (1,386)(a) 80,927
----------- ----------- ---------- ---------
Gross profit . . . . . . . . . . . . . . 40,064 14,057 (94) 54,027
Operating expenses
Selling and distribution expenses . . . 28,635 10,364 -- 38,999
Certain charges . . . . . . . . . . . . 1,790 180 -- 1,970
General and administrative expenses . . 6,436 1,492 -- 7,928
----------- ----------- ---------- ---------
Operating income . . . . . . . . . . . . 3,203 2,021 (94) 5,130
Interest expense . . . . . . . . . . . . 962 221 -- 1,183
----------- ----------- ---------- ---------
Income before income taxes . . . . . . . 2,241 1,800 (94) 3,947
Income taxes . . . . . . . . . . . . . . 835 728 (36)(a) 1,527
----------- ----------- ---------- ---------
Net income . . . . . . . . . . . . . . . $ 1,406 $ 1,072 $ (58) $ 2,420
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
Net income per share . . . . . . . . . . $ 0.24 $ 158 $ 0.29(d)
----------- ----------- ---------
----------- ----------- ---------
Weighted average shares outstanding . . . 5,805,000 6,762 2,443,263 8,255,000
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
See accompanying notes to combined unaudited pro forma historical
financial statements.
100
<PAGE>
COMBINED UNAUDITED PRO FORMA HISTORICAL STATEMENT OF INCOME
The following combined unaudited pro forma historical statement of
income for the year ended March 25, 1994 was prepared based upon the
historical statements of income for Keystone for such year and the historical
statement of operations for North Star for its fiscal year ended September
30, 1994 after giving effect to the Merger using the "pooling-of-interests"
method of accounting and to the pro forma adjustments described in the notes
to combined unaudited pro forma historical financial statements.
<TABLE>
<CAPTION>
KEYSTONE NORTH STAR
YEAR ENDED YEAR ENDED
MARCH 25, SEPTEMBER 30, PRO FORMA
1994 1994 ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ---------
(In thousands, except per share and share amounts)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $ 84,884 $ 29,612 $ (1,365)(a) $ 113,131
Cost of sales . . . . . . . . . . . . . . 51,196 17,447 (1,277)(a) 67,366
------------- ------------- ------------- ----------
Gross profit . . . . . . . . . . . . . . 33,688 12,165 (88) 45,765
Operating expenses
Selling and distribution expenses . . 25,308 9,512 34,820
Certain charges . . . . . . . . . . . 1,092 161 1,253
General and administrative expenses . 5,511 1,049 6,560
------------- ------------- ------------- ----------
Operating income . . . . . . . . . . . . 1,777 1,443 (88) 3,132
Interest expense . . . . . . . . . . . . 680 183 -- 863
------------- ------------- ------------- ----------
Income before income taxes . . . . . . . 1,097 1,260 (88) 2,269
Income taxes . . . . . . . . . . . . . . 447 496 (35)(a) 908
------------- ------------- ------------- ----------
Income . . . . . . . . . . . . . . . . . $ 650 $ 764 $ (53) $ 1,361
------------- ------------- ------------- ----------
------------- ------------- ------------- ----------
Income per share. . . . . . . . . . . . . $ 0.11 $ 113 $ 0.16(d)
------------- ------------- ----------
------------- ------------- ----------
Weighted average shares outstanding . . . 5,863,000 6,762 2,443,263 8,313,000
------------- ------------- ------------- ----------
------------- ------------- ------------- ----------
</TABLE>
See accompanying notes to combined unaudited pro forma historical
financial statements.
101
<PAGE>
NOTES TO COMBINED UNAUDITED PRO FORMA HISTORICAL FINANCIAL STATEMENTS
BASIS OF PRESENTATION. The combined unaudited pro forma historical
financial statements assume the issuance of Keystone's Common Stock in
exchange for all outstanding North Star Common Stock. Such financial
statements also assume that the Merger will be accounted for using the
"pooling-of-interests" method of accounting pursuant to Opinion No. 16 of the
Accounting Principles Board. The pooling-of-interests method of accounting
assumes that the combining companies have been merged from their inception,
and the historical financial statements for periods prior to consummation of
the Merger are restated as though the companies had been combined from their
inception.
Pursuant to the rules and regulations of the Commission, the
combined unaudited pro forma historical statements of income exclude the
results of operations associated with discontinued businesses, extraordinary
items and cumulative effects of accounting changes. In addition, the
combined unaudited pro forma historical financial statements do not include
any adjustment for estimated nonrecurring costs directly related to the
Merger which are expected to be included in operations of Keystone within the
twelve months succeeding the consummation of the Merger. Such costs are
currently estimated for purposes of this presentation to be approximately
$1,000,000. Actual merger costs may vary from such estimate.
Certain reclassifications have been made to the historical
financial statements of Keystone and North Star to conform to the pro forma
presentation. Such reclassifications are not material to the combined
unaudited pro forma historical financial statements.
PRO FORMA ADJUSTMENTS.
a. All significant intercompany balance sheet and statement of
income items between Keystone and North Star have been eliminated in the
combined historical unaudited pro forma condensed financial statements.
b. This adjustment represents the elimination of gross profit
related to inventory sold to Keystone by North Star that is included in the
inventory of Keystone at the end of each fiscal year presented.
c. The shareholders equity accounts have been adjusted to reflect
the assumed issuance of 2,450,000 shares of Keystone's Common Stock for all
issued and outstanding shares of North Star's Common Stock (based on the
exchange ratio of 362.3088 shares of Keystone's Common Stock for each share of
North Star's Common Stock outstanding as of September 30, 1996).
d. Pro forma net income and pro forma income from continuing
operations available to common shareholders per share for each period is based
on the combined weighted average number of shares outstanding, after giving
effect to the issuance of 362.3088 shares of Keystone's Common Stock for each
share of North Star's Common Stock outstanding as each period presented. Fully
diluted earnings per share are equal to primary earnings per share for all
periods presented because the addition of potentially dilutive securities that
are common stock equivalents would have been either antidilutive or not
material.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the shares of
Common Stock to be issued in connection with the Merger will be passed upon by
Manatt, Phelps & Phillips, LLP, Los Angeles, California. Certain legal matters
for North Star, including federal income tax consequences in connection with the
Merger, will be passed upon by Fredrikson & Byron P.A.
EXPERTS
The financial statements of Keystone at March 31, 1995 and March
29, 1996, and for each of the three years in the period ended March 29, 1996,
appearing in this Proxy Statement/Information Statement/Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
102
<PAGE>
The financial statements of North Star at September 30, 1995 and
1996, and for each of the three years in the period ended September 30, 1996,
appearing in this Proxy Statement/Information Statement/Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
It is expected that representatives of Ernst & Young LLP will be
present at the Meetings where they will have an opportunity to respond to
appropriate questions of the Keystone Shareholders and the North Star
Shareholders and to make a statement if they so desire.
SHAREHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the
shareholders of Keystone after such consummation is expected to held on
_____________, 1997. If any Keystone shareholder intends to present a
proposal of the 1997 Keystone annual meeting and wishes to have such proposal
considered for inclusion in the proxy materials for such meeting, such holder
must submit the proposal to the Secretary of Keystone in writing so as to be
received at the executive offices of Keystone by __________, 1997. Such
proposals must also meet the other requirements of the rules of the
Commission relating to shareholder proposals.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets at March 31, 1995 and March 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Income for years ended March 25, 1994, March 31, 1995 and March 29, 1996 . . . . . F-4
Statements of Shareholders' Equity for the years ended March 25, 1994, March 31, 1995 and
March 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the years ended March 25, 1994, March 31, 1995 and March 29, 1996 . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Balance Sheet (Unaudited) at December 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Income (Unaudited) for the nine-month periods ended December, 29, 1995 and
December 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Cash Flows (Unaudited) for the nine-month periods ended December 29, 1995 and
December 27, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
NORTH STAR PLATING COMPANY
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Balance Sheets at September 30, 1995 and September 30, 1996 . . . . . . . . . . . . . . . . . . . F-20
Statements of Income and Shareholders' Equity for years ended September 30, 1994, September 30,
1995 and September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Cash Flows for years ended September 30, 1994, September 30, 1995 and September 30,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Balance Sheet (Unaudited) at December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Statements of Income (Unaudited) for the three-month periods ended December 31, 1996 and 1995 . . F-33
Statements of Cash Flows (Unaudited) for the three-month periods ended December 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the accompanying balance sheets of Keystone Automotive
Industries, Inc. as of March 29, 1996 and March 31, 1995, and the related
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Keystone Automotive
Industries, Inc. at March 29, 1996 and March 31, 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
March 29, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company
changed its method of accounting for income taxes in 1994.
ERNST & YOUNG LLP
Los Angeles, California
May 24, 1996
F-2
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 29, 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,916 $ 2,677
Accounts receivable, less allowance for doubtful accounts of $376 in 1995 and
$280 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,842 10,799
Inventories, primarily finished goods . . . . . . . . . . . . . . . . . . . . . . 17,223 22,226
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 758 604
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 978 724
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 30,959 37,030
Property, plant and equipment, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 376
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . 4,013 4,495
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,366 1,451
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,060 4,496
------------ -----------
9,787 10,818
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . (5,676) (6,487)
------------ -----------
4,111 4,331
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 22
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 1,652
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,664 $ 43,035
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,050 $ 12,250
Bankers acceptances and other short-term debt . . . . . . . . . . . . . . . . . . . . 2,453 3,520
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417 8,597
Notes payable to officers, shareholders and other related parties . . . . . . . . . . 344 150
Accrued salaries, wages and related benefits . . . . . . . . . . . . . . . . . . . . . 492 810
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806 984
Long-term debt, due within one year . . . . . . . . . . . . . . . . . . . . . . . . . 1,078 400
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 22,640 26,711
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215 813
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 36
Commitments
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 3,000,000
None issued and outstanding -- --
Common stock, no par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 5,800,000 in 1995 and 1996,
at stated value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,299 4,299
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 436 436
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,634 10,740
------------ -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 12,369 15,475
------------ -----------
Total liabilities and shareholders' equity . . . . . . . . . . . . $ 36,664 $ 43,035
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
MARCH 25, 1994 MARCH 31, 1995 MARCH 29, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,884 $ 101,596 $ 115,326
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,196 61,532 70,246
----------- ---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,688 40,064 45,080
Operating expenses:
Selling and distribution expenses . . . . . . . . . . . . . . . 25,308 28,635 31,230
General and administrative . . . . . . . . . . . . . . . . . . . 6,603 8,226 7,565
----------- ---------- ----------
31,911 36,861 38,795
----------- ---------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 1,777 3,203 6,285
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 680 962 1,156
----------- ---------- ----------
Income before income taxes and cumulative effect of accounting
change for income taxes . . . . . . . . . . . . . . . . . . . . . . 1,097 2,241 5,129
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 835 2,023
----------- ---------- ----------
Income before cumulative effect of change in method for accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 650 1,406 3,106
Cumulative effect of accounting change for income taxes . . . . . . . (134) -- --
----------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 516 $ 1,406 $ 3,106
----------- ---------- ----------
----------- ---------- ----------
Income per share before cumulative effect of accounting change . . . $ 0.11 $ 0.24 $ 0.54
Cumulative effect per share . . . . . . . . . . . . . . . . . . . . . (.02) -- --
----------- ---------- ----------
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.24 $ 0.54
----------- ---------- ----------
----------- ---------- ----------
Weighted average shares outstanding . . . . . . . . . . . . . . . . . 5,863,000 5,805,000 5,800,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
COMMON STOCK
-----------------
<S> <C> <C> <C> <C> <C>
Balance at March 26, 1993 . . . . . . . . . . . . . . . . . . . 5,592,555 $ 3,606 $ 436 $ 5,712 $ 9,754
Issuance of 90,067 shares of common stock to officers
($3.32 per share). . . . . . . . . . . . . . . . . . . . . 90,067 299 -- -- 299
Net income . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 516 516
--------- -------- ------- -------- -------
Balance at March 25, 1994 . . . . . . . . . . . . . . . . . . . 5,682,622 3,905 436 6,228 10,569
Retirement of 62,755 shares of common stock
($3.32 per share) . . . . . . . . . . . . . . . . . . . (62,755) (209) -- -- (209)
Issuance of 186,343 shares of common stock to officers
($3.34 per share) . . . . . . . . . . . . . . . . . . . . 180,133 603 -- -- 603
-- -- -- 1,406 1,406
Net income . . . . . . . . . . . . . . . . . . . . . . . . --------- -------- ------- -------- -------
Balance at March 31, 1995 . . . . . . . . . . . . . . . . . . . 5,800,000 4,299 436 7,634 12,369
Net income . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 3,106 3,106
--------- -------- ------- -------- -------
Balance at March 29, 1996 . . . . . . . . . . . . . . . . . . . 5,800,000 $ 4,299 $ 436 $ 10,740 $15,475
--------- -------- ------- -------- -------
--------- -------- ------- -------- -------
</TABLE>
See accompanying notes.
F-5
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
MARCH 25, 1994 MARCH 31, 1995 MARCH 29, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 516 $ 1,406 $ 3,106
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 972 798 874
Cumulative effect of accounting change for income taxes . . . . . 134 -- --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (122) (431) 326
Provision for losses on uncollectible accounts . . . . . . . . . . 253 229 241
Provision for losses on inventory . . . . . . . . . . . . . . . . 147 1,263 542
(Gain) loss on sales of assets . . . . . . . . . . . . . . . . . . (46) 32 (16)
Stock issued for compensation . . . . . . . . . . . . . . . . . . 299 603 --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (1,614) (730) (3,198)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (4,743) 1,535 (4,694)
Prepaid expenses and other receivables . . . . . . . . . . . 682 (329) 739
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 57 (50) 170
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 2,660 (1,325) 2,180
Accrued salaries, wages and related benefits . . . . . . . . 139 (126) 318
Other accrued liabilities and accrued pension costs . . . . . 437 (66) (526)
-------------- -------------- --------------
Net cash (used in) provided by operating activities . . . . . . . . . . (229) 2,809 62
INVESTING ACTIVITIES
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . 63 46 40
Acquisitions of certain service centers . . . . . . . . . . . . . . . . -- (1,289) (1,342)
Purchases of property, plant and equipment . . . . . . . . . . . . . . (550) (1,590) (999)
-------------- -------------- --------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . (487) (2,833) (2,301)
FINANCING ACTIVITIES
Borrowings under bank credit facility . . . . . . . . . . . . . . . . . -- 2,750 1,200
Payments under bank credit facility . . . . . . . . . . . . . . . . . . -- (1,200) --
Bankers acceptances and other short-term debt, net . . . . . . . . . . 1,689 (1,024) 1,067
Borrowings on notes payable to officers, shareholders and other related
parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14 178
Payments on notes payable to officers, shareholders and other related
parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (13) (364)
Borrowings on long-term debt . . . . . . . . . . . . . . . . . . . . . -- 1,880 --
Principal payments on long-term debt . . . . . . . . . . . . . . . . . (869) (774) (1,081)
Principal payments on capital lease obligations . . . . . . . . . . . . (34) (141) --
Retirement of stock . . . . . . . . . . . . . . . . . . . . . . . . . . -- (209) --
-------------- -------------- --------------
Net cash provided by financing activities . . . . . . . . . . . . . . . 762 1,283 1,000
-------------- -------------- --------------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . 46 1,259 (1,239)
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 2,611 2,657 3,916
-------------- -------------- --------------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,657 $ 3,916 $ 2,677
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures
Interest paid during the year . . . . . . . . . . . . . . . . . . $ 663 $ 908 $ 1,175
Income taxes paid during the year . . . . . . . . . . . . . . . . $ 13 $ 1,916 $ 1,382
</TABLE>
See accompanying notes.
F-6
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS INFORMATION
The principal business of Keystone Automotive Industries, Inc. (the
"Company") is the distribution of replacement parts for automobiles and light
trucks to collision repair shops through a network of 41 service centers
located within the United States and Mexico. The significant accounting
policies of the Company are summarized as follows:
FISCAL YEAR
The Company operates using a 52/53 week fiscal year. The Company's
fiscal year ends on the last Friday of March. The fiscal years ended March
25, 1994, March 31, 1995 and March 29, 1996 included 52, 53 and 52 weeks,
respectively.
INVENTORIES
The Company's inventories consist primarily of automotive crash
parts and bumpers. Inventories are stated at the lower of cost (first-in,
first-out) or market.
DEPRECIATION
The Company uses the straight-line method for depreciation of
property, plant, and equipment over the following estimated useful lives:
Buildings . . . . . . . . . . . . . . . 20 years
Machinery and equipment . . . . . . . .5-10 years
Furniture and fixtures . . . . . . . . 5-8 years
Auto and truck . . . . . . . . . . . . 3-5 years
Leasehold improvements . . . . . . . . Term of lease or life of the
asset, whichever is shorter
Depreciation and amortization expenses amounted to approximately
$972,000, $798,000 and $874,000 for the years ended March 25, 1994, March 31,
1995 and March 29, 1996, respectively.
CONCENTRATION OF CREDIT RISK
Accounts receivable subject the Company to a potential
concentration of credit risk. Substantially all of the Company's customers
are in the auto body repair business, none representing more than 1% of
sales. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
are generally due within 30 days. Credit losses have consistently been
within management's expectations. The Company purchased more than 10% of
total purchases from one vendor during the fiscal years ended March 31, 1995
and March 29, 1996.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these estimates.
F-7
<PAGE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees and Related Interpretations.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of
delivery. The Company provides its customers the right to return products
that are damaged or defective. The effect of these programs is estimated and
current period sales and cost of sales are reduced accordingly.
EARNINGS PER SHARE
The Board of Directors authorized management of the Company to file
a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. The
Company restated its Articles of Incorporation and Bylaws to increase the
authorized shares of common stock to 20,000,000 and to authorize 3,000,000
shares of preferred stock. No preferred stock has been issued.
Additionally, the Board of Directors and shareholders approved a common stock
split of 3.8467 to 1 on April 16, 1996. All share and per share amounts in
these financial statements have been adjusted for the common stock split.
Earnings per share are computed using the weighted average number
of shares of common stock and common stock equivalents attributable to stock
options. Common stock equivalents were calculated using the treasury stock
method based on the appraised fair market value of the Company's common stock
obtained annually as of the end of the fiscal year from an independent
appraiser.
NEW ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will
adopt Statement 121 in 1997 and, based on current circumstances, does not
believe the effect of adoption will be material.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which establishes financial accounting and
reporting standards for stock-based compensation plans. The Company will
comply with this standard in 1997. It is currently determining which
alternatives available within the standard will be adopted.
F-8
<PAGE>
2. FINANCING ARRANGEMENTS
Long-term debt consisted of the following at March 31, 1995 and
March 29, 1996:
<TABLE>
<CAPTION>
1995 1996
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, due in monthly installments of $50,000, plus interest at the prime rate
(8.25% at March 29, 1996), plus .5% due August 1, 1996 . . . . . . . . . . . . . . . . . $ 850 $ 250
10.5% mortgage notes payable, principal and interest payable at $3,316 and $2,225 monthly
through October 1998 and June 1999, respectively . . . . . . . . . . . . . . . . . . . . 207 160
Notes payable to Bumper Exchange, monthly principal of $6,790 and interest at 1% above the
prime rate (8.25% at March 29, 1996), payable through October 1997. Secured by
inventory, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 129
Note payable to FAMA, plus interest at 1% above prime rate . . . . . . . . . . . . . . . . . 338 --
Note payable to PNC bank, monthly payments of $6,649 with a variable interest rate
(9.25% at March 29, 1996), payable through April 30, 1999. Secured by property . . . . 688 674
------- -------
2,293 1,213
Less amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,078 400
------- -------
Amounts due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,215 $ 813
------- -------
------- -------
</TABLE>
The mortgage note payable is secured by a purchase-money trust deed
covering land and building, with a net book value of $403,000 and a cost of
$568,000 at March 29, 1996.
Long-term debt due after one year matures approximately as follows:
1997 -- $400,000; 1998 -- $122,000; 1999 -- $60,000; 2000 -- $23,000; 2001
- --$17,000; and thereafter $591,000.
The Company's credit agreement, which expires on October 31, 1996,
provides for borrowings up to a maximum of $17,000,000, including a term loan
up to $1,200,000, due August 1, 1996, and a revolving credit facility
comprising a line of credit for direct advances, commitments from the bank
for borrowings under bankers' acceptances, and letters of credit. The bank
has offered in a letter to extend the line of credit to August 1, 1997,
subject to a definitive agreement.
Total direct advances under the line of credit are available up to
a maximum of 80% of the amount of eligible accounts receivable and 50% of the
amount of eligible inventory, less any outstanding bankers' acceptances and
letters of credit. The maximum amount of letters of credit allowed by the
agreement is $6,000,000, and this is limited by amounts already outstanding
under the agreement. The Company had available $2,149,000 under the credit
agreement as of March 29, 1996. At March 29, 1996, the balance outstanding
under the line of credit was $12,250,000, of which $6,250,000 bears interest
at the bank's reference rate of 8.25% (6.25% at March 31, 1995), plus .25%.
The remaining $6,000,000 bears interest at LIBOR of 5.695% (6.25% at March
31, 1995), plus 1.5%. Additionally, the Company had outstanding import
letters of credit amounting to approximately $526,000.
The line-of-credit agreement and note payable to the bank are
secured by accounts receivable, inventories, and equipment and are subject to
certain restrictive covenants which restrict the payment of dividends and
salaries and requires the maintenance of minimum tangible net worth and
certain financial ratios. The Company was in compliance with its covenants
as of March 29, 1996.
3. RELATED PARTY TRANSACTIONS
The Company has entered into three lease agreements for facilities
with two partnerships whose partners include certain of the Company's
directors and officers and two lease agreements with a corporation which is
owned by a family member of a Company officer and director, as described
below. The Company believes that the terms and conditions of such leases
with affiliated parties are no less favorable than could have been obtained
from unaffiliated parties in arm's length transactions at the time such
leases were entered into.
The Company has entered into a lease in 1995 with V-JAC Properties,
Ltd. with a lease term of three years (with an option to renew the lease for
an additional three years on the same terms and conditions), for a monthly
F-9
<PAGE>
rent of $3,494. V-JAC Properties, Ltd. is a partnership whose interests are
held equally by the Company's founders, president and executive vice
president.
The Company has also entered into a lease in 1995 with V-JAC
Properties, Ltd. with a lease term of three years (with an option to renew
the lease for an additional three years on the same terms and conditions),
for a monthly rent of $2,985.
The Company has entered into a lease in 1995 with B-J Properties,
Ltd. with a lease term of three years (with an option to renew the lease for
an additional three years on the same terms and conditions), for a monthly
rent of $5,067.
B-J Properties, LTD is a partnership whose interests are held by
the Company's founders, both of whom retired as directors of the Company
effective March 31, 1996.
The Company has entered into a lease dated April 1, 1995 with
Benton Real Properties, Inc. relating to approximately 24,082 square feet in
Ontario, California, with a lease term of five years, for a monthly rent of
$6,088 in the first year of the lease, increasing to $6,271, $6,549, $6,653
and $6,853, respectively, in each year thereafter. Benton Real Properties,
Inc. is wholly owned by Bertha Benton, the mother of Virgil K. Benton II, the
Company's Chief Executive Officer and a director.
In January 1996, the Company exercised a five-year lease option
expiring on December 31, 2000, with respect to a lease dated January 1, 1991,
with Benton Real Properties, Inc., relating to approximately 20,000 square
feet in Ontario, California, for a monthly rent of $5,634 in the first year
of the lease, increasing to $5,803, $5,977, $6,157 and $6,341, respectively,
in each year thereafter.
Rent expense paid to related parties amounted to $252,000, $270,000
and $196,000 for 1994, 1995 and 1996, respectively, exclusive of the
Company's obligation for property taxes and insurance.
Notes payable to officers, shareholders, and other related parties
are unsecured, due October 1, 1998, and bear interest at the prime rate
(8.25% at March 29, 1996) plus 1%. Interest expense incurred in connection
with these obligations was $20,000, $29,000 and $40,000 during the years
ended March 25, 1994, March 31, 1995 and March 29, 1996, respectively.
The Company has adopted a policy that it will not enter into any
material transaction in which a Company director or officer has a direct or
indirect financial interest, unless the transaction is determined by the
Company's Board of Directors to be fair to the Company and is approved by a
majority of the Company's disinterested directors or by the Company's
shareholders, as provided for under California law.
4. INCOME TAXES
Effective for the beginning of the year ended March 25, 1994, the
Company changed its method of accounting for income taxes from the deferred
method to the liability method required by FASB Statement 109, "Accounting
for Income Taxes." As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of adopting
Statement 109 decreased net income by $134,000 in fiscal 1994.
Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
F-10
<PAGE>
Significant components of the Company's deferred tax liabilities
and assets as of March 31 are as follows (in thousands):
1995 1996
-------- -------
Deferred tax assets
Book depreciation over tax . . . . . . . . . . . . $ 402 $ 366
Uniform cost capitalization . . . . . . . . . . . 232 226
Inventory reserve . . . . . . . . . . . . . . . . 514 107
Accrued expenses not currently deductible for tax . 426 393
Other, net . . . . . . . . . . . . . . . . . . . . -- 35
------ -----
Total deferred tax assets . . . . . . . . . . 1,574 1,127
Deferred tax liabilities
Prepaid expenses . . . . . . . . . . . . . . . . . (368) (381)
Other, net . . . . . . . . . . . . . . . . . . . . (134) --
------ -----
Total deferred tax liabilities. . . . . . . . (502) (381)
------ -----
Net deferred assets . . . . . . . . . . . . . $1,072 $ 746
------ -----
------ -----
No valuation allowance was necessary for deferred tax assets in
1996 or 1995.
Significant components of the provision for income taxes
attributable to operations under the liability method are as follows (in
thousands):
1994 1995 1996
-------- ---------- ---------
Current
Federal. . . . . . . . . . . . . $ 451 $ 1,135 $ 1,339
State. . . . . . . . . . . . . . 118 276 358
-------- --------- ---------
569 1,411 1,697
Deferred:
Federal. . . . . . . . . . . . . (99) (383) 277
State. . . . . . . . . . . . . . (23) (193) 49
-------- --------- ---------
(122) (576) 326
-------- --------- ---------
$ 447 $ 835 $ 2,023
-------- --------- ---------
-------- --------- ---------
The reconciliation of income taxes at the U.S. federal statutory tax
rate to reported income taxes expense is as follows (in thousands):
1994 1995 1996
-------- ---------- ---------
Income taxes at statutory tax rate. . $ 373 $ 762 $ 1,743
State income taxes, net of federal
tax effect . . . . . . . . . . . . 61 120 274
Non-deductible expenses . . . . . 13 4 6
(51) --
-------- --------- ---------
Other, net . . . . . . . . . . . $ 447 $ 835 $ 2,023
-------- --------- ---------
-------- --------- ---------
5. EMPLOYEE BENEFIT PLANS
The Company has an employee stock ownership plan which covers
substantially all of its employees. Under the terms of the Internal Revenue
Code, each year's tax deductible contribution is limited to a maximum of 25%
of the Company's qualified payroll. A carryover of unused allowable
contributions is allowed, subject to certain limits. Under the terms of the
plan, the Company makes the contribution to the Trustee, who is required to
follow the Administrative Committee's investment decisions. The Company's
contributions to the plan were $174,000, $190,000 and none in 1994, 1995 and
1996, respectively.
F-11
<PAGE>
In March 1979, the Company adopted a defined benefit pension plan
(the "Plan") to provide pension benefits to all non-union employees. Plan
benefits are based on an employee's years of service and the compensation
during the five years of employment which would yield the highest average
compensation. The assets of the plan consist primarily of investments in
mutual funds, time certificates of deposit, and marketable debt securities.
The Company's policy is to fund pension cost accrued.
The net periodic pension cost for the Plan for the years ended
March 25, 1994, March 31, 1995 and March 29, 1996, consisted of the following
(in thousands).
1994 1995 1996
-------- ---------- ---------
Service costs -- benefits earned
during the year . . . . . . . . . $ 105 $ 120 $ 132
Interest cost on projected benefit
obligation . . . . . . . . . . . 174 188 213
Actual return on assets . . . . . (122) (136) (153)
Net amortization and deferral. . . 43 40 45
--------- -------- --------
$ 200 $ 212 $ 237
--------- -------- --------
--------- -------- --------
The following is a summary of the status of the funding of the Plan
(in thousands):
1995 1996
-------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligations . . . . . . . . . . $ (2,228) $ (2,414)
Non-vested benefit obligations . . . . . . . . (66) (65)
---------- ----------
Accumulated benefit obligations . . . . . . . . . $ (2,294) $ (2,479)
---------- ----------
---------- ----------
Projected benefit obligations . . . . . . . . . . $ (2,668) $ (2,902)
Assets of the plan at market. . . . . . . . . . . 1,853 2,442
---------- ----------
Projected benefit obligation
greater than assets of the plan . . . . . . . . . (815) (460)
Unrecognized net loss not yet recognized in
periodic pension cost . . . . . . . . . . . . . 1,241 1,148
Unrecognized net transition obligation at
March 28, 1987, being recognized over
25 years. . . . . . . . . . . . . . . . 136 128
Adjustment required to recognize
minimum liability:
Accrued but not expensed. . . . . . . . . . . . 171 (1)
Unfunded liability . . . . . . . . . . . . . . 440 36
---------- ----------
Prepaid pension included in other assets and prepaid
expenses . . . . . . . . . . . . . . . . . . . $1,173 $851
In determining the actuarial present value of projected benefit
obligations at March 31, 1995 and March 29, 1996, a discount rate of 8% was
used. Future compensation levels are assumed to increase at an annual rate
of 5%. The expected long-term annual rate of return on assets is 8%.
6. STOCK COMPENSATION PLAN
During fiscal 1989, the Company's Board of Directors approved a
restricted stock compensation plan for participating directors, officers, and
other key management personnel, with the aggregate amount of authorized, but
unissued, common shares to be delivered upon the exercise of all options
granted, not to exceed 961,675. Options to purchase 630,466 common shares
were granted during fiscal 1989 and become exercisable in seven equal
installments for each of seven years, commencing with fiscal 1989, provided
certain minimum revenue and pre-tax income increases are achieved during each
year of the option period. Options which do not become exercisable during a
given year due to non-attainment of these increases may become exercisable in
the next year, provided the cumulated increases in revenues and pre-tax
income are equal to the minimum amounts otherwise required for the year in
which the exercise may occur. Options which become exercisable in a
particular year expire if not exercised by the end of such fiscal year. The
purchase price of stock covered by each option is determined by the Stock
Option Committee.
During fiscal 1994 and 1995, restricted stock options of 90,067 and
180,133, respectively, were exercised and were valued at the time of exercise
($3.32 in 1994 and $3.34 in 1995). No options were exercised in 1996.
Transactions under the Plan were as follows:
F-12
<PAGE>
STOCK OPTIONS
SHARES PRICE
------- -------
Outstanding at March 26, 1993 . . . . . . . 270,200 $ ---
Exercised . . . . . . . . . . . . . . . . . 90,067 $ 3.32
Outstanding at March 25, 1994 . . . . . . . 180,133 ---
Exercised . . . . . . . . . . . . . . . . . 180,133 $ 3.34
-------- -------
Outstanding at March 31, 1995 . . . . . . . --- ---
-------- -------
-------- -------
7. COMMITMENTS
The Company leases substantially all of its property and a portion
of its plant and equipment. Certain of the leases contain renewal options of
from two to five years. Future minimum lease payments, under noncancelable
operating leases with initial terms of one year or more, are approximately as
follows at March 29, 1996 (in thousands):
<TABLE>
<CAPTION>
RELATED TOTAL
PARTY BUILDING FLEET OPERATING
LEASES LEASES LEASES LEASES
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997 . . . . . . . . . $ 282 $ 1,823 $ 726 $ 2,831
1998 . . . . . . . . . 252 1,540 639 2,431
1999 . . . . . . . . . 152 1,093 391 1,636
2000 . . . . . . . . . 157 965 109 1,231
2001 . . . . . . . . 57 626 -- 683
Thereafter . . . . . . -- 267 -- 267
-------- -------- ------- ------
Total minimum rental
payments . . . . . $ 900 $ 6,314 $1,865 $ 9,079
-------- -------- ------- ------
-------- -------- ------- ------
</TABLE>
Total rent expense amounted to $1,891,000, $1,698,000 and
$2,908,000 for fiscal 1994, 1995 and 1996, respectively, exclusive of the
Company's obligation for property taxes and insurance. Certain leases
contain provisions for rent escalation which is being amortized on a
straight-line basis over the lives of the leases.
8. ACQUISITION
In November 1994, the Company purchased substantially all of the
assets, primarily inventory, furniture and fixtures, and equipment of FAMA
for approximately $1,289,000 in cash and a note for $388,000. The
acquisition was accounted for using the purchase method, and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair
values.
During the year ended March 29, 1996, the Company purchased
substantially all of the assets, primarily inventory and equipment of M.A.P.
International, C.D. Wheel and United Bumper. The Company paid approximately
$1,192,000 in cash and gave a note for $150,000. The Company entered into a
new loan with its bank in connection with one of the purchases. The
acquisitions were accounted for using the purchase method, and, accordingly,
the acquired assets and liabilities were recorded at their estimated fair
values.
9. SUBSEQUENT EVENT
The Company is currently negotiating the purchase of substantially
all of the assets, primarily inventory and receivables, for approximately
$4,000,000 in cash and notes of a distributor of aftermarket collision parts
currently operating seven service centers in the Southeast.
F-13
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 27,
1996
------------
<S> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,267
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . 11,753
Inventories, primarily finished goods . . . . . . . . . . . . . . . . . . 26,357
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,625
------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 43,002
Property, plant and equipment, net: . . . . . . . . . . . . . . . . . . . 6,565
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961
------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $53,528
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,750
Bankers acceptances and other short-term debt . . . . . . . . . . . 6,057
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 7,360
Notes payable to related party . . . . . . . . . . . . . . . . . . . 150
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,934
Long-term debt, due within one year . . . . . . . . . . . . . . . . 135
------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 22,386
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . 428
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Shareholders' equity:
Preferred stock, no par value
Authorized shares - 3,000,000
None issued and outstanding
Common Stock, no par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 7,300,000 at
December 1996 and 5,800,000 at March 1996 at stated value . . . . . 15,921
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 436
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,321
------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 30,678
------------
Total liabilities and shareholders' equity . . . . . . . . . . $53,528
------------
------------
</TABLE>
See accompanying notes.
F-14
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------
DECEMBER 27, 1996 DECEMBER 29, 1995
----------------- -----------------
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,967 $ 82,188
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,278 50,010
----------------- -----------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,689 32,178
Operating Expenses:
Selling and distribution expenses . . . . . . . . . . . . . . . . . . 26,542 22,389
General and administrative . . . . . . . . . . . . . . . . . . . . . 6,233 5,608
----------------- -----------------
Merger expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 --
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,628 4,181
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 561 860
----------------- -----------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . 6,067 3,321
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,486 1,326
----------------- -----------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,581 $ 1,995
----------------- -----------------
----------------- -----------------
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.34
----------------- -----------------
----------------- -----------------
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . 6,789,000 5,800,000
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes.
F-15
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
DECEMBER 27, 1996 DECEMBER 29, 1995
----------------- -----------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,581 $ 1,995
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 824 650
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) --
Provision for losses on uncollectible accounts . . . . . . . . . . . . . . . 91 108
Provision for losses on inventory. . . . . . . . . . . . . . . . . . . . . . 561 481
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (289) (1,416)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,518) (3,654)
Prepaid expenses, other receivables and other assets. . . . . . . . . . . 36 505
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,237) (627)
Accrued salaries, and other accrued liabilities. . . . . . . . . . . . . . 141 (379)
----------------- -----------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . 1,070 (2,337)
Investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . (2,564) (703)
Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . (5,424) (139)
----------------- -----------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (7,988) (842)
Financing activities:
Payments under bank credit facility . . . . . . . . . . . . . . . . . . . . . (5,500) 1,200
Bankers acceptances and other short-term debt, net . . . . . . . . . . . . . 2,536 2,371
Payments on notes payable to officers, shareholders and
other related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (344)
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . (1,150) (546)
Net proceeds of initial public offering . . . . . . . . . . . . . . . . . . . 11,622 --
----------------- -----------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 7,508 2,681
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . (590) (498)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . 2,677 3,916
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,267 $ 3,418
----------------- -----------------
Supplemental disclosures
Interest paid during the period. . . . . . . . . . . . . . . . . . . . . . $ 485 $ 832
Income taxes paid during the period. . . . . . . . . . . . . . . . . . . . $ 2,597 $ 761
</TABLE>
See accompanying notes.
F-16
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 27, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements included herein have
been prepared by the Company pursuant to the rules and regulations promulgated
by the Securities and Exchange Commission (the "Commission"). Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted pursuant to Commission rules and regulations. These financial
statements should be read in conjunction with the financial statements and notes
thereto included elsewhere in the prospectus. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial position of the Company with respect to the interim
financial statements at December 27, 1996 and 1995, and of the results of its
operations and its cash flows for the nine-month period ended December 27, 1996
and 1995 have been included. The results of operations for the nine-month
period ended December 27, 1996, are not necessarily indicative of the results
for the full year ended March 27, 1997.
2. SHAREHOLDERS EQUITY
On April 16, 1996, the Company amended its Articles of Incorporation
to increase the authorized shares of Common Stock to 20,000,000 and to authorize
3,000,000 shares of Preferred Stock and to effect a Common Stock split of 3.8467
to 1. No Preferred Stock has been issued. All share and per share amounts in
these financial statements have been adjusted for the Common Stock split.
On June 20, 1996, the Company completed its initial public offering of
3,105,000 shares of Common Stock at $9.00 per share; 1,500,000 shares were sold
by the Company and 1,605,000 shares were sold by selling shareholders. The
expenses of the offering including underwriter's discounts and commissions,
legal, auditing, printing and other costs were $1,848,000 resulting in net
proceeds to the Company of $11,622,000.
On June 20, 1996, the Company granted incentive stock options to
purchase an aggregate of 200,000 shares of the Company's Common Stock at an
exercise price of $9.00 per share to certain employees of the Company. The
options become exercisable on a cumulative basis at a rate of 25% per year,
commencing one year from the date of grant and expire ten years from the date of
grant. In addition, the Company granted non-qualified stock options to purchase
an aggregate of 20,000 shares of Common Stock to two non-employee directors of
the Company. The options vest immediately at an exercise price of $9.00 per
share and expire five years from the date of grant.
3. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of
shares of Common Stock and Common Stock equivalents attributable to stock
options. Common Stock equivalents were calculated using the treasury stock
method.
4. INCOME TAXES
Income tax provisions for interim periods are based on estimated
effective annual income tax rates.
5. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (FAS 121), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in 1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (FAS 123), Accounting for
Stock-Based Compensation. The Company elected to continue to measure
compensation cost for its employee stock compensation plans using the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
F-17
<PAGE>
6. ACQUISITIONS
The Company completed four acquisitions of distributors of aftermarket
collision replacement parts during the period. The aggregate purchase price of
the acquisitions was approximately $5,925,000 and they were accounted for using
the purchase accounting method.
7. MERGER
On December 19, 1996, the Company signed a definitive merger agreement
with North Star Plating Company (North Star). The Company will issue 2,450,000
shares of its common stock in exchange for all of the outstanding common stock
of North Star. The transaction will be accounted for as a pooling of interests
and is subject to regulatory approval and the approval of both company's
shareholders. The Company expects the transaction to be completed by March
1997.
North Star distributes aftermarket collision replacement parts, paint
and paint supplies through twenty service centers located in Minnesota, Iowa,
Wisconsin, Missouri, Illinois and North and South Carolina. North Star also
operates a chrome bumper plating facility in Brainerd, Minnesota.
The following audited proforma data summarizes the combined results of
the Company and North Star as though the merger had occurred at the beginning of
the period ended December 27, 1996.
UNAUDITED
UNAUDITED PRO FORMA
--------- ---------
Net Sales 139,632
Net Income 4,866
Earnings per Share .53
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
North Star Plating Company
We have audited the accompanying balance sheets of North Star Plating
Company as of September 30, 1996 and 1995, and the related statements of income
and shareholders' equity and cash flows for each of the three years in the
period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of North Star Plating
Company at September 30, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
November 11, 1996
F-19
<PAGE>
NORTH STAR PLATING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,234 $ 360,844
Accounts receivable, less allowance for doubtful accounts and reserve for
sales returns and discounts of $245,000 in 1996 and $75,000 in 1995 . . . . 3,442,079 4,909,622
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,599 114,514
Inventories, less obsolescence reserve of $340,000 in 1996 and $195,000 in 1995 5,633,439 9,849,535
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429,215 317,089
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394,000 640,613
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,995,566 16,192,217
Property and equipment
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,604 601,355
Shop machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,187,113 1,722,650
Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,501,016 2,399,607
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,947,227 2,530,113
------------ ------------
5,048,960 7,253,725
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,694,208) (3,352,143)
------------ ------------
2,354,752 3,901,582
Other assets
Intangible assets, net of accumulated amortization of $205,993 in 1996
and $54,417 in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,591 1,973,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,642 36,108
------------ ------------
205,233 2,009,956
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,555,551 $22,103,755
------------ ------------
------------ ------------
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,000,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,972,050 5,159,894
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464,222 537,455
Accrued wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,028 444,986
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . 661,651 1,678,947
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,343,950 8,821,282
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . 1,112,008 4,323,405
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,080 335,227
Shareholders' equity
Common Stock, $.01 par value:
Authorized shares - 100,000 . . . . . . . . . . . . . . . . . . . . . . . . .
Issued and outstanding - 6,762 . . . . . . . . . . . . . . . . . . . . . . . 68 68
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 117,250 117,250
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,713,194 8,506,523
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,830,512 8,623,841
------------ ------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . $ 12,555,551 $22,103,755
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENTS OF INCOME AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------
1994 1995 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . $ 29,611,965 $ 34,838,287 $ 52,152,195
Cost of sales . . . . . . . . . . . . . . . 17,446,572 20,780,903 31,284,394
---------------- --------------- --------------
Gross margin . . . . . . . . . . . . . . . 12,165,393 14,057,384 20,867,801
---------------- --------------- --------------
---------------- --------------- --------------
Other expenses
General and administrative . . . . . . 1,206,881 1,700,668 2,240,722
Selling . . . . . . . . . . . . . . . 9,512,088 10,364,118 15,121,049
---------------- --------------- --------------
10,718,969 12,064,786 17,361,771
---------------- --------------- --------------
Operating income . . . . . . . . . . . . . 1,446,424 1,992,598 3,506,030
Interest expense . . . . . . . . . . . . . (182,826) (220,658) (535,121)
Other income (expense) . . . . . . . . . . (3,225) 28,697 (27,466)
---------------- --------------- --------------
Net income before taxes . . . . . . . . . . 1,260,373 1,800,637 2,943,443
---------------- --------------- --------------
---------------- --------------- --------------
Income tax expense . . . . . . . . . . . . 496,260 728,007 1,150,114
---------------- --------------- --------------
Net income . . . . . . . . . . . . . . . . 764,113 1,072,630 1,793,329
---------------- --------------- --------------
---------------- --------------- --------------
Beginning retained earnings . . . . . . . . 4,876,451 5,640,564 6,713,194
---------------- --------------- --------------
Ending retained earnings . . . . . . . . . $ 5,640,564 $ 6,713,194 $ 8,506,523
---------------- --------------- --------------
---------------- --------------- --------------
Net Income per share . . . . . . . . . . . $ 113 $ 159 $ 265
---------------- --------------- --------------
---------------- --------------- --------------
Weighted average shares outstanding . . . . $ 6,762 $ 6,762 $ 6,762
---------------- --------------- --------------
---------------- --------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1994 1995 1996
------------ ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 764,113 $ 1,072,630 $ 1,793,329
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 527,989 638,016 946,000
Loss on disposal of equipment . . . . . . . . . . . . . . . . . . . . . . . . 8,753 63,778 33,032
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,510) (64,210) (180,466)
Cash surrender value of officers' life insurance, net of loans . . . . . . . (48,090) -- --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (306,351) (605,135) (1,104,985)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,313,602) (743,915) (2,550,815)
Prepaids and other assets . . . . . . . . . . . . . . . . . . . . . . . . (269,547) 254,014 150,660
Accounts payable, taxes and other liabilities . . . . . . . . . . . . . . 465,367 292,161 3,379,129
------------ ------------- ------------
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . (234,878) 907,339 2,465,884
INVESTING ACTIVITIES
Purchase of plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . (1,311,206) (580,002) (1,132,424)
Purchase of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (132,914)
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . 9,910 27,572 71,099
------------ ------------- ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (1,301,296) (552,430) (1,194,239)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term borrowings . . . . . . . . 1,678,086 635,222 720,189
Principal payments on revolving line of credit and long-term debt . . . . . . . (938,525) (1,008,823) (1,711,224)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,646 -- --
------------ ------------- ------------
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . 823,207 (373,601) (991,035)
------------ ------------- ------------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . (712,967) (18,692) 280,610
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . 811,893 98,926 80,234
------------ ------------- ------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . $ 98,926 $ 80,234 $ 360,844
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
North Star Plating Company, in existence since April 1, 1968, is a
manufacturer and wholesale distributor of automotive aftermarket parts and a
wholesale distributor of paint and body supplies.
As stated in Note 2, in January 1996, the Company purchased
substantially all of the assets of Carolina Bumper, Inc., Carolina Auto Body
and Paint Supply, Inc., Carolina Truck Specialties/Automotive Colors, Inc.
and Carolina Bumper/Automotive Colors, Inc., automotive wholesale and retail
supply businesses.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of
delivery or shipment. The Company provides its customers the right to return
products that are damaged or defective. The effect of these programs is
estimated and current period sales and cost of sales are reduced accordingly.
INVENTORIES
The Company's inventories consist primarily of automotive crash
parts, bumpers and automotive paint. Inventories are stated at the lower of
cost (first-in, first-out method) or market.
INTANGIBLES
Goodwill is amortized over a fifteen-year period using the
straight-line method. The non-compete agreements are amortized using the
straight-line method over the terms of the agreements.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
INCOME TAXES
Income taxes are accounted for under the liability method.
Deferred income taxes are provided for temporary differences between the
financial reporting and tax basis of assets and liabilities.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which establishes financial accounting and report
standards for stock-based compensation plans. The Company will comply with
this standard in 1997.
F-24
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying value. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The effect of the
adoption by the Company in 1996 was not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from the
estimates.
DEPRECIATION
The Company uses the straight-line method for depreciation of
property, plant and equipment over the following estimated useful lives:
Shop machinery and equipment 5-12 years
Office furniture and equipment 5-10 years
Vehicles 3-5 years
Leasehold improvements and capital leases 5-20 years
CONCENTRATION OF CREDIT RISK
Accounts receivable subject the Company to a potential
concentration of credit risk. Substantially all of the Company's customers
are in the auto body repair business, five representing more than 1% of
sales. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
are generally due within 30 days. Credit losses have consistently been
within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees and Related Interpretations."
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires
disclosure of fair value information about financial instruments for which it
is practicable to estimate that value. The Company records its financial
instruments at market value.
F-25
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION
On January 1, 1996, the Company purchased substantially all of the
assets of Carolina Bumper Inc., Carolina Auto Body and Paint Supply, Inc.,
Carolina Truck Specialties/Automotive Colors, Inc. and Carolina
Bumper/Automotive Colors, Inc., automotive wholesale and retail supply
businesses. As consideration for the assets purchased, the Company paid cash
of approximately $3,700,000, assumed certain liabilities and issued a
one-year promissory note in the original amount of $646,818. The note is due
in monthly installments and bears interest at the rate of 8%.
The Company also issued promissory notes of $200,000 and $500,000
in exchange for a five-year covenant not to compete on the part of the sole
shareholder and an executive. The first promissory note is due in 12 equal
monthly installments and bears interest at the rate of 8%. The second
promissory note is due in 60 equal monthly installments and bears interest at
the rate of 8%. The related intangible assets are being amortized over the
life of the agreements.
The acquisition was accounted for using the purchase method and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair values. The results of operations have been included since
the date of acquisition.
The following unaudited supplemental pro forma information has been
prepared assuming the acquisition had occurred at the beginning of the period
presented. Pro forma results are not necessarily indicative of the results
that would have occurred had the acquisition actually taken place at the
beginning of the periods shown, or the expected results of future operations.
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1996
--------------- -------------
Net Sales . . . . . . . . . . . . . . $ 42,948,000 $ 54,067,000
Net Income . . . . . . . . . . . . . 780,000 1,743,000
Net Income per share . . . . . . . . 115 258
3. INVENTORIES
The major classes of inventories are as follows as of September 30:
1995 1996
---------- -----------
Raw materials . . . . . . . . . . . . . . . . . $ 726,733 $ 915,984
Work-in-process . . . . . . . . . . . . . . . . 39,600 83,712
Finished goods . . . . . . . . . . . . . . . . 5,062,106 9,189,839
Less reserve for obsolescence . . . . . . . . . (195,000) (340,000)
---------- ------------
$5,633,439 $ 9,849,535
---------- ------------
---------- ------------
F-26
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE
Under terms of its outstanding credit agreements, the Company can
borrow up to $1,000,000 based on certain percentages of eligible collateral,
primarily inventory and receivables. Borrowings under the agreements are at
the lender's sole discretion, are due on demand, bear interest at .5% over
the base rate and are secured by substantially all of the Company's assets.
The outstanding balance of the credit facility at September 30, 1996 and 1995
was $1,000,000.
The Company is prohibited from selling or disposing of its
property, consolidating or merging or declaring or paying dividends except
for amounts required to pay shareholder taxes due on earnings. The Company
must also maintain certain specified financial ratios.
LONG-TERM DEBT
Long-term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Installment loans, each loan secured by a vehicle,
maturing at various times through March 25, 1999, payable in
monthly installments of $41,739, including interest from 7.00% to
9.75% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487,163 $ 568,114
Note payable to bank, secured by all inventories,
equipment and accounts receivable, payable in monthly installments
of $5,385, including interest at .50% over the bank's base rate
through December 15, 1997 . . . . . . . . . . . . . . . . . . . . . 140,362 86,131
Note payable, C. Fagerhaugh, due in monthly installments
of $3,965 and $1,322, including 10% interest, maturing November 1,
1995. Guaranteed by an officer and former shareholder of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,242 --
Note payable, Trombley, Nozel & Howard, unsecured,
due in monthly installments of $4,978, including 9.00% interest
until July 15, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 149,082 100,808
Note payable to bank, secured by all inventories,
equipment, accounts receivable and fixed assets, payable in
monthly installments of $62,877 including 8.23% interest until
December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,663,984
Note payable, XRJ, Inc., secured by acquired assets,
payable in monthly installments of $56,438 until
December 15, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . -- 222,040
Demand loan payable, R. Wood, interest 8%, unsecured . . . . . . . . . . . 42,000 42,000
Loan payable, W. Farmer, unsecured, payable in monthly
installments of $7,124, including variable interest of .50% over
First Chicago's base rate, through January 15, 1998 . . . . . . . . 173,526 100,706
Note payable, Automotive Enterprises Company,
payable in monthly installments of $15,638, including 7% interest,
until April 15, 1999, secured by certain vehicles, equipment,
inventory, accounts receivable and goodwill . . . . . . . . . . . . 593,194 442,285
Covenants-not-to-compete, payable in monthly
installments of $5,385, no interest, through July 15, 1998 . . . . . 183,090 118,470
Covenants-not-to-compete, original issue of $200,000,
payable in monthly installments of $17,451, including interest of
8%, until January 15, 1997 . . . . . . . . . . . . . . . . . . . . . -- 68,656
Covenant-not-to-compete with Melvin Smith, original
issue of $500,000, payable in monthly installments of $10,138,
including interest of 8%, until January 15, 2001 . . . . . . . . . . -- 442,400
Capital lease obligation, payable in monthly installments
of $5,678, including 6.73% interest, through December 1, 1998 . . . -- 146,758
----------- -----------
1,773,659 6,002,352
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . 661,651 1,678,947
----------- -----------
$ 1,112,008 $ 4,323,405
----------- -----------
----------- -----------
</TABLE>
F-27
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt at September 30, 1996 are as follows:
1997 . . . . . . . . . . . . . . . . . . . . . . $ 1,678,947
1998 . . . . . . . . . . . . . . . . . . . . . . 1,220,874
1999 . . . . . . . . . . . . . . . . . . . . . . 826,210
2000 . . . . . . . . . . . . . . . . . . . . . . 715,669
2001 . . . . . . . . . . . . . . . . . . . . . . 1,560,652
-------------
$ 6,002,352
-------------
-------------
6. OPERATING LEASES
The Company leases operating facilities and equipment. The terms
of the leases vary. Future lease commitments at September 30, 1996 for
noncancelable operating leases are approximately as follows:
1997 . . . . . . . . . . . . . . . . . . . . . . $ 1,334,539
1998 . . . . . . . . . . . . . . . . . . . . . . 1,243,008
1999 . . . . . . . . . . . . . . . . . . . . . . 1,148,785
2000 . . . . . . . . . . . . . . . . . . . . . . 1,156,225
2001 . . . . . . . . . . . . . . . . . . . . . . 1,127,422
Thereafter . . . . . . . . . . . . . . . . . . . 2,957,006
-------------
$ 8,966,985
-------------
-------------
Total rent expense was $1,362,855, $1,030,903 and $943,794 for the
years ended September 30, 1996, 1995 and 1994, respectively. Rent expense to
related parties, included in the total rent expense, during those same years
was $580,371, $527,815 and $495,415, respectively. Certain leases contain
provisions for rent escalation which are being amortized on a straight-line
basis over the lives of the leases.
7. INCOME TAXES
Significant components of the provision for income taxes are as
follows:
1994 1995 1996
----------- ------------ ------------
Current
Federal . . . . . $ 456,084 $ 600,368 $ 1,084,671
State . . . . . . 103,686 191,848 245,909
----------- ------------ ------------
Total current . . . . . 559,770 792,217 1,330,580
Deferred benefit . . . (63,510) (64,210) (180,466)
----------- ------------ ------------
$ 496,260 $ 728,007 $ 1,150,114
----------- ------------ ------------
----------- ------------ ------------
F-28
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The effective tax rate for the years ended September 30, 1996, 1995
and 1994 differs from the federal statutory rate primarily as a result of the
provision for state income taxes and permanent differences. The
reconciliation of income taxes computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income . . . . . . . $1,260,373 100.0% $1,800,637 100.0% $2,943,443 100.0%
---------- ------- ---------- ------- --------- -------
---------- ------- ---------- ------- --------- -------
Federal tax at 34% . . . . . . . $ 428,527 34.0% $ 612,217 34.0% $1,000,771 34.0%
State tax net of federal benefit 60,498 4.8 86,968 4.8 137,627 4.7
Other . . . . . . . . . . . . . . 7,235 0.6 28,822 1.6 11,716 0.4
---------- ------- ---------- ------- --------- -------
$ 496,260 39.4% $ 728,007 40.4% $1,150,114 39.1%
---------- ------- ---------- ------- --------- -------
---------- ------- ---------- ------- --------- -------
</TABLE>
Deferred income taxes are recorded to reflect temporary differences
between financial and tax reporting. The significant components of the net
deferred tax assets and deferred tax liabilities at September 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Deferred tax assets
Accrued vacation . . . . . $ 34,000 -- $ 45,800 --
Bad debt reserve . . . . . 20,000 -- 30,000 --
Allowance for sales returns -- -- 40,250 --
Allowance for sales
discounts . . . . . . . . -- -- 27,603 --
Inventory obsolescence . . 78,000 -- 136,960 --
UNICAP . . . . . . . . . . 262,000 -- 360,000 --
Non-compete covenant . . . -- 13,320 -- 47,413
-------- ---------- -------- -----------
Deferred tax liabilities 394,000 13,320 640,613 47,413
Depreciation . . . . . . . 282,400 -- 382,640
-------- ---------- -------- -----------
Net deferred asset (liability) $394,000 $ (269,080) $640,613 $ (335,227)
-------- ---------- -------- -----------
-------- ---------- -------- -----------
</TABLE>
8. EMPLOYEE BENEFITS PLAN
The Company adopted a 401(k) plan in fiscal 1996 that covers
substantially all of its employees. Employees who have completed more than
one year of service are eligible and may contribute from 1% to 15% of their
base pay. The Company matches 50% of the first 4% of employee contributions.
Employee contributions vest immediately, while employer contributions vest
based on years of service. The Company's contribution to the plan was
$124,665 during 1996.
F-29
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUPPLEMENTAL CASH FLOW DISCLOSURES
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
---------- --------- ----------
Interest paid during the year . . . $ 185,326 $ 220,212 $ 530,267
Income taxes paid during the year . 696,365 778,830 1,238,375
Purchase of business . . . . . . . -- -- 5,219,547
F-30
<PAGE>
NORTH STAR PLATING COMPANY
BALANCE SHEETS (UNAUDITED)
DECEMBER 31,
1996
------------
Assets
Current Assets
Cash and cash equivalents . . . . . . . . . . . $ 439,967
--------------
Accounts receivable, net . . . . . . . . . . . . 5,698,655
Other receivables . . . . . . . . . . . . . . . 134,260
Inventories, net . . . . . . . . . . . . . . . 11,279,584
Prepaid expenses . . . . . . . . . . . . . . . . 320,784
Deferred income taxes . . . . . . . . . . . . . 640,613
-------------
Total current assets . . . . . . . . . . . . . . . . 18,513,863
Property and equipment
Leasehold improvements . . . . . . . . . . . . . 601,355
Shop machinery and equipment . . . . . . . . . . 1,773,089
Office furniture and equipment . . . . . . . . . 2,453,974
Vehicles . . . . . . . . . . . . . . . . . . . . 2,506,183
-------------
7,334,601
Accumulated depreciation . . . . . . . . . . . . (3,547,396)
------------
3,787,205
Other assets . . . . . . . . . . . . . . . . . . . . 1,973,304
------------
Total assets . . . . . . . . . . . . . . . . . . . . $ 24,274,372
------------
------------
See accompanying Notes.
F-31
<PAGE>
DECEMBER 31, 1996
-----------------
Liabilities and shareholders' equity
Current Liabilities
Notes payable . . . . . . . . . . . . . . . . . $ 1,000,000
Accounts payable . . . . . . . . . . . . . . . . 6,790,477
Accrued liabilities . . . . . . . . . . . . . . 655,245
Accrued wages . . . . . . . . . . . . . . . . . 736,850
Current maturities of long-term debt . . . . . . 1,475,578
------------
Total current liabilities . . . . . . . . . . . . . . 10,658,150
Long-term debt, less current maturities . . . . . . . 3,975,915
Deferred income taxes . . . . . . . . . . . . . . . . 335,227
Shareholders' equity
Common Stock, $.01 par value:
Authorized shares - 100,000 . . . . . . . . .
Issued and outstanding - 6,762 . . . . . . . . 68
Additional paid-in capital . . . . . . . . . . . 117,250
Retained earnings . . . . . . . . . . . . . . . 9,187,762
------------
Total shareholders' equity . . . . . . . . . . . . . 9,305,080
------------
Total liabilities and shareholders' equity . . . . . $24,274,372
------------
------------
See accompanying notes.
F-32
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENTS OF INCOME AND SHAREHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
----------------------------------
1995 1996
------------- --------------
Net Sales . . . . . . . . . . . . . $ 10,468,063 $ 15,071,186
Cost of sales . . . . . . . . . . . 6,121,413 8,912,463
------------- -------------
Gross margin . . . . . . . . . . . 4,346,650 6,158,723
------------- -------------
------------- -------------
Other expenses
General and administrative . . 315,909 595,000
Merger Costs . . . . . . . . . -- 149,000
Selling . . . . . . . . . . . 2,951,994 4,163,520
------------- ------------
Operating income . . . . . . . . . 1,078,747 1,251,203
Interest expense . . . . . . . . . 56,736 139,466
Other (income) expense . . . . . . (5,703) (5,048)
------------- ------------
Net income before taxes . . . . . . 1,027,714 1,116,785
------------- ------------
------------- ------------
Income tax expense . . . . . . . . 400,808 435,546
------------- ------------
Net income . . . . . . . . . . . . 626,906 681,239
------------- ------------
------------- ------------
Net Income per share . . . . . . . $ 93 $ 101
------------- ------------
------------- ------------
Weighted average shares outstanding. 6762 6762
------------- ------------
------------- ------------
See accompanying notes to financial statements.
F-33
<PAGE>
NORTH STAR PLATING COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1995 1996
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 626,906 $ 681,239
Adjustments to reconcile net income to net cash provided by
(used in) operations:
Depreciation and amortization . . . . . . . . . . . 153,051 280,376
Loss on disposal of equipment . . . . . . . . . . . (3,000) (5,015)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . (784,487) (789,033)
Inventories . . . . . . . . . . . . . . . . . 649,390 (1,430,048)
Prepaids and other assets . . . . . . . . . . 17,337 (52,483)
Accounts payable, taxes and other liabilities. . 1,269,882 2,040,238
------------ -----------
Net cash provided by operating activities . . . . . . . . . . 630,299 725,274
INVESTING ACTIVITIES
Purchase of plant and equipment . . . . . . . . . . . . . . . (265,950) (100,306)
Proceeds from sale of property, plant and equipment . . . . . 3,000 5,015
------------ -----------
Net cash used in investing activities . . . . . . . . . . . . (262,950) (95,291)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term
borrowings. . . . . . . . . . . . . . . . . . . . . . . . . 157,128 --
Principal payments on revolving line of credit and long-term
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (168,363) 550,860
Net cash used in financing activities . . . . . . . . . . . . (11,235) (550,860)
------------ ----------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . 347,190 79,123
Cash and cash equivalents at beginning of year . . . . . . . 80,234 360,844
------------ ----------
Cash and cash equivalents at end of year . . . . . . . . . . $ 427,424 $ 439,967
------------ ----------
------------ ----------
SUPPLEMENTAL DISCLOSURES:
Interest paid during the period. . . . . . . . . . . . . . . $ 57,500 $ 137,000
Income taxes paid during the period . . . . . . . . . . . . . $ 55,500 $ 203,800
See accompanying notes.
</TABLE>
F-34
<PAGE>
NORTH STAR PLATING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1996
The accompanying unaudited financial statements included herein
have been prepared by the Company pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission (the "Commission").
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been omitted pursuant to Commission rules and regulations.
These financial statements should be read in conjunction with the financial
statements and notes thereto included elsewhere in the prospectus. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position of the Company
with respect to the interim financial statements at December 31, 1996 and
1995, and of the results of its operations and its cash flows for the three
month period ended December 31, 1996 and 1995 have been included. The
results of operations for the three month period ended December 31, 1996, are
not necessarily indicative of the results for the full year.
1. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of
shares of Common Stock.
2. INCOME TAXES
Income tax provisions for interim periods are based on estimated
effective annual income tax rates.
3. DEFINITIVE AGREEMENT WITH KEYSTONE AUTOMOTIVE INDUSTRIES
On December 6, 1996, the Company signed a definitive agreement with
Keystone Automotive Industries, Inc. to sell the Company in exchange for
2,450,0000 shares of Keystone Automotive Industries, Inc. stock.
F-35
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.,
NORTH STAR ACQUISITION, INC.,
NORTH STAR PLATING COMPANY,
RONALD G. BROWN
and
KIM D. WOOD
Dated: December 6, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS...................................................... 1
ARTICLE II - THE MERGER...................................................... 6
2.1 The Merger........................................................ 6
2.2 Articles of Merger; Effective Time................................ 6
2.3 Effect of Merger.................................................. 6
2.4 Closing........................................................... 6
2.5 Articles of Incorporation; By-laws................................ 6
2.6 Directors and Officers............................................ 6
2.7 Accounting Treatment.............................................. 6
ARTICLE III - CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES............. 7
3.1 Conversion of Securities.......................................... 7
3.2 Rights of Holders of North Star Common Stock...................... 7
3.3 Surrender, Exchange and Delivery.................................. 7
3.4 No Fractional Shares.............................................. 9
3.5 Shareholder Approvals............................................. 9
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF NORTH STAR AND THE NORTH STAR
SHAREHOLDERS............................................................. 9
4.1 Corporate Existence and Power..................................... 9
4.2 North Star Subsidiaries........................................... 9
4.3 Corporate Authorization........................................... 9
4.4 Governmental Authorization....................................... 10
4.5 Non-Contravention................................................ 10
4.6 Capitalization................................................... 10
4.7 North Star Financial Statements.................................. 11
4.8 North Star's Books and Records................................... 11
4.9 North Star Contracts with Related Parties........................ 11
4.10 Absence of Certain Changes or Events............................. 11
4.11 Litigation....................................................... 12
4.12 Taxes............................................................ 13
4.13 Title to Assets.................................................. 13
4.14 Labor Matters.................................................... 13
4.15 Employee Benefit Plans........................................... 13
4.16 Compliance with Laws............................................. 14
4.17 Brokers.......................................................... 15
4.18 Vote Required.................................................... 15
4.19 Environmental Matters............................................ 15
4.20 Trademarks, Patents and Copyrights............................... 16
4.21 Contracts and Other Agreements................................... 16
4.22 Insurance........................................................ 17
4.23 Disclosure....................................................... 17
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ARTICLE V - REPRESENTATIONS AND WARRANTIES OF KEYSTONE...................... 18
5.1 Corporate Existence and Power.................................... 18
5.2 Corporate Authorization.......................................... 18
5.3 Governmental Authorization....................................... 18
5.4 Non-Contravention................................................ 19
5.5 Capitalization................................................... 19
5.6 SEC Documents.................................................... 19
5.7 Absence of Certain Changes or Events............................. 20
5.8 Litigation....................................................... 21
5.9 Taxes............................................................ 21
5.10 Compliance with Laws............................................. 21
5.11 Brokers.......................................................... 21
5.12 Vote Required.................................................... 21
5.13 Disclosure....................................................... 22
ARTICLE VI - COVENANTS RELATING TO CONDUCT OF BUSINESS...................... 22
6.1 Conduct of Business by North Star................................ 22
6.2 Conduct of Business by Keystone.................................. 24
6.3 Other Action..................................................... 24
6.4 No Solicitation of Transactions.................................. 24
6.5 Interim Financial Information.................................... 24
ARTICLE VII - ADDITIONAL AGREEMENTS......................................... 25
7.1 Preparation of Registration Statement; Shareholders' Meeting..... 25
7.2 Information Supplied by North Star............................... 25
7.3 Information Supplied by Keystone................................. 25
7.4 Access to Information............................................ 26
7.5 Confidentiality.................................................. 26
7.6 Public Announcements............................................. 26
7.7 Appropriate Action; Consents; Filings............................ 27
7.8 State Statutes................................................... 28
7.9 Employment Contracts............................................. 28
7.10 Indemnification.................................................. 28
7.11 Accounting Treatment............................................. 30
7.12 Other Agreements................................................. 30
7.13 Right to Update Schedules........................................ 30
7.14 Board of Directors............................................... 30
7.15 Termination of Certain Agreements................................ 30
ARTICLE VIII - CONDITIONS TO THE MERGER..................................... 30
8.1 Conditions of Each Party's Obligation to Effect the Merger....... 30
8.2 Conditions of Obligation of Keystone............................. 31
8.3 Conditions of Obligation of North Star........................... 32
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER.............................. 33
9.1 Termination...................................................... 33
9.2 Consequences of Termination...................................... 34
9.3 Amendment........................................................ 35
9.4 Waiver........................................................... 35
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ARTICLE X - GENERAL PROVISIONS.............................................. 35
10.1 Survival of Representations and Warranties....................... 35
10.2 Notices.......................................................... 35
10.3 Entire Agreement................................................. 35
10.4 Severability..................................................... 35
10.5 Successors and Assigns........................................... 36
10.6 Parties in Interest.............................................. 36
10.7 Enforcement...................................................... 36
10.8 Governing Law.................................................... 36
10.9 Counterparts; Effectiveness...................................... 36
10.10 Further Assurances............................................... 36
10.11 Attorney Fees.................................................... 36
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into
and effective as of December 6, 1996, by and among Keystone Automotive
Industries, Inc., a California corporation ("Keystone"), North Star Acquisition,
Inc., a Minnesota corporation (the "Subsidiary"), North Star Plating Company, a
Minnesota corporation ("North Star"), and RONALD G. BROWN and KIM D. WOOD
(collectively, the "North Star Shareholders").
R E C I T A L S:
A. Keystone has formed the Subsidiary as a wholly-owned subsidiary in
order to effect the merger of the Subsidiary with and into North Star, on the
terms and conditions set forth in this Agreement and in accordance with
applicable law (the "Merger"), such that upon the consummation of the Merger,
North Star will be a wholly-owned Subsidiary of Keystone and the Subsidiary will
cease to exist.
B. The boards of directors of Keystone, the Subsidiary and North Star
each have determined that it is in the best interests of their respective
companies and shareholders that the Merger be consummated.
C. The Merger is intended to qualify as a tax-free reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I - DEFINITIONS
As used herein, the following words and terms shall have the meanings set forth
below:
1.1 "Affiliate" means as to any Person (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, (b) any Person who is a director, officer, partner or principal
(i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above, or (c) any individual who is a relative of any
Person described in clause (a) or clause (b) above. For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect,
(i) to vote or direct the voting of 5% or more of the securities having ordinary
voting power for the election of directors of such Person, or (ii) to direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.
1.2 "Articles of Merger" shall refer to the document described in
SECTION 2.2, providing for the consummation of the Merger in accordance with
the terms of this Agreement.
1.3 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as amended.
1.4 "CERCLIS" shall mean the Comprehensive Environmental Response
Compensation Liability Information System List.
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1.5 "Closing" shall mean the consummation of the Merger as described in
SECTION 2.4 hereof.
1.6 "Closing Date" shall mean the date on which the Closing occurs.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.8 "Competing Transaction" shall mean any of the following (other than
the transactions contemplated hereby): (i) any merger, consolidation, share
exchange, business combination, or other similar transaction involving North
Star, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of North Star or any subsidiary of
North Star, taken as a whole, in a single transaction or series of transactions,
other than in the ordinary course of business, (iii) any tender offer or
exchange offer for any of the North Star Shares or the filing of a registration
statement under the Securities Act in connection therewith, (iv) any person
having acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) having been
formed which beneficially owns or has the right to acquire beneficial ownership
of, 10% or more of the North Star Shares or (v) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing other than any transaction contemplated herein.
1.9 "Effective Time" shall mean the time that the Merger becomes
effective pursuant to SECTION 2.2 below.
1.10 "Environmental Laws" shall mean all federal, state and local
statues, laws, rules, regulations, ordinances, codes, guidelines and orders
(including consent decrees and administrative orders) that relate to public
health and safety or purport to regulate the release of hazardous substances or
other materials into the environment, or impose requirements relating to the
protection of human health or the environment, including, but not limited to,
CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as
amended, the Clean Air Act, 42 U.S.C. 7401 et seq., as amended, the Clean Water
Act, 33 U.S.C. 1251 et seq., as amended, and the Occupational Safety and Health
Act, 29 U.S.C. 655 et seq.
1.11 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.12 "Evaluation Materials" shall mean any business and/or technical
information of the Other Party or any of its subsidiaries which is (X) of a type
typically regarded by both Keystone and North Star as confidential or
proprietary or (Y) is either (a) is disclosed in written form and designated as
"Confidential" or "Proprietary" or (ii) initially is disclosed verbally, is
identified as "Confidential" or "Proprietary" at the time of disclosure and,
within five (5) days following disclosure, is summarized in written form,
designated as "Confidential" or "Proprietary" and delivered to an executive
officer of the party to which such disclosure was made.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.14 "Exchange Agent" shall mean Ernst & Young, LLP.
1.15 "Exchange Ratio" shall mean the ratio at which North Star Common
Stock is to be exchanged for Keystone Common Stock, which ratio is 1 share of
North Star Common Stock to
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362.3088 shares of Keystone Common Stock. The application of the Exchange Ratio
to all of the issued and outstanding shares of North Star Common Stock will
result in the issuance of an aggregate of 2,450,000 shares of Keystone Common
Stock to the holders of North Star Common Stock.
1.16 "Governmental Entity" shall mean any federal, state, local or
foreign governmental body, agency, official or authority (including courts,
administrative agencies, commissions, self-regulatory agencies or authorities or
other governmental authority or instrumentality).
1.17 "Hazardous Materials" means (a) any "hazardous waste" as defined in
either the United States Resource Conservation and Recovery Act, as amended, or
regulations adopted pursuant to said act; (b) any "hazardous materials" or
"hazardous substance" as defined in CERCLA; (c) any petroleum product,
explosives, flammable material, radioactive material, friable
asbestos-containing materials and transformers and other electrical equipment
that contain dielectric fluid containing polychlorinated biphenyls (PCBs); or
(d) any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material or substance which are now or hereafter become defined, listed or
otherwise classified as, or included in the definition of "hazardous substances"
"hazardous wastes", "hazardous materials", "contaminants", "pollutants", "solid
wastes", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants" or words of similar import within the meaning of
any Environmental Law, whether now existing or hereafter in effect and as
amended from time to time, and (e) to the extent not included in the foregoing,
any medical waste.
1.18 "Keystone" shall mean Keystone Automotive Industries, Inc., a
California corporation.
1.19 "Keystone Common Stock" shall mean the Common Stock of Keystone.
1.20 "Keystone Financial Advisor" shall mean FMV Opinions, Inc.
1.21 "Keystone Plans" shall mean all employee benefit plans (as defined
in Section 3(3) of ERISA) which Keystone or any of its subsidiaries maintains or
to which Keystone or any of its subsidiaries contributes.
1.22 "Keystone SEC Documents" shall mean all required reports, schedules,
forms, statements and other documents filed or required to be filed by Keystone
with the SEC since June 20, 1996.
1.23 "Keystone Shares" shall mean all issued and outstanding shares of
Keystone Common Stock.
1.24 "Knowledge" means as to any Person's awareness of any fact as of the
time of determination either (i) such Person's then current actual conscious
awareness of such fact or (ii) constructive knowledge of such fact if a
reasonably prudent Person in a like position would then have known, or should
then have known, the fact in the reasonably diligent performance of such
Person's duties. In the case of a corporate party hereto, Knowledge shall be
limited to the aggregate Knowledge of all of the officers of such corporation.
1.25 "Lien" shall mean any pledge, claim, lien, charge, encumbrance or
security interest of any nature whatsoever.
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1.26 "Material Adverse Effect" when used with respect to any entity means
any change or changes, condition or conditions or effect or effects that
individually or in the aggregate are or are likely to be materially adverse to
(a) the business, assets (including intangible assets), liabilities, financial
condition, results of operations or prospects of such entity and its
subsidiaries, if any, or on the ability of such entity or any of its
subsidiaries following the consummation of the Merger to continue the business
of such entity and its subsidiaries, if any, substantially as currently
conducted (without the loss of any material rights), or (b) the ability of such
entity or any of its subsidiaries to perform any of their respective obligations
under this Agreement or to consummate the Merger.
1.27 "MBCA" shall mean the Minnesota Business Corporation Act.
1.28 "Merger" shall mean the merger of North Star and the Subsidiary more
fully described herein.
1.29 "North Star" shall mean North Star Plating Company, a Minnesota
corporation.
1.30 "North Star Affiliated Group" shall mean North Star and each of its
subsidiaries and Affiliates.
1.31 "North Star Common Stock" shall mean the common stock of North Star,
par value $.01 per share.
1.32 "North Star Financial Statements" shall mean the balance sheets,
statements of operations, statements of changes in shareholders' equity,
statements of cash flows, reports thereon by North Star's independent auditors,
if any, and any notes thereto which are referred to in SECTION 4.7 below and
SECTION 7.10 below.
1.33 "North Star Plans" shall mean all employee benefit plans (as defined
in Section 3(3) of ERISA) which North Star or any of its subsidiaries maintains
or to which North Star or any of its subsidiaries contributes.
1.34 "North Star Shareholders" shall mean collectively Ronald G. Brown
and Kim D. Wood.
1.35 "North Star Shares" shall mean all issued and outstanding shares of
North Star Common Stock, and "North Star Share" shall mean one outstanding share
of North Star Common Stock.
1.36 "Other Party" when used with reference to Keystone shall mean North
Star and any of its subsidiaries and when used with respect to North Star, shall
mean Keystone.
1.37 "Person" shall mean an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, a foundation, an
unincorporated organization or a Governmental Body or any department or agency
thereof.
1.38 "Registration Statement" shall mean, collectively, the registration
statement and proxy statement to be filed by Keystone with the SEC on Form S-4
pursuant to the provisions of SECTION 7.1 below.
1.39 "SEC" shall mean the Securities and Exchange Commission.
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1.40 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.41 "Shareholders' Meeting" shall mean each of the respective meetings
of the shareholders of Keystone and North Star to be called to approve the
Merger and this Agreement.
1.42 "State Takeover Laws" shall mean any state "control share
acquisition," "anti-takeover" or other similar statutes and regulations,
including, without limitation, Minnesota Statutes Section 302A.671.
1.43 "Surviving Corporation" shall mean the corporation that is the
surviving corporation in the Merger.
1.44 "Survivor Common Stock" shall mean the common stock of the Surviving
Corporation with no par value.
1.45 "Taxes" shall mean all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges of any
nature whatsoever, including any interest, penalties or additions with respect
thereto.
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ARTICLE II - THE MERGER
2.1 THE MERGER. At the Effective Time, the Subsidiary shall be merged
with and into North Star and the separate corporate existence of the Subsidiary
shall cease and North Star shall continue as the surviving corporation.
2.2 ARTICLES OF MERGER; EFFECTIVE TIME. As soon as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all conditions to
the Merger set forth in Article VIII below, the parties hereto shall cause the
Merger to be consummated by filing the Articles of Merger with the Secretary of
State of the State of Minnesota and make all other filings or recordings
required by the MBCA in connection with the Merger and the transactions
contemplated by this Agreement. The Merger shall become effective (a) at such
time as the Articles of Merger are duly filed with the Secretary of State of the
State of Minnesota or (b) at such later time as may be agreed by the parties in
writing and specified in the Articles of Merger.
2.3 EFFECT OF MERGER. From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises, and
be subject to all of the restrictions, disabilities and duties, of North Star
and the Subsidiary, all as provided under the MBCA.
2.4 CLOSING. The Closing will take place at 10:00 a.m. on the third
business day after satisfaction or waiver of the conditions set forth in Article
VIII at the offices of Manatt, Phelps & Phillips, LLP in Los Angeles,
California, unless another date, time or place is agreed to in writing by the
parties hereto.
2.5 ARTICLES OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be as set forth in EXHIBIT 2.5A until
thereafter amended as provided by law and such Articles of Incorporation.
(b) At the Effective Time, the Bylaws of the Surviving
Corporation shall be as set forth in EXHIBIT 2.5B until thereafter amended
as provided by law, the Articles of Incorporation of the Surviving
Corporation and such Bylaws.
2.6 DIRECTORS AND OFFICERS. The persons specified in EXHIBIT 2.6A
attached hereto shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and Bylaws
of the Surviving Corporation, and the persons specified in EXHIBIT 2.6B shall be
the initial officers of the Surviving Corporation, holding the offices set forth
opposite their respective names thereon, in each case until their respective
successors are duly elected or appointed and qualified.
2.7 ACCOUNTING TREATMENT. The parties intend that the Merger will be
treated as a pooling-of-interests for accounting purposes by Keystone.
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ARTICLE III - CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES
3.1 CONVERSION OF SECURITIES. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
North Star Common Stock:
(a) subject to SECTION 3.4 below, each North Star Share issued
and outstanding immediately prior to the Effective Time shall be converted
into the right to receive the number of shares of Keystone Common Stock
determined by multiplying such North Star Share by the Exchange Ratio,
provided that each North Star Share issued and outstanding immediately
prior to the Merger and held by North Star as treasury stock shall be
canceled, and no consideration shall be delivered in consideration
therefor; and
(b) each share of the Subsidiary's common stock, par value $.01
per share (constituting all of the Subsidiary's capital stock), immediately
prior to the Effective Time shall be converted into one share of Survivor
Common Stock.
3.2 RIGHTS OF HOLDERS OF NORTH STAR COMMON STOCK. On and after the
Effective Time and until surrendered for exchange, each outstanding stock
certificate which immediately prior to the Effective Time represented shares of
North Star Common Stock shall be deemed for all purposes, except as provided in
SECTION 3.3(B) below, to evidence ownership of and to represent the number of
whole shares of Keystone Common Stock into which such shares of North Star
Common Stock shall have been converted, and the record holder of such
outstanding certificate shall, after the Effective Time, be entitled to vote the
shares of Keystone Common Stock into which such shares of North Star Common
Stock shall have been converted on any matters on which the holders of record of
Keystone Common Stock, as of any date subsequent to the Effective Time, shall be
entitled to vote. In any matters relating to such certificates, Keystone may
rely conclusively upon the record of shareholders maintained by North Star
containing the names and addresses of the holders of record of North Star Common
Stock at the Effective Time.
3.3 SURRENDER, EXCHANGE AND DELIVERY.
(a) At the Effective Time, Keystone will deposit with the
Exchange Agent certificates representing the aggregate number of shares of
Keystone Common Stock to be issued in respect of shares of North Star Common
Stock, to be held and distributed by the Exchange Agent in accordance with the
terms of an agreement by and between the Surviving Corporation and the Exchange
Agent and the terms of this Agreement. Promptly after the Effective Time,
Keystone will send, or will cause the Exchange Agent to send, to each
shareholder of record of shares of North Star at the Effective Time a letter of
transmittal for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing shares of North Star Common Stock to
the Exchange Agent). Upon receipt from each holder of North Star Common Stock
of the letter of transmittal duly executed by such holder, the certificates
representing such holder's North Star Common Stock (duly surrendered for
cancellation) and such other documents as may reasonably be required by the
Exchange Agent, the Exchange Agent shall deliver to such holder one or more
certificates representing the appropriate number of shares of Keystone Common
Stock; PROVIDED that with respect to any holder of North Star Common Stock who
has delivered the foregoing items at or prior to the Closing, the Exchange Agent
shall deliver to such Person at the Closing certificates representing the
appropriate number of shares of Keystone Common Stock, and letters of
transmittal will be made available to such holders of North Star Common Stock at
or prior to Closing.
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(b) Each holder of shares of North Star Common Stock that have
been converted into a right to receive shares of Keystone Common Stock upon
surrender to the Exchange Agent of a certificate or certificates representing
such shares of North Star Common Stock, together with a properly completed
letter of transmittal covering such shares, will be entitled to receive the
shares of Keystone Common Stock issuable in respect of the shares so
surrendered. Until so surrendered, each such certificate shall, after the
Effective Time, represent for all purposes only the right to receive such shares
of Keystone Common Stock (along with the attendant rights provided in subsection
(f) below).
(c) If any shares of Keystone Common Stock are to be delivered
to a Person other than the registered holder of the shares of North Star Common
Stock represented by the certificate or certificates surrendered in exchange
therefor, it shall be a condition to such delivery that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person requesting such delivery shall pay to the
Exchange Agent any transfer or other taxes required as a result of such delivery
to a Person other than the registered holder of such shares of North Star Common
Stock or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(d) After the Effective Time, there shall be no further
registration of transfers of shares of North Star Common Stock. If, after the
Effective Time, certificates representing shares of North Star Common Stock are
presented to North Star or Keystone, they shall be canceled and exchanged for
shares of Keystone Common Stock in accordance with the procedures set forth
herein.
(e) Any shares of Keystone Common Stock deposited with the Exchange
Agent pursuant to subsection (a) above that remain unclaimed by the holders of
shares of North Star Common Stock twelve (12) months after the Effective Time
shall be returned to Keystone upon demand, and any such holder who has not
exchanged his shares of North Star Common Stock for shares of Keystone Common
Stock in accordance with this SECTION 3.3 prior to that time thereafter shall
look only to Keystone for his claim for Keystone Common Stock and any dividends
or distributions with respect to Keystone Common Stock. Notwithstanding the
foregoing, Keystone shall not be liable to any holder of shares of Keystone
Common Stock for any amount paid to a public official pursuant to applicable
abandoned property laws.
(f) No dividends or other distributions with respect to the
Keystone Common Stock to be issued in the Merger shall be paid to the holder of
any unsurrendered certificates representing shares of North Star Common Stock
until such certificates are surrendered as provided in this SECTION 3.3. Upon
such surrender, there shall be paid, without interest, to the holder of the
Keystone Common Stock into which such shares of North Star Common Stock were
converted, (1) all dividends and other distributions in respect of Keystone
Common Stock that are payable on a date subsequent to, and the record date for
which occurs after, the Effective Time, and (2) all dividends or other
distributions in respect of shares of North Star Common Stock that are payable
on a date subsequent to, and the record date for which occurs before, the
Effective Time.
3.4 NO FRACTIONAL SHARES. No fractional shares of Keystone Common Stock
shall be issued in connection with the Merger and no certificate therefor shall
be issued. In lieu of such fractional shares, (a) any holder of North Star
Common Stock who would otherwise be entitled to a fractional share of Keystone
Common Stock equal to .50 or more of a share shall instead receive one full
share of Keystone Common Stock and (b) any holder of North Star Common Stock who
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would otherwise be entitled to a fractional share of Keystone Common Stock equal
to less than .50 of a share shall instead receive no consideration in respect of
such fractional interest.
3.5 SHAREHOLDER APPROVALS. Keystone and North Star each shall call
Shareholders' Meeting to consider and vote upon the approval of this Agreement
and the Merger contemplated hereby, all in accordance with the provisions of the
Exchange Act and applicable corporate law, as soon as practicable after the
Registration Statement shall have been declared effective by the SEC and the
Proxy Statement included therein has been approved by the SEC.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF NORTH STAR
AND THE NORTH STAR SHAREHOLDERS
Except as set forth in and qualified by the schedules attached hereto,
North Star and each of the North Star Shareholders hereby make the following
representations and warranties to Keystone, jointly and severally (subject to
SECTION 7.10(E)), in each case to such Person's Knowledge; PROVIDED, however,
that (i) Kim D. Wood shall not be deemed to have made any representation or
warranty under SECTION 4.19 and (ii) with respect to the representation and
warranty of Ronald G. Brown and Kim D. Wood in SECTION 4.14 only the standard of
clause (i) of the definition of "Knowledge" shall apply.
4.1 CORPORATE EXISTENCE AND POWER. North Star is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, and has all corporate powers required to carry on its business as
now conducted. North Star is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have a Material Adverse Effect on North Star. The copies
of the Articles of Incorporation and Bylaws of North Star which have been
delivered to Keystone by North Star are as of the date hereof and will be at the
Effective Time, true and complete copies of the Articles of Incorporation and
Bylaws of North Star, in each case as amended, restated and otherwise in effect
at the Effective Time.
4.2 NORTH STAR SUBSIDIARIES. North Star does not own, directly or
indirectly, any capital stock or other ownership interest in any Person.
4.3 CORPORATE AUTHORIZATION. Subject to obtaining the approval of the
holders of North Star Common Stock as contemplated hereby, the execution,
delivery and performance by North Star of this Agreement and the consummation by
North Star of the transactions contemplated hereby to be consummated by it are
within North Star's corporate powers and have been duly authorized by all
necessary corporate action on the part of North Star, including without
limitation approval of the directors of North Star and the holders of North Star
Common Stock. This Agreement has been duly and validly executed and delivered
by North Star and the North Star Shareholders and constitutes a legal, valid and
binding agreement of North Star and the North Star Shareholders enforceable in
accordance with its terms.
4.4 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by North Star and the North Star Shareholders of this Agreement and the
consummation of the Merger by North Star require no action by or in respect of,
or filing with, any Governmental Entity other than (a) the filing of the
Articles of Merger in accordance with the MBCA, (b) compliance with the
Hart-Scott-
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Rodino Antitrust Improvements Act of 1976 and related regulations promulgated
thereunder, (c) compliance with the Securities Act, the Exchange Act and
applicable state securities laws and (d) any action or filing which the failure
to obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on any party hereto.
4.5 NON-CONTRAVENTION. The execution, delivery and performance by North
Star and the North Star Shareholders of this Agreement do not, and the
consummation by North Star and the North Star Shareholders of the transactions
contemplated hereby will not, (a) contravene or conflict with the Articles of
Incorporation or Bylaws of North Star, (b) assuming compliance with the matters
referred to in SECTION 4.4 above, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to North Star or the North Star
Shareholders (including, without limitation, applicable federal and state
securities laws), other than such contraventions, conflicts or violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
Keystone, North Star or the Surviving Corporation, (c) assuming that the
consents listed on SCHEDULE 4.5 hereto are obtained prior to the Effective Time,
constitute a breach or violation of, or a default under or give rise to a right
of termination, cancellation or acceleration of any right or obligation of North
Star or to a loss of any benefit to which North Star is entitled under any
provision of, any agreement, contract or other instrument binding upon North
Star or any license, franchise, permit or other similar authorization held by
North Star, other than such breaches, violations, defaults, rights or losses
which would not, individually or in the aggregate, have a Material Adverse
Effect on North Star, or (d) result in the creation or imposition of any Lien on
any asset of North Star, other than any such creation or imposition which would
not, individually or in the aggregate, have a Material Adverse Effect on North
Star. SCHEDULE 4.5 hereto sets forth a true, complete and correct list of all
consents, approvals and authorizations required to be obtained by North Star
from any third party (other than as otherwise expressly contemplated by SECTION
4.4 of this Agreement) in connection with this Agreement, the Merger and the
transactions contemplated hereby where the failure of North Star to obtain such
consent, approval or authorization, individually or in the aggregate, would have
a Material Adverse Effect on Keystone, North Star or the Surviving Corporation.
4.6 CAPITALIZATION. The authorized capital stock of North Star consists
of 100,000 shares of North Star Common Stock and 10,000 shares of Preferred
Stock, par value $54.63 per share. As of the date of this Agreement, there are
outstanding 6,762.1875 shares of North Star Common Stock and no shares of
Preferred Stock. All outstanding shares of North Star Common Stock are duly
authorized and validly issued, paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. The holders
of the outstanding shares of North Star Common Stock immediately prior to the
Effective Time are listed, together with their respective holdings of North Star
Common Stock, on SCHEDULE 4.6 hereto. Except as set forth in this Section,
there are outstanding (a) no shares of North Star Common Stock or other voting
securities of North Star, (b) no securities of North Star convertible into or
exchangeable for shares of North Star Common Stock or voting securities of North
Star and (c) no options, warrants or other rights to acquire from North Star,
and no obligation of North Star to issue, any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting
securities of North Star. Except as set forth on SCHEDULE 4.6 hereto, there are
no outstanding obligations of North Star to repurchase, redeem or otherwise
acquire any North Star Common Stock. As of the date hereof all of the shares of
North Star Common Stock owned by the North Star Shareholders are owned, and as
of the Effective Time all such shares will be owned, free and clear from all
Liens.
4.7 NORTH STAR FINANCIAL STATEMENTS. SCHEDULE 4.7 contains the audited
balance sheets of North Star at September 30, 1995 and 1996, and the unaudited
balance sheet of North Star at
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September 30, 1994, together with the audited statements of operations and cash
flows of North Star for the fiscal years ended September 30, 1994, 1995 and
1996. Such North Star Financial Statements have been, and any North Star
Financial Statements delivered to Keystone for subsequent periods will be,
prepared in conformance with generally accepted accounting principles applied on
a basis consistent with prior periods (except, in the case of any unaudited
financial statements, for the absence of footnotes and non-material deviations
from generally accepted accounting principles in accordance with North Star's
past practices), and fairly present and will fairly present the financial
condition of North Star as of the represented dates thereof and the results of
North Star's operations for the periods covered thereby.
4.8 NORTH STAR'S BOOKS AND RECORDS. The books of account and records
(including customer order files, employment records, licensing records,
employment records and production and manufacturing records) of North Star and
its subsidiaries are complete, true and correct in all material respects.
4.9 NORTH STAR CONTRACTS WITH RELATED PARTIES. Except as disclosed on
SCHEDULE 4.9 hereto, there are no material agreements or contracts by, between
or among North Star and any of North Star's officers, directors or any holder of
North Star Common Stock.
4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as expressly
contemplated by this Agreement, since September 30, 1996, North Star has
conducted its business only in the ordinary course, and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on North Star;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of North Star Common Stock, or any
repurchase, redemption or other acquisition by North Star of any outstanding
shares of North Star Common Stock or other securities of, or other ownership
interests in, North Star;
(c) any split, combination or reclassification of any of North
Star Common Stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
North Star Common Stock;
(d) any incurrence, assumption or guarantee by North Star of any
indebtedness for borrowed money other than in the ordinary course of business
and in amounts and on terms consistent with past practices (including any such
borrowings under its existing bank credit facility);
(e) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business assets of North Star which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect on North Star;
(f) any change in any method of accounting or accounting
practice by North Star, except for any such change required by reason of a
concurrent change in generally accepted accounting principles;
(g) except for this Agreement, any contract or commitment other
than in the ordinary course of business;
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(h) any sale, assignment, transfer or other disposition of
properties or assets, other than inventory or supplies consumed or disposed of
in the ordinary course of business;
(i) any change or anticipated change in the relationship between
North Star and any of its major customers which, taken in the aggregate, could
reasonably be expected to have a Material Adverse Effect on North Star;
(j) any (i) grant except pursuant to agreements in effect on the
date of this Agreement and disclosed in a Schedule hereto, of any material
severance or termination pay to any director, officer or employee of North Star,
(ii) entering into any material employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of North Star, (iii) material increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) other than in the ordinary course of business consistent with
past practices, material increase in compensation, bonus or other benefits
payable to directors, officers or employees of North Star; or
(k) any agreement or commitment obligating North Star to do any
of the things described in clauses (a) through (j).
4.11 LITIGATION. Except as disclosed in SCHEDULE 4.11 hereto, there is
no action, suit, investigation or proceeding pending or threatened against or
affecting North Star or any of its properties (other than any such suit, action
or proceeding challenging the transactions contemplated by this Agreement or any
provision of this Agreement or seeking to restrain or prohibit the consummation
of the Merger) that, if determined or resolved adversely to North Star(in
accordance with the plaintiff's demands, if applicable), individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
North Star.
4.12 TAXES. Each of the North Star Affiliated Group has filed all
material tax returns and reports required to be filed by it and has paid (or
North Star has paid on its behalf) all of the Taxes required to be paid by it
(other than Taxes, the failure to pay which would not, individually or in the
aggregate, have a Material Adverse Effect on North Star), and the most recent
financial statements contained in the North Star Financial Statements reflect an
adequate reserve for all Taxes payable by North Star for all taxable periods and
portions thereof through the date of such financial statements. No deficiencies
for any Taxes have been proposed, asserted or assessed against North Star or any
member of the North Star Affiliated Group (other than deficiencies, the
liability for which would not, individually or in the aggregate, have a Material
Adverse Effect on North Star), and no requests for waivers of the time to assess
any Taxes are pending. None of the assets or properties of North Star is
subject to any tax lien (other than liens for Taxes that are not yet due or that
are being contested in good faith by appropriate proceedings) except for liens
which would not, individually or in the aggregate, have a Material Adverse
Effect on North Star.
4.13 TITLE TO ASSETS. SCHEDULE 4.13A contains a complete and accurate
list of all machinery, tools, equipment, instruments, racks, trucks,
automobiles, furniture, computers, fixtures, leasehold improvements, documents,
records, books and all other tangible personal property and real property owned
or leased by, or in the possession of, or used by North Star and appearing on
North Star's tax depreciation schedule. As of the date hereof and as of the
Effective Time, North Star shall hold title to its assets and properties free
and clear of all Liens, except as disclosed in SCHEDULE 4.13B hereto.
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4.14 LABOR MATTERS. North Star is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by North Star. Except as disclosed in SCHEDULE 4.14 hereto, (i) North
Star is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours and
North Star is not engaged in any unlawful labor or employment practice nor has
received any notice of a complaint, charge or allegation to the contrary;
(ii) there is no labor strike, dispute, slowdown or work stoppage pending or
threatened against or affecting North Star; (iii) no present or former employee
of North Star has any rightful claim for wrongful discharge against North Star;
(iv) no present or former employee or independent contractor of North Star has
any pending or threatened claim against North Star for (A) overtime pay, other
than overtime pay for the current period; (B) wages, salaries or profit sharing
(excluding wages, salaries or profit sharing for the current payroll period);
(C) vacations, time off or pay in lieu of vacation or time off, other than
vacation or time off (or pay in lieu thereof) earned in respect of the
employer's current fiscal year; (D) any violation of any statute, ordinance,
contract or regulation relating to minimum wages or maximum hours of work; (E)
discrimination against employees on any basis; (F) unlawful or wrongful
employment or termination practices; (G) unlawful retirement, termination or
labor relations practices, breach of contract or other claim arising under a
collective bargaining agreement, individual, express or implied contract, or
policy, practice or procedure manual or statement; (H) any violation of
occupational safety or health standards, or any violation of the Worker
Adjustment Retraining and Notification Act ("WARN").
4.15 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.15 hereto sets forth a list of all North Star
Plans. Except for the North Star Plans, with respect to all employees and
former employees of North Star and all dependents and beneficiaries of such
employees and former employees, (i) North Star does not maintain or contribute
to any nonqualified deferred compensation or retirement plans, contracts or
arrangements, (ii) North Star does not maintain or contribute to any qualified
defined contribution plans (as defined in Section 3(34) of ERISA, or Section
414(i) of the Code), (iii) North Star does not maintain or contribute to any
qualified defined benefit plans (as defined in Section 3(35) of ERISA or Section
414(j) of the Code) and (iv) North Star does not maintain or contribute to any
employee welfare benefit plans (as defined in Section 3(1) of ERISA).
(b) The North Star Plans comply in all material respects with
the applicable requirements of ERISA and the Code, except for such failures to
comply which individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect on North Star.
(c) North Star has delivered to Keystone true and complete
copies of (i) all North Star Plans, (ii) the most recent determination letter,
if any, received by North Star from the Internal Revenue Service regarding the
North Star Plans, (iii) the most recent financial statements and annual report
or return for the North Star Plans and (iv) the most recently prepared actuarial
valuation reports for the North Star Plans, if any.
(d) North Star does not contribute (and has not ever
contributed) to any multi-employer plan, as defined in Section 3(37) of ERISA.
North Star has no actual or potential liabilities under Section 4201 of ERISA
for any complete or partial withdrawal from a multi-employer plan. North Star
has no actual or potential liability for death or medical benefits after
separation from employment, other than (i) death benefits under the North Star
Plans (whether or not subject to ERISA) and (ii) health care continuation
benefits described in Section 4980B of the Code or Sections 62A.17, 62A.146,
62A.20 and 62A.21 of the Minnesota Statutes and (iii) life insurance
continuation benefits under Section 61A.092 of the Minnesota Statutes.
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(e) Neither North Star nor any of its directors, officers,
employees or other "fiduciaries," as such term is defined in Section 3(21) of
ERISA, has committed any breach of fiduciary responsibility imposed by ERISA or
any other applicable law with respect to the North Star Plans which would
subject North Star, Keystone, the Surviving Corporation or any of their
respective directors, officers or employees to any liability under ERISA or any
applicable law, which liability would have a Material Adverse Effect on North
Star.
(f) North Star has not incurred any liability for any tax or
civil penalty or any disqualification of any employee benefit plan (as defined
in Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and
Part 6 of Title I and Section 502(i) of ERISA, which liability would have a
Material Adverse Effect on North Star.
4.16 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 4.16 hereto,
North Star (a) is not in violation of, nor has it violated, any applicable
provisions of any laws, statutes, ordinances or regulations or (b) has not
received any notice from any Governmental Entity or any other Person that North
Star is in violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances or regulations, except in the case of clauses (a) and (b),
for violations, individually or in the aggregate, which have not had and could
not reasonably be expected to have a Material Adverse Effect on North Star.
North Star has all permits, licenses and franchises from Governmental Entities
required to conduct its business as now being conducted, except for such
permits, licenses and franchises the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect on North Star.
4.17 BROKERS. No broker, investment banker, financial advisor or other
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of North Star or the
North Star Shareholders and not entered into pursuant to the provisions of this
Agreement.
4.18 VOTE REQUIRED. The affirmative vote of a majority of the votes that
holders of the outstanding North Star Shares are entitled to cast at a meeting
called for the purpose of approving the Merger and this Agreement is the only
vote of holders of any North Star capital stock required to approve this
Agreement, the Merger and the transactions contemplated hereby.
4.19 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 4.19,
(a) all facilities and property (including underlying groundwater)
owned or leased by North Star have been, and continue to be, owned or leased in
material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or threatened
(i) claims, complaints, notices or requests for information
received by North Star or any of its subsidiaries with respect to
any alleged violation of any Environmental Law, or
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(ii) complaints, notices or inquiries to North Star or any of
its subsidiaries regarding potential liability under any
Environmental Law;
(c) there have been no releases of Hazardous Materials at, on or
under any property now or previously owned or leased by North Star that, singly
or in the aggregate, have, or may reasonably be expected to have, a Material
Adverse Effect on North Star;
(d) North Star has been issued and is in material compliance with
all permits, certificates, approvals, licenses and other authorizations relating
to environmental matters and necessary or desirable for its business;
(e) no property now or previously owned or leased by North Star is
listed or proposed for listing (with respect to owned property only) on the
National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar
state list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned or leased by North Star that, singly or in the aggregate, have, or may
reasonably be expected to have, a Material Adverse Effect on North Star;
(g) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by North Star that,
singly or in the aggregate, have, or may reasonably be expected to have, a
Material Adverse Effect on North Star; and
(h) no conditions exist at, on or under any property now or
previously owned or leased by North Star which, with the passage of time, or the
giving of notice or both, would give rise to liability under any Environmental
Law.
4.20 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth on SCHEDULE
4.20, North Star owns or possesses adequate licenses or other valid rights to
use, all patents, patent rights, trademarks, trademark rights, trade names,
trade name rights, copyrights, service marks, service mark rights, trade
secrets, applications to register and registrations for, the foregoing patents,
trademarks, service marks, know-how and other proprietary rights and information
used in connection with the business of North Star as currently conducted, and
no assertion or claim has been made in writing challenging the validity of any
of such rights. Except as set forth on SCHEDULE 4.20, the conduct of the
business of North Star as currently conducted does not conflict in any way with
any patent, patent rights, license, trademark, trademark right, trade name,
trade name right, service mark, copyright or other proprietary right of any
other Person, North Star has received no claim or threat that any such conflict
exists, and no litigation, claim, suit, action, proceeding, or complaint
concerning the foregoing has been filed or is ongoing. Except as set forth in
SCHEDULE 4.20 hereto, North Star has the unencumbered right to sell its products
and services (whether now offered for sale or under development) free from any
royalty or other obligations to any third parties.
4.21 CONTRACTS AND OTHER AGREEMENTS. All contracts and agreements listed
on SCHEDULE 4.21 hereto are valid, existing, in full force and effect, binding
upon North Star and upon the other parties thereto in accordance with their
terms, and North Star has paid in full or accrued all amounts now due from it
thereunder and has satisfied in full or provided for all of its liabilities and
obligations thereunder which are presently required to be satisfied or provided
for, and, except as disclosed on SCHEDULE 4.21 hereto, is not in default under
any of them, nor is any other party to any such contract
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or other agreement in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute a default thereunder (except
for (x) such defaults other than defaults in payment that would not,
individually or in the aggregate, have a Material Adverse Effect on North Star
and (y) such defaults in payment as do not exceed, individually or in the
aggregate, $10,000). SCHEDULE 4.21 hereto sets forth a list of all material
contracts and other agreements to which North Star is a party or by or to which
North Star or any of its assets or properties is bound or subject, including,
without limitation, the following:
(a) any agreement that individually requires aggregate
expenditures by North Star in any one year of more than $10,000;
(b) any indenture, trust agreement, loan agreement or note that
involves or evidences outstanding indebtedness, obligations or liabilities for
borrowed money in excess of $10,000;
(c) any lease, sublease, installment purchase or similar
arrangement for the purchase, use or occupancy of real or personal property (i)
that individually requires aggregate expenditures by North Star in any one year
of more than $10,000, or (ii) pursuant to which North Star is the lessor of any
real property which has rentals over $10,000 per year, together with the date of
termination of such leases, the name of the other party and the annual rental
payments required to be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other
than (i) an agreement in the ordinary course of business with respect to
obligations in an amount not in excess of $10,000, or (ii) indemnification
provisions contained in leases not otherwise required to be disclosed;
(e) except as disclosed on SCHEDULE 4.15, any agreement,
including without limitation employment agreements and bonus plans, relating to
the compensation of, or obligating North Star to make payments (whether such
payments are fixed in amount or contingent) to, (i) officers, (ii) employees,
(iii) former employees, (iv) consultants, (v) advisors or (vi) any Person who
was promised such payments;
(f) any agreement containing covenants of North Star not to
compete in any line of business, in any geographic area or with any Person or
covenants of any other Person not to compete with North Star in any line of
business of North Star;
(g) any agreement granting or restricting the right of North
Star to use a trade name, trade mark or logo;
(h) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $10,000 by North Star within ninety
days; and
(i) any franchise, licensing or development agreement.
True and complete copies of all of the contracts and other agreements set forth
in SCHEDULE 4.21 hereto (or required to be set forth therein) have been
previously provided to Keystone.
4.22 INSURANCE. SCHEDULE 4.22 attached hereto contains a true and
complete listing of all policies of insurance maintained by North Star as of the
date hereof and at all times during the
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twenty four month period ending on the date hereof. All such policies of
insurance are in full force and effect, and true and correct copies of all such
policies of insurance have been previously provided to Keystone. North Star
maintains insurance in such amounts, and with respect to such liabilities and
properties, as are customary for its industry for similarly situated entities
and comparable assets.
4.23 DISCLOSURE. No representations or warranties by North Star or the
North Star Shareholders contained in this Agreement, and no document, statement,
certificate or schedule furnished to Keystone in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements and facts contained therein not misleading. North Star and the
North Star Shareholders have provided Keystone complete and accurate
documentation in response to Keystone's disclosure requests. All material facts
relating to the business, operations, properties, assets, liabilities
(contingent or otherwise), and financial condition of North Star have been
disclosed to Keystone in or in connection with this Agreement. Without
limiting the foregoing, the Registration Statement, and any amendments or
supplements thereto, contains and will contain all material information with
respect to North Star required to be included therein by the Securities Act and
the rules and regulations promulgated thereunder. Notwithstanding any right of
Keystone to fully investigate the affairs of North Star and notwithstanding any
Knowledge of facts determined or determinable by Keystone pursuant to such
investigation or right of investigation (but subject to matters disclosed in the
exhibits and schedules annexed hereto, as supplemented pursuant to SECTION
7.13), Keystone has the right to rely fully upon the representations,
warranties, covenants and agreements contained in this Agreement or in any
exhibits and schedules annexed hereto.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF KEYSTONE
Except as set forth in and qualified by the schedules attached hereto,
Keystone hereby makes the following representations and warranties to North Star
and the North Star Shareholders, to its Knowledge.
5.1 CORPORATE EXISTENCE AND POWER. Keystone is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate powers required to carry on its business as
now conducted. Keystone is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not have a Material Adverse Effect on Keystone. The copies
of the Articles of Incorporation and Bylaws of Keystone which have been
delivered to North Star by Keystone are as of the date hereof and will be at the
Effective Time, true and complete copies of the Articles of Incorporation and
Bylaws of Keystone, in each case as amended, restated and otherwise in effect at
the Effective Time. Except for the Subsidiary or as set forth on SCHEDULE 5.1,
Keystone does not own, directly or indirectly, any capital stock or other
ownership interest in any Person.
5.2 CORPORATE AUTHORIZATION. Subject to obtaining the approval of the
shareholders of Keystone at the Shareholders' Meeting, the execution, delivery
and performance by Keystone of this Agreement and the consummation by Keystone
of the transactions contemplated hereby to be consummated by it are within its
corporate powers and have been duly authorized by all necessary corporate action
on the part of Keystone. This Agreement has been duly and validly executed and
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delivered by Keystone and constitutes a legal, valid and binding agreement of
Keystone enforceable in accordance with its terms.
5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Keystone of this Agreement and the consummation by Keystone of the
transactions contemplated hereby to be consummated by it require no action by or
in respect of, or filing with, any Governmental Entity other than (a) the filing
of Articles of Merger in accordance with the MBCA, (b) compliance with any
applicable requirements of the Securities Act, (c) compliance with any
applicable requirements of the Exchange Act, (d) compliance with the rules or
regulations of the NASDAQ Stock Market, Inc., (e) compliance with the securities
laws of various states, (f) compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and related regulations promulgated thereunder and (g)
any action or filing which the failure to obtain or make would not, individually
or in the aggregate, have a Material Adverse Effect on any party hereto.
5.4 NON-CONTRAVENTION. The execution, delivery and performance by
Keystone of this Agreement does not, and the consummation by Keystone of the
transactions contemplated hereby will not, (a) contravene or conflict with the
Articles of Incorporation or Bylaws of Keystone, (b) assuming compliance with
the matters referred to in SECTION 5.3 above, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Keystone (including,
without limitation, applicable federal and state securities laws) other than
such contraventions, conflicts or violations which would not, individually or in
the aggregate, have a Material Adverse Effect on any party hereto, (c) assuming
that the consents listed on SCHEDULE 5.4 hereto are obtained prior to the
Effective Time, constitute a breach or violation of, or a default under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of Keystone or to a loss of any benefit to which Keystone is entitled
under any provision of, any agreement, contract or other instrument binding upon
Keystone or any license, franchise, permit or other similar authorization held
by Keystone, other than such breaches, violations, defaults, rights or losses
which would not, individually or in the aggregate, have a Material Adverse
Effect on Keystone, or (d) result in the creation or imposition of any Lien on
any asset of Keystone, other than any such creation or imposition which would
not, individually or in the aggregate, have a Material Adverse Effect on
Keystone. SCHEDULE 5.4 sets forth a true, complete and correct list of all
consents, approvals and authorizations required to be obtained by Keystone from
any third party (other than as otherwise expressly contemplated by SECTION 5.3
of this Agreement) in connection with this Agreement, the Merger and the
transactions contemplated hereby where the failure of Keystone to obtain such
consent, approval or authorization, individually or in the aggregate, would have
a Material Adverse Effect on Keystone.
5.5 CAPITALIZATION. The authorized capital stock of Keystone consists
of 20,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock.
As of the date of this Agreement, there are outstanding 7,300,000 shares of
Keystone Common Stock and no shares of Preferred Stock. As of the date of this
Agreement, Keystone has reserved 730,000 shares of Keystone Common Stock for
issuance upon exercise of stock options granted pursuant to the 1996 Employee
Stock Option Plan (the "Stock Option Plan"). All outstanding shares of Keystone
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and issued in compliance with all applicable federal and state securities laws.
The Keystone Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. Except as set forth in this Section or on SCHEDULE 5.5 attached
hereto and except for changes since the date hereof resulting from the exercise,
cancellation or exchange of options granted pursuant to the Stock Option Plan,
there are outstanding (a) no shares of Keystone Common Stock or other voting
securities of Keystone, (b) no securities of Keystone convertible into or
exchangeable for shares of capital stock or voting securities of
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Keystone and (c) no options or other rights to acquire from Keystone, and no
obligation of Keystone to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Keystone. There are no outstanding obligations of Keystone to
repurchase, redeem or otherwise acquire any Keystone Common Stock.
5.6 SEC DOCUMENTS. Keystone has filed all Keystone SEC Documents
required to be filed by it prior to the date hereof. As of their respective
dates, the Keystone SEC Documents complied as to form in all material respects
with the requirements of the Securities Act, or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Keystone SEC Documents, and none of the Keystone SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent that information contained in any Keystone
SEC Document has been revised or superseded by a later-filed Keystone SEC
Document, filed and publicly available prior to the date of this Agreement, as
of the date of this Agreement, none of the Keystone SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Keystone included in the Keystone SEC Documents complied
as of their respective dates of filing with the SEC as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Keystone SEC Documents, and except as expressly contemplated by this Agreement,
since the date of the most recent audited financial statements included in the
Keystone SEC Documents, Keystone has conducted its business only in the ordinary
course, and there has not been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect on Keystone;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of Keystone Common Stock, or any
repurchase, redemption or other acquisition by Keystone of any outstanding
shares of Keystone Common Stock or other securities of, or other ownership
interests in, Keystone;
(c) any split, combination or reclassification of any of
Keystone Common Stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
Keystone Common Stock;
(d) any incurrence, assumption or guarantee by Keystone of any
indebtedness for borrowed money other than in the ordinary course of business
and in amounts and on terms consistent with past practices (including any such
borrowings under its existing bank credit facility);
(e) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business assets of Keystone which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on Keystone;
(f) any change in any method of accounting or accounting
practice by Keystone, except for any such change required by reason of a
concurrent change in generally accepted accounting principles; or
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(g) any (i) grant, except pursuant to agreements in effect on
the date of this Agreement and disclosed in a Schedule hereto, of any material
severance or termination pay to any director, officer or employee of Keystone,
(ii) entering into any material employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of Keystone, (iii) material increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) other than in the ordinary course of business consistent with
past practices, material increase in compensation, bonus or other benefits
payable to directors, officers or employees of Keystone.
5.8 LITIGATION. Except as disclosed in the Keystone SEC Documents,
there is no action, suit, investigation or proceeding pending or threatened
against or affecting Keystone or any of its properties (other than any such
suit, action or proceeding challenging the transactions contemplated by this
Agreement or any provision of this Agreement or seeking to restrain or prohibit
the consummation of the Merger) that, if determined or resolved adversely to
Keystone (in accordance with the plaintiff's demands, if applicable),
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Keystone.
5.9 TAXES. Keystone has filed all material tax returns and reports
required to be filed by it and has paid all of the Taxes required to be paid by
it (other than Taxes, the failure to pay which would not, individually or in the
aggregate, have a Material Adverse Effect on Keystone), and the most recent
financial statements contained in the Keystone SEC Documents reflect an adequate
reserve for all material Taxes payable by Keystone for all taxable periods and
portions thereof through the date of such financial statements. No deficiencies
for any Taxes have been proposed, asserted or assessed against Keystone (other
than deficiencies, the liability for which would not, individually or in the
aggregate, have a Material Adverse Effect on Keystone), and no requests for
waivers of the time to assess any Taxes are pending. None of the assets or
properties of Keystone is subject to any tax lien (other than liens for Taxes
that are not yet due or that are being contested in good faith by appropriate
proceedings) except for liens which would not, individually or in the aggregate,
have a Material Adverse Effect on Keystone.
5.10 COMPLIANCE WITH LAWS. Except as disclosed in the Keystone SEC
Documents, Keystone (a) is not in violation of, nor has it violated, any
applicable provisions of any laws, statutes, ordinances or regulations and (b)
has not received any notice from any Governmental Entity or any other Person
that Keystone is in violation of, or has violated, any applicable provisions of
any laws, statutes, ordinances or regulations, except in the case of clauses (a)
and (b), for violations, individually or in the aggregate, which have not had
and could not reasonably be expected to have a Material Adverse Effect on
Keystone. Keystone has all permits, licenses and franchises from Governmental
Entities required to conduct its business as now being conducted, except for
such permits, licenses and franchises the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on Keystone.
5.11 BROKERS. No broker, investment banker, financial advisor or other
Person, other than the Keystone Financial Advisor and Crowell Weedon is entitled
to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Keystone. The fees and expenses
of the Keystone Financial Advisor and Crowell Weedon will be paid by Keystone.
Keystone has provided North Star with a true and correct copy of the fee
agreements between Keystone and the Keystone Financial Advisor and between
Keystone and Crowell Weedon.
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5.12 VOTE REQUIRED. The affirmative votes of the holders of the
outstanding shares of the Keystone Common Stock to be described in the Proxy
Statement are the only votes of holders of capital stock of Keystone required to
approve the Merger, this Agreement and the transactions contemplated hereby.
5.13 DISCLOSURE. No representations or warranties by Keystone contained
in this Agreement, and no document, statement, certificate or schedule furnished
to North Star or the North Star Shareholders in connection with the transactions
contemplated by this Agreement, contains or will contain any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements and facts contained therein not misleading. Keystone has provided
North Star and the North Star Shareholders complete and accurate documentation
in response to such Persons' disclosure requests. All material facts relating
to the business, operations, properties, assets, liabilities (contingent or
otherwise), and financial condition of Keystone have been disclosed to North
Star and the North Star Shareholders in or in connection with this Agreement.
Without limiting the foregoing, the Registration Statement, and any amendments
or supplements thereto, contains and will contain all material information with
respect to Keystone required to be included therein by the Securities Act and
the rules and regulations promulgated thereunder. Notwithstanding any right of
North Star and the North Star Shareholders to fully investigate the affairs of
Keystone and notwithstanding any Knowledge of facts determined or determinable
by North Star and the North Star Shareholders pursuant to such investigation or
right of investigation (but subject to matters disclosed in the Keystone SEC
Documents or in the exhibits and schedules annexed hereto, as supplemented
pursuant to SECTION 7.13), North Star and the North Star Shareholders have the
right to rely fully upon the representations, warranties, covenants and
agreements contained in this Agreement or in any exhibits and schedules annexed
hereto.
ARTICLE VI - COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 CONDUCT OF BUSINESS BY NORTH STAR. Except as contemplated by this
Agreement, from the date hereof until the Effective Time, North Star shall, and
each of the North Star Shareholders shall use its best efforts to cause North
Star to, conduct its business in the ordinary course consistent with past
practice and shall use its best efforts to preserve intact its business
organizations and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, except as provided in this Agreement, from the date hereof
until the Effective Time, North Star will not, and the North Star Shareholders
will not permit North Star to, without the prior written approval of Keystone in
each instance:
(a) amend its Articles of Incorporation, Bylaws or other
comparable charter or organizational documents;
(b) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any
North Star Common Stock;
(c) acquire or agree to acquire (i) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any portion of the assets of, or by any other manner, any business or
any corporation, partnership, joint venture, association or other business
organization or division thereof except in the ordinary course of business
consistent with past practice or (ii) any assets that are material, individually
or in the aggregate, to
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North Star, except purchases of inventory in the ordinary course of business
consistent with past practice;
(d) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets,
except in the ordinary course of business consistent with past practice;
(e) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of North Star, guarantee
any debt securities of another Person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another Person or
enter into any arrangement having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, other than (A) to North
Star or (B) advances to employees in accordance with past practice;
(f) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $50,000 or, in the aggregate,
are in excess of $100,000;
(g) make any material tax election or settle or compromise any
material tax liability;
(h) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent North Star Financial Statements or incurred in
the ordinary course of business consistent with past practice, or waive any
material benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which North Star is a
party;
(i) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which North Star is a party or
waive, release or assign any material rights or claims;
(j) enter into any contracts, agreements, arrangements or
understandings relating to the distribution, sale or marketing by third parties
of North Star's products or products licensed by North Star except in the
ordinary course of business consistent with past practice;
(k) except as required to comply with applicable law, (i) adopt,
enter into, terminate or amend any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation or
other plan, trust arrangement or fund for the benefit or welfare of any
director, officer or current or former employee, (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director, officer
or employee (except for normal increases or bonuses in the ordinary course of
business consistent with past practice), (iii) pay any benefit not provided for
under a North Star Plan, (iv) except as permitted in clause (ii), grant any
awards under any bonus, incentive, performance or other compensation plan or
arrangement or North Star Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any North Star
Plans or agreement or awards made thereunder) or (v) take any action to fund or
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in any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or North Star Plan;
(l) make any change in any method of accounting or accounting
practice or policy other than those required by generally accepted accounting
principles; or
(m) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 CONDUCT OF BUSINESS BY KEYSTONE. Except as contemplated by this
Agreement, from the date hereof until the Effective Time, Keystone shall conduct
its business in the ordinary course consistent with past practice and shall use
its best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees.
6.3 OTHER ACTION. North Star and Keystone shall not take any action
that would, or that could reasonably be expected to, result in (i) any of the
representations and warranties of such party set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of the representations
and warranties that are not so qualified becoming untrue in any material respect
or (iii) any of the conditions to the Merger and consummation of the
transactions contemplated by this Agreement set forth in Article VIII below not
being satisfied (subject to Keystone's right to take action specifically
permitted by SECTION 6.4 below).
6.4 NO SOLICITATION OF TRANSACTIONS. North Star shall, and shall direct
and use its commercially reasonable efforts to cause their respective officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it) not to initiate,
solicit or knowingly encourage, directly or indirectly (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or continue discussions or negotiations with any
Person in furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it to take any such action, and
North Star shall notify Keystone of all inquiries or proposals which North Star
may receive relating to any of such matters and if such inquiry or proposal is
in writing, shall deliver to Keystone a copy of such inquiry or proposal.
6.5 INTERIM FINANCIAL INFORMATION. Each of North Star and Keystone
shall provide to the Other Party, not later than January 15, 1997, copies of
their respective internally prepared financial statements for the two month
period ending November 30, 1996.
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ARTICLE VII - ADDITIONAL AGREEMENTS
7.1 PREPARATION OF REGISTRATION STATEMENT; SHAREHOLDERS' MEETING.
(a) As soon as practicable following the date of this Agreement,
(i) the parties hereto shall provide to each other all information reasonably
requested by the Other Party in order to permit the Other Party to comply with
the provisions of this SECTION 7.1, (ii) Keystone shall prepare and file with
the SEC the Proxy Statement relating to the approval by the holders of Keystone
Common Stock of the Merger and this Agreement and (iii) Keystone and North Star
shall prepare and file with the SEC the Registration Statement for the purpose
of registering the shares of Keystone Common Stock to be issued in the Merger
under the Securities Act, in which the Proxy Statement will be included as a
prospectus. The parties hereto shall use all commercially reasonable efforts to
file the Registration Statement with the SEC no later than December 31, 1996.
Each of North Star and Keystone shall use all commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. Keystone will use its commercially
reasonable efforts to cause the Proxy Statement to be mailed to the shareholders
of Keystone as promptly as practicable after the Registration Statement is
declared effective under the Securities Act.
(b) Each of North Star and Keystone will, as soon as practicable
following the date of this Agreement, establish a record date (which will be as
soon as practicable following the date of this Agreement) for, duly call, give
notice of, convene and hold a Shareholders' Meeting for the purpose of approving
the Merger and this Agreement. Keystone will, through its board of directors,
recommend to its shareholders approval of the Merger and this Agreement, except
to the extent that the board of directors of Keystone shall have withdrawn or
modified its approval or recommendation of the Merger and this Agreement in the
event that it determines in good faith that such action is necessary for the
board of directors of Keystone to comply with its fiduciary duties to the
shareholders of Keystone under applicable law.
(c) Each of the North Star Shareholders hereby covenants and
agrees to vote at the North Star Shareholders' Meeting to approve this Agreement
and the Merger.
7.2 INFORMATION SUPPLIED BY NORTH STAR. North Star and the North Star
Shareholders, jointly and severally, represent and warrant that none of the
information supplied or to be supplied by North Star specifically for inclusion
or incorporation by reference in the Registration Statements or Proxy Statement
will, at the time the Registration Statements or Proxy Statement is filed with
the SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
7.3 INFORMATION SUPPLIED BY KEYSTONE. Keystone represents and warrants
that none of the information supplied or to be supplied by Keystone specifically
for inclusion or incorporation by reference in the Registration Statements or
Proxy Statement will, at the time the Registration Statements or Proxy Statement
is filed with the SEC, at any time it is amended or supplemented and at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
7.4 ACCESS TO INFORMATION. Subject to SECTION 7.5 below, from the date
hereof to the Effective Time, each of Keystone and North Star shall provide to
the other access to all information
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and documents which the other may reasonably request regarding the business,
assets, liabilities, employees and other aspects of the Other Party and their
respective subsidiaries, other than the information and documents that in the
opinion of such Other Party's legal counsel may not be disclosed under
applicable law.
7.5 CONFIDENTIALITY. Neither North Star, on the one hand, nor Keystone,
on the other hand, shall release, publish, reveal or disclose, directly or
indirectly, any Evaluation Material of the Other Party, except (a) to such of
its directors, officers, employees, financial advisors, legal counsel,
accountants or other agents, advisors or representatives as shall require access
thereto on a need-to-know basis for the purpose of the transactions contemplated
by this Agreement, so long as such Persons are informed by the revealing party
of the confidential nature of such information and are directed by it to treat
such information confidentially, (b) to such third parties as are reasonably
necessary to obtain the consents and approvals from such parties to the
transactions contemplated by this Agreement so long as such third parties are
informed by the revealing party of the confidential nature of such information
and are directed by it to treat such information confidentially, or (c) with the
prior written consent of the Other Party and then only to the extent specified
in such consent. The parties agree to take all reasonable precautions to
safeguard the confidentiality of the Evaluation Material. Neither North Star
nor Keystone shall make, or permit to be made, except in furtherance of the
transactions contemplated by this Agreement, any copies, abstracts or summaries
of the Evaluation Material of the Other Party. In addition, all such Evaluation
Material shall be used solely for the purposes of the investigations
contemplated by SECTION 7.4 above, and shall not be otherwise used to the
detriment of the Other Party or in competition with the Other Party. The
restrictions on disclosure of information contained in this SECTION 7.5 do not
extend to any item of information that (i) is publicly known at the time of its
disclosure, (ii) is lawfully received from a third party not bound in a
confidential relationship to the Other Party, (iii) is published or otherwise
made known to the public by the Other Party, (iv) was generated independently
before its receipt from the Other Party or (v) is required to be disclosed
pursuant to a governmental order or decree or other legal requirement to produce
or disclose such item of information, provided that upon receiving notice that
any such order or decree is being sought or that any such legal requirement is
applicable, such party shall promptly give the Other Party notice thereof and
such party shall cooperate with the Other Party's efforts, if any, to contest
the issuance of such order or decree or the application of such legal
requirement. Upon written request, the parties shall return or destroy all
writings, documents and materials containing Evaluation Material. Each of North
Star, on the one hand, and Keystone, on the other hand, understands that the
Other Party will not have an adequate remedy at law for a breach or threatened
breach by the revealing party or any of its subsidiaries of the terms of this
SECTION 7.5, and each party therefore agrees that if there is any such breach or
threatened breach, the Other Party may, in addition to any other legal or
equitable remedies available to it, obtain an injunction or restraining order to
enjoin the Other Party or any of its subsidiaries from the breach or threatened
breach of this SECTION 7.5.
7.6 PUBLIC ANNOUNCEMENTS. Each of North Star and Keystone shall consult
with the Other Party before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law or any listing agreement
with any national securities exchange, will not issue any such press release or
make any such public statement prior to such consultation. The parties have
agreed on the text of a joint press release by which Keystone and North Star
will announce the execution of this Agreement, a copy of which is attached
hereto as EXHIBIT 7.6.
7.7 APPROPRIATE ACTION; CONSENTS; FILINGS.
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(a) North Star, the North Star Shareholders and Keystone shall
use their respective best efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable law or required to be taken by any Governmental
Entity or otherwise to consummate the Merger and the transactions contemplated
by this Agreement as promptly as practicable, (ii) obtain from any Governmental
Entities any consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by North Star or Keystone in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act, the Exchange Act and any other applicable federal or state
securities laws and (B) any other applicable law; provided that Keystone and
North Star shall cooperate with each other in connection with the making of all
such filings, including providing copies of all such documents to the Other
Party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
All fees and expenses relating to compliance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 by North Star and the North Star Shareholders
shall be borne by North Star. All fees and expenses relating to compliance with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 by Keystone shall be
borne by Keystone. North Star and Keystone shall use reasonable best efforts to
furnish to the Other Party all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable law
(including all information required to be included in the Registration
Statement) in connection with the transactions contemplated by the Merger and
this Agreement.
(b) (i) North Star and Keystone shall give any notices to third
parties, and use their reasonable best efforts to obtain any third party
consents, (A) necessary to consummate the Merger and the transactions
contemplated by this Agreement, (B) disclosed or required to be disclosed in the
schedules to this Agreement or (C) required to prevent a Material Adverse Effect
on North Star or Keystone.
(ii) In the event that North Star or Keystone shall fail to
obtain any third party consent described in subsection (b)(i) above, North
Star or Keystone, as appropriate, shall use its reasonable best efforts,
and shall take any such actions reasonably requested by the Other Party, to
minimize any adverse effect on North Star, its subsidiaries and Keystone
and their respective businesses resulting, or which could reasonably be
expected to result after the Effective Time, from the failure to obtain
such consent.
(c) From the date of this Agreement until the Effective Time,
each of North Star and Keystone shall promptly notify the Other Party of any
pending or, to the Knowledge of such party, threatened action, proceeding or
investigation by any Governmental Entity or any other Person (i) challenging or
seeking material damages in connection with the Merger or the transactions
contemplated by this Agreement or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Keystone or, to the
Knowledge of such first party, any subsidiary of Keystone to own or operate all
or any portion of the businesses or assets of North Star, which in either case
is reasonably likely to have a Material Adverse Effect on Keystone.
(d) Each party shall execute and deliver on and after the
execution of this Agreement such further documents and instruments and take such
other actions as the Other Party may reasonably request to implement and effect
the purposes of and transactions contemplated by this Agreement.
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7.8 STATE STATUTES. If any State Takeover Laws shall become applicable
to the transactions contemplated by this Agreement, each of North Star and
Keystone, as the case may be, and their respective boards of directors shall use
their reasonable best efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such State Takeover Law on
the transactions contemplated by this Agreement.
7.9 EMPLOYMENT CONTRACTS. The parties shall use their respective
reasonable best efforts to cause the Surviving Corporation to enter into
employment contracts to be effective as of the Effective Time with Ronald G.
Brown and Kim D. Wood in substantially the form attached hereto as
EXHIBITS 7.9-1 and 7.9-2, respectively. The reasonable attorney fees and costs
of Messrs. Brown and Wood in connection with such contracts shall be borne by
North Star.
7.10 INDEMNIFICATION.
(a) INDEMNIFICATION BY NORTH STAR. Subject to the limitations set
forth in SECTION 7.10(e) below, North Star shall indemnify and hold Keystone
harmless at all times from and after the date of this Agreement against and in
respect of all payments, damages, demands, claims, losses, obligations,
liabilities, costs and expenses, including, but not limited to, reasonable
attorney fees and costs ("CLAIMS") which Keystone may suffer or incur in
connection with any breach by North Star of any of its representations,
warranties or covenants in this Agreement.
(b) INDEMNIFICATION BY THE NORTH STAR SHAREHOLDERS. Subject to the
limitations set forth in SECTION 7.10(e) below, the North Star Shareholders,
jointly and severally, shall indemnify and hold Keystone harmless at all times
from and after the date of this Agreement against and in respect of all Claims
which Keystone may suffer or incur in connection with any breach by the North
Star Shareholders of any of their respective representations, warranties or
covenants in this Agreement.
(c) INDEMNIFICATION BY KEYSTONE. Subject to the limitations set
forth in SECTION 7.10(e) below, Keystone shall indemnify and hold North Star and
the North Star Shareholders harmless at all times from and after the date of
this Agreement, against and in respect of all Claims which North Star or the
North Star Shareholders may suffer or incur in connection with any breach by
Keystone of any of its representations, warranties or covenants in this
Agreement.
(d) THIRD PARTY CLAIMS. If a claim by a third party is made
against any of the indemnified parties, and if any of the indemnified parties
intends to seek indemnity with respect to such claim under this SECTION 7.10,
such indemnified party shall promptly notify the indemnifying party of such
claim. The indemnifying party shall have thirty (30) days after receipt of the
above-mentioned notice to undertake, conduct and control, through counsel of
such party's own choosing (subject to the consent of the indemnified party, such
consent not to be unreasonably withheld) and at such party's expense, the
settlement or defense of it, and the indemnified party shall cooperate with the
indemnifying party in connection with such efforts; provided that: (i) the
indemnifying party shall not by this Agreement permit to exist any lien,
encumbrance or other adverse charge upon any asset of any indemnified party,
(ii) the indemnifying party shall permit the indemnified party to participate in
such settlement or defense through counsel chosen by the indemnified party,
provided that the fees and expenses of such counsel shall be borne by the
indemnified party, and (iii) the indemnifying party shall agree promptly to
reimburse the indemnified party for the full amount of any loss resulting from
such claim and all related expense incurred by the indemnified party pursuant to
this Section. So long as the indemnifying party is reasonably contesting any
such claim in good faith,
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the indemnified party shall not pay or settle any such claim. If the
indemnifying party does not notify the indemnified party within thirty (30) days
after receipt of the indemnified party's notice of a claim of indemnity under
this Section that such party elects to undertake the defense of such claim, or
does not actively prosecute such defense thereafter, the indemnified party shall
have the right to contest, settle or compromise the claim in the exercise of the
indemnified party's exclusive discretion at the expense of the indemnifying
party.
(e) LIMITATIONS. Notwithstanding anything to the contrary
contained in this Agreement, a party shall be liable for any Claim only to the
extent that (i) such party had Knowledge (subject to the qualifications set
forth in the introductory paragraph of ARTICLE IV) of the facts and
circumstances giving rise to such Claim (it being understood that Kim D. Wood
shall not be deemed to have made any representation or warranty under
SECTION 4.19) and (ii) such Claim, together with all other Claims for which
such party is liable under this Agreement, exceeds $500,000, and (iii) written
notice of such Claim, describing the subject matter thereof in reasonable
detail, shall have been delivered to such party within the applicable period
set forth below: (A) with respect to a Claim arising from the breach of the
representations and warranties contained in SECTION 4.7, not later than thirty
(30) days after the first issuance of audited financial statements of Keystone
following the Merger, (B) with respect to a Claim arising from a breach of the
representations and warranties contained in the last sentence of SECTION 4.6,
the sixth anniversary of the Effective Time, and (C) with respect to a Claim
arising from a breach of any of the other representations, warranties and
covenants contained in this Agreement, the date occurring 365 days after the
Effective Time. The foregoing limitations shall apply to each party regardless
of any joint or joint and several liability borne by such party together with
any other party.
(f) LIMITS APPLICABLE TO GENERAL LIABILITY. The indemnification
provided in this SECTION 7.10 is not the exclusive remedy of any party with
respect to the transactions contemplated hereby; PROVIDED, that the limitations
provided under subsection (e) shall apply to any Claim, whether pursuant to this
SECTION 7.10, in an action at law or in equity, or otherwise.
7.11 ACCOUNTING TREATMENT. The North Star Shareholders covenant and
agree that they shall take no action that could reasonably be deemed to impair
the accounting treatment of the Merger as a "pooling".
7.12 OTHER AGREEMENTS. Keystone and each shareholder of North Star shall
have entered into a Registration Rights Agreement substantially in the form of
EXHIBIT 7.12-1 hereto; Keystone and certain of its principal shareholders shall
have entered into a Voting Agreement substantially in the form of EXHIBIT 7.12-2
hereto; and North Star and the North Star Shareholders shall have entered into
an Affiliate Agreement substantially in the form of EXHIBIT 7.12-3 hereto.
7.13 RIGHT TO UPDATE SCHEDULES. Notwithstanding anything herein to the
contrary, North Star and the North Star Shareholders (on the one hand) and
Keystone (on the other hand) may, after the date of this Agreement, amend or
supplement the Schedules relating to their respective representations and
warranties hereunder for the purpose of disclosing transactions or occurrences
arising after the date of this Agreement and prior to the Effective Time. No
transaction or occurrence duly disclosed pursuant to this SECTION 7.13 shall be
deemed to constitute a breach of this Agreement; PROVIDED that if the
transactions and occurrences so disclosed (a) are reasonably likely to
constitute, individually or in the aggregate, a Material Adverse Effect on North
Star (in the case of disclosures by North Star and the North Star Shareholders),
then Keystone may terminate this Agreement in accordance with Section 9.2(b) and
without liability to Keystone; and (b) are reasonably likely to constitute,
individually or in the aggregate, a Material Adverse Effect on Keystone
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(in the case of disclosures by Keystone), then North Star may terminate this
Agreement in accordance with Section 9.2(a) and without liability to North Star
or the North Star Shareholders.
7.14 BOARD OF DIRECTORS. Keystone shall use its best efforts to cause
and maintain the election of Ronald G. Brown to its Board of Directors.
7.15 TERMINATION OF CERTAIN AGREEMENTS. Not more than ten (10) business
days following the date of this Agreement, North Star shall have entered into
agreements providing for the termination of each Agreement to Purchase Corporate
Stock identified on SCHEDULES 4.5 and 4.6, which termination may be contingent
upon the consummation of the Merger.
ARTICLE VIII - CONDITIONS TO THE MERGER
8.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of North Star and Keystone to consummate the Merger are
subject to the satisfaction upon or prior to the Closing of the following
conditions:
(a) SHAREHOLDER APPROVALS. This Agreement and the Merger shall
have been approved by (i) the affirmative vote of the holders of a majority of
the outstanding shares of Keystone Common Stock in accordance with the MBCA and
the Articles of Incorporation and Bylaws of Keystone and (ii) the affirmative
vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of North Star Common Stock in accordance with the MBCA and
the Articles of Incorporation and Bylaws of North Star.
(b) GOVERNMENTAL ENTITY APPROVALS. All authorizations,
consents, orders or approvals of, or declarations or filings with, or expiration
of waiting periods imposed by, any Governmental Entity necessary for the
consummation of the transactions contemplated by this Agreement (including,
without limitation, the expiration of any waiting period (and any extension
thereof) required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976) shall have been filed, expired or been obtained.
(c) REGISTRATION STATEMENT; PROXY STATEMENT. The Registration
Statement shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order and the Proxy
Statement included in the Registration Statement shall not at the Effective Time
be subject to any proceedings commenced or threatened by the SEC.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Merger or any other transaction
contemplated by this Agreement shall be in effect.
(e) STATUTES. No action shall have been taken, and no statute,
rule, regulation or order shall have been enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity which would (i) make
the consummation of the Merger illegal or (ii) render North Star or Keystone
unable to consummate the Merger except for any waiting period provisions.
(f) MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have occurred no Material Adverse Effect with respect to Keystone or
North Star that is the result of
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conditions or factors affecting the economy generally or the industry in which
North Star or Keystone operates or the result of the announcement of the Merger
or actions taken in contemplation thereof.
8.2 CONDITIONS OF OBLIGATION OF KEYSTONE. The obligation of Keystone to
consummate the Merger is subject to the satisfaction prior to or upon the
Closing of the following conditions, unless waived by Keystone.
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of North Star and the North Star Shareholders set forth in this
Agreement, without regard to any qualification or reference to immateriality or
"Material Adverse Effect," shall be true and correct in all respects as of the
Closing Date (subject to SECTION 7.13), as though made on and as of such date
(provided that those representations or warranties made as of a particular date
need only be true and correct as of such date), except for any inaccuracies
which, individually or in the aggregate, have not had, and would not have, a
Material Adverse Effect on North Star. Keystone shall have received a
certificate signed on behalf of North Star by the chief executive officer and
the chief financial officer of North Star, and by the North Star Shareholders,
to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF NORTH STAR AND THE NORTH STAR
SHAREHOLDERS. North Star and the North Star Shareholders shall have performed
in all material respects all obligations and covenants required to be performed
by them under this Agreement prior to or as of the Closing Date, unless waived
in writing by Keystone, and Keystone shall have received a certificate signed on
behalf of North Star by the chief executive officer and the chief financial
officer of North Star, certifying as to North Star's performance.
(c) CONSENTS. The consents, approvals and authorizations
described (or required to be described) on SCHEDULES 4.5 and 5.4 hereto shall
have been obtained in form and in substance reasonably satisfactory to Keystone,
except for such consents, approvals and authorizations with respect to which the
failure to obtain would not have a Material Adverse Effect on either Keystone or
the Surviving Corporation.
(d) FAIRNESS OPINION. Keystone shall have received from the
Keystone Financial Advisor an opinion dated the Effective Time in form and
substance reasonably satisfactory to Keystone that the Merger and the other
transactions contemplated by the Merger and this Agreement are fair to the
shareholders of Keystone from a financial point of view; provided, however, that
the condition set forth in this SECTION 8.2(d) shall be deemed satisfied if
Keystone fails to use all commercially reasonable efforts to obtain such
fairness opinion.
(e) ACCOUNTING TREATMENT. Keystone shall have received from
Ernst & Young LLP an opinion dated the Effective Time in form and substance
reasonably satisfactory to Keystone that the Merger will receive "pooling"
treatment for accounting purposes.
(f) DISSENTING SHAREHOLDERS. Keystone shall have received
evidence satisfactory to Keystone that (i) no holders of North Star Common Stock
are entitled to dissent from the Merger and (ii) the holders of Keystone Common
Stock entitled to dissent from the Merger do not hold, in the aggregate, more
than 1% of the issued and outstanding shares of Keystone Common Stock.
(g) BRAINERD INDEMNITY. Ronald G. Brown shall have executed and
delivered to Keystone an environmental indemnification agreement substantially
in the form of Exhibit 8.2(g) hereto.
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8.3 CONDITIONS OF OBLIGATION OF NORTH STAR. The obligation of North
Star to effect the Merger is subject to the satisfaction prior to or upon the
Closing of the following conditions, unless waived by North Star:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Keystone set forth in this Agreement, without regard to any
qualification or reference to immateriality or "Material Adverse Effect," shall
be true and correct in all respects as of the Closing Date (subject to
SECTION 7.13), as though made on and as of such date (provided that those
representations or warranties made as of a particular date need only be true and
correct as of such date), except for any inaccuracies which, individually or in
the aggregate, have not had, and would not have, a Material Adverse Effect on
Keystone. North Star shall have received a certificate signed on behalf of
Keystone by the chief executive officer and the chief financial officer of
Keystone to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF KEYSTONE. Keystone shall have
performed in all material respects all obligations and covenants required to be
performed by them under this Agreement prior to or as of the Closing Date,
unless waived in writing by North Star and/or the North Star Shareholders, and
North Star shall have received a certificate signed on behalf of Keystone by the
chief executive officer and the chief financial officer of Keystone, certifying
as to Keystone's performance.
(c) CONSENTS. The consents, approvals and authorizations
described (or required to be described) on SCHEDULES 4.5 and 5.4 hereto shall
have been obtained in form and substance reasonably satisfactory to North Star,
except for such consents, approvals and authorizations with respect to which the
failure to obtain would not have a Material Adverse Effect on either Keystone or
the Surviving Corporation.
(d) REVIEW OF KEYSTONE SECURITIES. North Star shall have
received a letter from Keystone's independent auditors or legal counsel
indicating (i) the number of shares of Keystone Common Stock that have been
authorized for issuance by the board of directors of Keystone as set forth in
the minutes in the Keystone minute book and (ii) the number of shares of
Keystone Common Stock subject to warrants and options to purchase them that have
been authorized by the board of directors of Keystone as set forth in the
minutes in the Keystone minute book.
(e) RELEASE OF GUARANTY. Ronald G. Brown shall have been
released from his personal guaranty of North Star's obligations to First Bank
National Association.
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval of this Agreement and the Merger by the shareholders of Keystone and
North Star:
(a) by mutual written consent of Keystone and North Star; or
(b) by either Keystone or North Star if either (i) the Effective
Time shall not have occurred on or before March 28, 1997; provided, however,
that the right to terminate this Agreement under this SECTION 9.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, or (ii) there shall be any law that makes
consummation of the Merger illegal
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or otherwise prohibited or if any court of competent jurisdiction or
Governmental Entity shall have issued an order, decree, ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and unappealable;
provided that the party seeking to terminate this Agreement pursuant to this
subsection (b)(ii) shall have complied with its obligations under SECTION 7.7
above; or
(c) by North Star, if (i) the board of directors of Keystone
withdraws, modifies or changes its recommendation of this Agreement or the
Merger in a manner adverse to North Star or shall have resolved to do any of the
foregoing, (ii) a tender offer or exchange offer for 25% or more of the
outstanding shares of Keystone Common Stock is commenced, and the board of
directors of Keystone, within ten (10) business days after such tender offer or
exchange offer is so commenced, either fails to recommend against acceptance of
such tender offer or exchange offer by its shareholders or takes no position
with respect to the acceptance of such tender offer or exchange offer by its
shareholders or (iii) any Person shall have acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) shall have been formed which beneficially owns, or has
the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Keystone Common Stock (excluding for this purpose holdings
of shares by Persons or groups as currently reflected in filings with the SEC
under Section 13(d)); or
(d) by Keystone, if the board of directors of Keystone shall
have withdrawn, modified or changed its recommendation of this Agreement and the
Merger to the shareholders of Keystone as a result of a determination by a
majority of such directors in good faith that failure to so withdrawn, modify or
change such recommendation would be a breach of the fiduciary duty of such
directors; or
(e) by either Keystone or North Star, if its respective
Shareholders' Meeting shall have been held and the shareholders of either North
Star or Keystone shall have failed to approve the Merger or this Agreement at
such meeting (including any adjournment or postponement thereof); or
(f) by North Star, in the event that any condition in
SECTION 8.1 or SECTION 8.3 is not satisfied or waived by March 28, 1997;
(g) by Keystone, in the event that any condition in SECTION 8.1
or SECTION 8.2 is not satisfied or waived by March 28, 1997;
(h) by Keystone, pursuant to clause (a) of SECTION 7.13; or
(i) by North Star, pursuant to clause (b) of SECTION 7.13.
9.2 CONSEQUENCES OF TERMINATION.
(a) In the event Keystone terminates this Agreement other than in
compliance with SECTION 9.1 above, or in the event North Star terminates this
Agreement in compliance with the provisions of SECTION 9.1(b)(i) above because
the Effective Time has not occurred on or before March 28, 1997 as a result of a
material breach of this Agreement by Keystone, or in compliance with the
provisions of SECTION 9.1(e), or pursuant to clause (b) of SECTION 7.13 or in
compliance with the provisions of SECTION 9.1(f) to the extent arising from the
failure of any condition under SECTION 8.3 or clause (i) of SECTION 8.1(a),
Keystone shall reimburse North Star for its reasonable and
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documented fees and expenses (including reasonable attorney's fees and costs)
incurred in connection with the transactions contemplated by this Agreement, in
an aggregate amount not to exceed $100,000.
(b) In the event North Star terminates this Agreement other than
and in compliance with SECTION 9.1 above, or in the event Keystone terminates
this Agreement in compliance with the provisions of SECTION 9.1(b)(i) above
because the Effective Date has not occurred on or before March 28, 1997 as a
result of a material breach of this Agreement by North Star or the North Star
Shareholders, or in compliance with the provisions of SECTION 9.1(e), or
pursuant to clause (a) of SECTION 7.13 or pursuant to SECTION 9.1(g) to the
extent arising from the failure of any condition under SECTION 8.2 (other than
subsection (d), (e) or (f) thereof) or clause (ii) of SECTION 8.1(a), North Star
shall reimburse Keystone for its reasonable and documented fees and expenses
(including reasonable attorney's fees and costs) incurred in connection with the
transactions contemplated by this Agreement, in an aggregate amount not to
exceed $100,000.
(c) The remedies set forth in this SECTION 9.2 are intended to be
the sole remedies of the parties in the event that either party terminates this
Agreement for any reason.
9.3 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective boards of directors at any time
prior to the Effective Time. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
9.4 WAIVER. At any time prior to the Effective Time, any party hereto
may (a) extend the time for the performance of any obligation or other act of
any other party hereto, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in any instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE X - GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement and in any instrument delivered pursuant to this
Agreement shall survive the Merger.
10.2 NOTICES. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be deemed given if delivered personally, by
facsimile, by certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (in each case, providing proof of delivery) to the parties
at the following addresses and/or facsimile numbers set forth on the signature
pages of this Agreement (or such other address or facsimile number for a party
as shall be specified in like notice).
10.3 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto) and the other documents referenced herein contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior arrangements and understandings, both written and oral, with
respect thereto.
10.4 SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this
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Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of the other parties hereto in each instance.
10.6 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
10.7 ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California or in a California state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of California or
any California state court in the event any dispute arises out of this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other than a federal
court sitting in the State of California or a California state court.
10.8 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the law of the State of California, without giving effect to the
principles of conflict of laws thereof.
10.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
10.10 FURTHER ASSURANCES. Each of the parties hereto covenants that it
shall promptly do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, any and all such further acts, documents,
instruments and agreements as may reasonably be requested by any Other Party
from time to time in order to carry out more effectively the purposes of this
Agreement.
10.11 ATTORNEY FEES. In the event of any dispute between the parties
hereto, the prevailing party shall be entitled to recover its reasonable
attorney fees and costs from the Other Party.
[remainder of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By /S/ CHARLES J. HOGARTY
-----------------------------------------------
Charles J. Hogarty, Chief Operating Officer
By /S/ VIRGIL K. BENTON II
-----------------------------------------------
Virgil K. Benton II, Chief Executive Officer
NORTH STAR MERGER, INC.
By /S/ CHARLES J. HOGARTY
-----------------------------------------------
Charles J. Hogarty, Chief Operating Officer
By /S/ VIRGIL K. BENTON II
-----------------------------------------------
Virgil K. Benton II, Chief Executive Officer
NORTH STAR PLATING COMPANY
By /S/ RONALD G. BROWN
-----------------------------------------------
Ronald G. Brown, President
By /S/ KIM D. WOOD
-----------------------------------------------
Kim D. Wood, Vice President
/S/ RONALD G. BROWN
-----------------------------------------------
RONALD G. BROWN
/S/ KIM D. WOOD
-----------------------------------------------
KIM D. WOOD
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Appendix B
Opinion of FMV Opinions, Inc.
(To Be Filed By Amendment)
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<PAGE>
Appendix C
VOTING AGREEMENT
THIS VOTING AGREEMENT is made and effective as of December 6, 1996, by and
among KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California corporation
("Keystone"), NORTH STAR PLATING COMPANY, a Minnesota corporation ("North
Star"), VIRGIL K. BENTON II, CHARLES J. HOGARTY, AL A. RONCO, ROBERT L. BLANTON
and JOHN M. PALUMBO (collectively, the "Shareholders" and individually, a
"Shareholder") and RONALD G. BROWN ("Brown").
A. Keystone and the Shareholders desire that Keystone, North Star Merger,
Inc., a wholly owned subsidiary of Keystone (the "Subsidiary"), North Star and
certain shareholders of North Star (the "North Star Shareholders") enter into
that certain Agreement and Plan of Merger (as the same may be amended or
supplemented, the "Merger Agreement"), pursuant to which, among other things,
(i) the Subsidiary will be merged with and into North Star (the "Merger"), (ii)
all shares of the capital stock of North Star issued and outstanding immediately
prior to the Merger will be converted into the right to receive an aggregate of
2,450,000 shares of the Common Stock of Keystone (or approximately 25.1% of the
shares of the Common Stock of Keystone to be issued and outstanding immediately
after the Merger) and (iii) Ronald G. Brown, a director, officer and principal
shareholder of North Star, will become a director of Keystone.
B. Keystone and the Shareholders are entering into this Agreement as a
material inducement to North Star and the North Star Shareholders to enter into
the Merger Agreement.
C. Each Shareholder is an executive officer, director or principal
shareholder of Keystone.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the Merger Agreement, and intending to be legally bound hereby,
the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. Each Shareholder hereby represents
and warrants to Keystone as follows:
(a) The Shareholder is the holder of record, and has the sole power
to vote, or to direct the voting of, and to dispose of, or to direct the
disposition of, that number of shares of the Common Stock of Keystone set forth
opposite such Shareholder's name on SCHEDULE A hereto, except as otherwise
expressly set forth on such schedule.
(b) The Shareholder has the legal right, power, capacity and
authority to execute, deliver and perform this Agreement without obtaining the
approval or consent of any
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person, and this Agreement is the legal, valid and binding obligation of the
Shareholder and is enforceable against the Shareholder in accordance with its
terms.
(c) Neither the execution and delivery of this Agreement nor the
consummation by the Shareholder of the transactions contemplated hereby (i) will
result in a violation of, constitute a default under, conflict with or require
any consent, approval or notice under, any contract, trust, commitment,
agreement, understanding, arrangement or restriction of any kind, or any
judgment, order, decree, statute, law, rule or regulation, to which the
Shareholder is a party or by which the Shareholder is bound or (ii) will result
in the creation or imposition of any lien, claim, charge, security interest,
encumbrance or restriction on any shares of the capital stock of Keystone. If
the Shareholder is married and any shares of the capital stock of Keystone held
by the Shareholder constitute community property, this Agreement has been duly
executed and delivered by, and constitutes the legal, valid and binding
agreement of, the Shareholder's spouse, enforceable against such person in
accordance with its terms.
(d) No broker, investment banker, financial adviser or other person
is entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby or by the
Merger Agreement based upon arrangements made by or on behalf of the
Shareholder.
(e) The Shareholder understands and acknowledges that North Star and
the North Star Shareholders are entering into the Merger Agreement in reliance
upon the Shareholder's execution and delivery of this Agreement. The
Shareholder acknowledges that the irrevocable proxy set forth in Section 4 is
granted in consideration for the execution and delivery of the Merger Agreement
by North Star and the North Star Shareholders.
2. VOTING OF KEYSTONE SHARES. Each Shareholder hereby covenants and
agrees as follows:
(a) At any meeting of shareholders of Keystone called to vote upon
the Merger Agreement, the Merger or the other transactions contemplated by the
Merger Agreement, or at any adjournment thereof, or in any other circumstances
in which a vote, consent or other approval with respect to the Merger Agreement,
the Merger or the other transactions contemplated by the Merger Agreement is
sought, the Shareholder shall vote (or cause to be voted) all shares of the
capital stock of Keystone as to which he has the sole or shared voting power, as
of the record date established to determine the persons who have the right to
vote at such meeting or to grant such vote, consent or approval, in favor of the
Merger, the execution and delivery by Keystone of the Merger Agreement and the
approval of the terms of the Merger Agreement, the Merger and each other
transaction contemplated by the Merger Agreement.
(b) At any meeting of shareholders of Keystone, or at any adjournment
thereof, or in any other circumstances in which the vote, consent or other
approval of shareholders of Keystone is sought, the Shareholder shall vote (or
cause to be voted) all shares of the capital stock
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of Keystone as to which he has the sole or shared voting power as of the record
date established to determine the persons who have the right to vote at such
meeting or to grant such vote, consent or the approval against any proposal or
transaction involving Keystone, which proposal or transaction would in any
manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or
any of the other transactions contemplated by the Merger Agreement (a "Competing
Transaction").
(c) The Shareholder shall retain at all times the right to vote any
shares of the capital stock of North Star, in his sole discretion, on all
matters (other than those set forth in this Section 2) which are at any time or
from time to time presented to the shareholders of Keystone generally.
(d) The Shareholder shall not, without the prior written consent of
North Star in each instance, take any action that would alter or affect in any
way the right to vote any shares of the capital stock of Keystone as to which
the Shareholder has the sole or shared voting power, including, but not limited
to, (i) transferring (whether by sale, gift, pledge or otherwise), or consenting
to the transfer of, any interest in any such shares, (ii) entering into any
contract, option or other agreement or understanding with respect to the voting
of such shares, (iii) granting any proxy, power of attorney or other
authorization in or with respect to the voting of such shares or (iv) depositing
such shares into a voting trust or entering into a voting agreement or
arrangement with respect thereto.
(e) At any meeting of shareholders of Keystone called to elect
directors of Keystone, or at any adjournment thereof, or in any other
circumstances in which a vote with respect to the election of directors is
sought, the Shareholder shall vote (or cause to be voted) all shares of the
capital stock of Keystone as to which he has the sole or shared voting power, as
of the date established to determine the persons who have the right to vote at
such meeting, in favor of the election of Ronald G. Brown as a director of
Keystone.
3. RECOMMENDATIONS TO SHAREHOLDERS. Each Shareholder, who is a director
of Keystone, in his capacity as a director, (i) shall recommend to the
shareholders of Keystone that they approve the Merger Agreement, the Merger and
the transactions contemplated by the Merger Agreement at the Keystone Meeting or
at any other meeting of the shareholders of Keystone, or in any other
circumstances in which the vote, consent or approval of shareholders of Keystone
is sought with respect thereto, and (ii) shall advise the shareholders of
Keystone to reject any Competing Transaction; PROVIDED, however, that a
Shareholder shall not be obligated to take any action specified in clause (ii)
if the Board of Directors of Keystone is advised in writing by Manatt, Phelps &
Phillips, LLP (or such other counsel as is reasonably acceptable to North Star)
that such action would conflict with the proper discharge of his fiduciary
duties under applicable law.
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4. GRANT OF IRREVOCABLE PROXY.
(a) Each Shareholder hereby irrevocably grants to, and appoints,
North Star and Ronald G. Brown, the President of North Star, and Kim D. Wood, a
Vice President of North Star, in their respective capacities as officers of
North Star, and any individual who hereafter shall succeed to any such office of
North Star, and each of them individually, the Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of the Shareholder to vote all shares of the capital stock of Keystone
as to which the Shareholder has the sole or shared voting power, or to grant a
consent or approval in respect of such shares, (i) in favor of the Merger, the
execution and delivery of the Merger Agreement and the approval of the terms
thereof and of each other transaction contemplated by the Merger Agreement and
(ii) against any Competing Transaction.
(b) Each Shareholder hereby represents that any proxies heretofore
given in respect of any shares of the capital stock of Keystone are not
irrevocable, and that any such proxies hereby are revoked.
(c) Each Shareholder hereby affirms that the irrevocable proxy set
forth in this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Shareholder under this Agreement. Each Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Each Shareholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof.
5. LEGEND. Each Shareholder shall stamp, print or type, or shall cause
to be stamped, printed or typed, the following legend on the face of any
certificate evidencing shares of the Common Stock or other securities of
Keystone held by such Shareholder:
"THE VOTING OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A VOTING AGREEMENT DATED AS OF DECEMBER
6, 1996, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY."
6. TERMINATION. All rights and obligations of the parties under this
Agreement shall terminate upon the date upon which the Merger Agreement is
terminated in accordance with Section 9.1 thereof.
7. SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights
or duties hereunder shall be assigned, in whole or in part, by operation of law
or otherwise, by any of the parties without the prior written consent of each
other party. Any assignment in violation of the foregoing shall be void. This
Agreement and the obligations of a Shareholder hereunder shall attach to all
shares of the capital stock of Keystone now held or hereafter acquired by such
Shareholder and, except for the obligations set forth in Section 2(e), shall
inure to the benefit of
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and shall be binding upon any person to which legal or beneficial ownership of
such shares shall pass, whether by operation of law or otherwise, including, but
not limited to, the Shareholder's permitted heirs, representatives, successors
or assigns. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of
Keystone, or the acquisition of any interest in additional shares of the capital
stock of Keystone by any Shareholder, the number of shares subject to the terms
of this Agreement shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any interest in any additional shares of
the capital stock of Keystone issued to or acquired by such Shareholder.
8. INDEMNIFICATION.
(a) Each party hereto shall indemnify each other party hereto and
hold it harmless against and in respect of any and all payments, damages,
demands, claims, losses, expenses, costs, obligations and liabilities
(including, but not limited to, reasonable attorneys' fees and costs) which
arise or result from or are related to any breach by such indemnifying party or
failure by such indemnifying party to perform any of its representations,
warranties, commitments, obligations, covenants or conditions hereunder.
Consummation of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy of the indemnified party nor
shall this section or any other provision of this Agreement be deemed or
construed to be a waiver of any ground of defense by the indemnified party.
(b) The party indemnified hereunder (the "Indemnitee") shall promptly
notify the indemnifying party (the "Indemnitor") of the existence of any claim,
demand or other matter involving liabilities to third parties to which the
Indemnitor's indemnification obligations would apply and shall give the
Indemnitor a reasonable opportunity to defend the same at its own expense and
with counsel of its own selection (who shall be approved by the Indemnitee,
which approval shall not be unreasonably withheld); PROVIDED, however, that the
Indemnitee at all times also shall have the right to fully participate in the
defense at its own expense. If the Indemnitor within a reasonable time after
such notice fails to defend such claim, or fails to pursue such defense
vigorously once commenced, the Indemnitee shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter on behalf, for the
account and at the risk and expense of the Indemnitor. Except as provided in
the preceding sentence, the Indemnitee shall not compromise or settle the claim
or other matter without the prior written consent of the Indemnitor in each
instance. If the claim is one that cannot by its nature be defended solely by
the Indemnitor, the Indemnitee shall make available all information and
assistance that the Indemnitor reasonably may request; PROVIDED, however, that
any associated expenses shall be paid by the Indemnitor.
9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by the parties hereto in this
Agreement (including, but not limited to, statements contained in any schedule
or certificate or other instrument delivered by or on behalf of any party hereto
or in connection with the transactions contemplated hereby) shall
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survive the date hereof and any investigations, inspections, examinations or
audits made by or on behalf of any party.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
11. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, one (1) week after
having been placed in the mail, registered or certified, postage prepaid,
addressed to the party to whom it is directed at the address set forth on the
signature page hereof or (iii) if given by telex or telecopier, when such notice
or other communication is transmitted to the telex or telecopier number
specified on the signature page hereof and the appropriate answer back or
telephonic confirmation is received. Any party may change the address to which
such notices are to be addressed by giving the other parties notice in the
manner herein set forth.
12. GOVERNING LAW. The validity, construction and interpretation of this
Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
13. HEADINGS. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
14. ATTORNEYS' FEES. In the event any party takes legal action to enforce
any of the terms of this Agreement, the unsuccessful party to such action shall
pay the successful party's expenses (including, but not limited to, attorneys'
fees and costs) incurred in such action.
15. THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than the parties hereto and their
successors and assigns any rights or remedies under or by reason of this
Agreement.
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16. INJUNCTIVE RELIEF. Keystone and the Shareholders each hereby
acknowledge and agree that the obligations of the Shareholders hereunder are
unique and North Star would not have an adequate remedy at law for money damages
in the event of the breach or threatened breach of any provision of this
Agreement. Accordingly, North Star shall be entitled to temporary and
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions without the
necessity of proving actual damages or being required to post any bond or
undertaking in connection with any such action. This provision with respect to
injunctive relief shall not diminish, however, the right of North Star to any
other relief or to claim and recover damages.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each one of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
18. FURTHER ASSURANCES. Each party hereto shall, from time to time at and
after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request to carry out the purpose and intent of this Agreement.
19. JURISDICTION.
(a) Each party hereto irrevocably submits to the non-exclusive
jurisdiction of any court of the State of California or the United States of
America sitting in the City of Los Angeles over any suit, action or proceeding
arising out of or relating to this Agreement. To the fullest extent it may
effectively do so under applicable law, each party irrevocably waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each party hereto agrees, to the fullest extent it may
effectively do so under applicable law, that a judgment in any suit, action or
proceeding of the nature referred to hereinabove brought in any such court shall
be conclusive and binding upon such person and its successors and assigns and
may be enforced in the courts of the United States of America or the State of
California (or any other courts to the jurisdiction of which such person is or
may be subject) by a suit upon such judgment.
(c) Each party hereto consents to process being served in any suit,
action or proceeding of the nature referred to hereinabove by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the address of the other set forth in Section 11. Each party
agrees that such service (i) shall be deemed in every respect effective service
of process upon such person in any such suit, action or proceeding and (ii)
shall, to the
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fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to such person.
20. DEFINED TERMS. Capitalized terms used and not otherwise defined in
this Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
21. SEVERABLE PROVISIONS. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement as of the day and year first above written.
KEYSTONE: KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By \s\ Charles J. Hogarty
------------------------------------------------
Charles J. Hogarty, Chief Operating Officer
700 East Bonita Avenue
Pomona, California 91767
NORTH STAR: NORTH STAR PLATING COMPANY
By \s\ Ronald G. Brown
------------------------------------------------
Ronald G. Brown, President
3621 Marshall Street, N.E.
Minneapolis, Minnesota 55418
SHAREHOLDERS:
\s\ Virgil K. Benton II
--------------------------------------------------
VIRGIL K. BENTON II
\s\ Robert L. Blanton
--------------------------------------------------
ROBERT L. BLANTON
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\s\ Charles J. Hogarty
--------------------------------------------------
CHARLES J. HOGARTY
\s\ John M. Palumbo
--------------------------------------------------
JOHN M. PALUMBO
\s\ Al A. Ronco
--------------------------------------------------
AL A. RONCO
BROWN: \s\ Ronald G. Brown
--------------------------------------------------
RONALD G. BROWN
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<PAGE>
SPOUSAL CONSENT
I am the spouse of __________________, a Shareholder in the above
Agreement. I understand that I may consult independent legal counsel as to the
effect of this Agreement and the consequences of my execution of this Agreement
and, to the extent I felt it necessary, I have discussed it with legal counsel.
I hereby confirm this Agreement and agree that it shall bind my interest in the
Shares, if any.
-------------------------------
(Print Name)
-------------------------------
(Signature)
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<PAGE>
Appendix D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and effective as of __________
__, 1997, by and among KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California
corporation ("Keystone"), and the persons whose names appear on the signature
page under the caption "Shareholders" (collectively, the "Shareholders" and
individually a "Shareholder").
A. The Shareholders own substantially all the issued and outstanding
shares of the capital stock of North Star Plating Company, a Minnesota
corporation ("North Star").
B. Pursuant to that certain Agreement and Plan of Merger dated as of
December 6, 1996, by and among Keystone, North Star Merger, Inc., a wholly owned
subsidiary of Keystone (the "Subsidiary"), North Star and certain shareholders
of North Star, among other things, (i) the Subsidiary will be merged with and
into North Star (the "Merger"), (ii) all shares of the capital stock of North
Star issued and outstanding immediately prior to the Merger will be converted
into the right to receive an aggregate of 2,450,000 shares of the Common Stock
of Keystone (or approximately 25.1% of the shares of the Common Stock of
Keystone to be issued and outstanding immediately after the Merger) and (iii)
Ronald G. Brown, a director, officer and principal shareholder of North Star,
will become a director of Keystone.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the Merger Agreement, and intending to be legally bound hereby,
the parties agree as follows:
1. GRANT OF REGISTRATION RIGHTS.
(a) Whenever Keystone proposes to register any of its securities
under the Securities Act of 1933, as amended (the "Securities Act"), and the
registration form to be used therefor may be used for the registration of the
Common Stock of Keystone (other than Forms S-8 or S-4 or any successor thereto),
Keystone shall give prompt written notice to all holders of the shares of the
Common Stock of Keystone issued in exchange for shares of the Common Stock of
North Star pursuant to the Merger Agreement (collectively, the "Registerable
Shares") of its intention to effect such a registration and, subject to the
terms and conditions contained in this Agreement, shall include in such
registration up to 600,000 Registerable Shares (subject to adjustment in the
event of a stock split, stock combination or recapitalization of Keystone) with
respect to which Keystone has received written requests for inclusion therein
within five (5) days after Keystone has given the notice required by this
Section 1(a).
(b) If a registration subject to Section 1(a) is an underwritten
registration, and the managing underwriters advise Keystone in writing that in
their opinion the number of securities to
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be included in such registration exceeds the number which can be sold in such
offering, Keystone shall include in such registration (i) first, the securities
Keystone proposes to sell, (ii) second, such number of the Registerable Shares
(up to 600,000, subject to adjustment in the event of a stock split, stock
combination or recapitalization of Keystone) requested to be included in such
registration as the managing underwriters believe can be sold in such offering,
pro rata among the holders of such Registerable Shares on the basis of the
number of Registerable Shares owned by each such holder and (iii) third, other
securities requested to be included in such registration; PROVIDED, however,
that the Shareholders shall have the right to include any Registerable Shares
which are thus excluded from such registration in the next registration
statement of Keystone under the Securities Act which may be used for the
registration of the Common Stock of Keystone (other than Forms S-8 or S-4), all
on the terms and conditions set forth in this Agreement applicable to the
initial exercise by the Shareholders of registration rights hereunder.
(c) Except as expressly provided in the proviso to Section 1(b),
notwithstanding anything to the contrary contained in this Agreement, Keystone
shall be required to give notice to the holders of Registerable Shares of a
registration, and to include therein Registerable Shares, only with respect to
the first registration of the securities of Keystone occurring after the Merger.
2. GENERAL.
(a) Keystone shall indemnify, to the extent permitted by law, each
holder of Registerable Shares included in any registration statement pursuant to
Section 1(a), its officers and directors and each person who controls such
holder (within the meaning of the Securities Act of 1933, as amended) against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to
Keystone by such holder expressly for use therein or by such holder's failure
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after Keystone has furnished such holder with a
sufficient number of copies of the same.
(b) Each holder of Registerable Shares included in any registration
statement pursuant to Section 1(a) shall indemnify, to the extent permitted by
law, Keystone, its officers and directors and each person who controls Keystone
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent the same are caused by or contained in any information
furnished in writing to Keystone by such holder expressly for use therein or by
such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after Keystone has furnished
such holder with a sufficient number of copies of the same. In connection with
an underwritten offering, such holder shall indemnify the underwriters,
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their officers and directors and each person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of Keystone.
(c) With respect to each inclusion of Registerable Shares in a
registration statement pursuant to Section 1(a), all fees, costs and expenses of
and incidental to such registration and public offering in connection therewith
shall be borne by Keystone; PROVIDED, however, that holders participating in any
such registration shall bear their pro rata share of the underwriting discount
and commissions and shall bear their own legal and accounting expenses incurred
in reviewing independent of Keystone the registration statement or prospectus.
(d) Any Registerable Shares which are included in an underwritten
registration pursuant to Section 1(a) shall be sold by the holder thereof
pursuant to the terms of the underwriting agreement among Keystone, the managing
underwriters and the holders of the securities included in such registration.
3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by the parties hereto in this
Agreement (including, but not limited to, statements contained in any schedule
or certificate or other instrument delivered by or on behalf of any party hereto
or in connection with the transactions contemplated hereby) shall survive the
date hereof and any investigations, inspections, examinations or audits made by
or on behalf of any party.
4. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
5. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, one (1) week after
having been placed in the mail, registered or certified, postage prepaid,
addressed to the party to whom it is directed at the address set forth on the
signature page hereof or (iii) if given by telex or telecopier, when such notice
or other communication is transmitted to the telex or telecopier number
specified on the signature page hereof and the appropriate answer back or
telephonic confirmation is received. Any party may change the address to which
such notices are to be addressed by giving the other parties notice in the
manner herein set forth.
6. GOVERNING LAW. The validity, construction and interpretation of this
Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
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7. HEADINGS. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
8. ATTORNEYS' FEES. In the event any party takes legal action to enforce
any of the terms of this Agreement, the unsuccessful party to such action shall
pay the successful party's expenses (including, but not limited to, attorneys'
fees and costs) incurred in such action.
9. THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than the parties hereto and their
successors and assigns any rights or remedies under or by reason of this
Agreement.
10. INJUNCTIVE RELIEF. Each party hereby acknowledges and agrees that it
would be difficult to fully compensate the other party for damages resulting
from the breach or threatened breach of any provision of this Agreement and,
accordingly, that each party shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages or being required to post any bond or undertaking in
connection with any such action. This provision with respect to injunctive
relief shall not diminish, however, the right of either party to any other
relief or to claim and recover damages.
11. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each one of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
12. FURTHER ASSURANCES. Each party hereto shall, from time to time at and
after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request to carry out the purpose and intent of this Agreement.
13. JURISDICTION.
(a) Each party hereto irrevocably submits to the non-exclusive
jurisdiction of any court of the State of California or the United States of
America sitting in the City of Los Angeles over any suit, action or proceeding
arising out of or relating to this Agreement. To the fullest extent it may
effectively do so under applicable law, each party irrevocably waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each party hereto agrees, to the fullest extent it may
effectively do so under applicable law, that a judgment in any suit, action or
proceeding of the nature referred to hereinabove brought in any such court shall
be conclusive and binding upon such person and its successors and
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assigns and may be enforced in the courts of the United States of America or the
State of California (or any other courts to the jurisdiction of which such
person is or may be subject) by a suit upon such judgment.
(c) Each party hereto consents to process being served in any suit,
action or proceeding of the nature referred to hereinabove by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the address of the other set forth in Section 16. Each party
agrees that such service (i) shall be deemed in every respect effective service
of process upon such person in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon and personal delivery to such Person.
14. SEVERABLE PROVISIONS. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement as of the day and year first above written.
KEYSTONE: KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By
-----------------------------------
Charles J. Hogarty, Chief Operating Officer
700 East Bonita Avenue
Pomona, California 91767
SHAREHOLDERS:
-------------------------------------
RONALD G. BROWN
2001 Crestview Lane
Brainerd, Minnesota 56401
Number of shares: 4,272.2625
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-------------------------------------
KIM D. WOOD
12415 44th Avenue, North
Plymouth, Minnesota 55442
Number of shares: 357.75
-------------------------------------
KAREN WOOD
12415 44th Avenue, North
Plymouth, Minnesota 55442
Number of shares: 112.75
-------------------------------------
Kim D. Wood as Trustee under the Kathryn
Wood Irrevocable Trust Agreement dated
August 15, 1990
12415 44th Avenue, North
Plymouth, Minnesota 55442
Number of shares: 112.75
-------------------------------------
Kim D. Wood as Trustee under the Kristine
Wood Irrevocable Trust Agreement dated
August 15, 1990
12415 44th Avenue, North
Plymouth, Minnesota 55442
Number of shares: 112.75
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Appendix E
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT is made and effective as of December 6, 1996, by
and among KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California corporation
("Keystone"), NORTH STAR PLATING COMPANY, a Minnesota corporation ("North
Star"), and RONALD G. BROWN and KIM D. WOOD (collectively, the "Shareholders"
and individually, a "Shareholder").
A. North Star and the Shareholders desire that Keystone, North Star
Merger, Inc., a wholly owned subsidiary of Keystone (the "Subsidiary"), North
Star and certain shareholders of North Star enter into that certain Agreement
and Plan of Merger (as the same may be amended or supplemented, the "Merger
Agreement"), pursuant to which, among other things, (i) the Subsidiary will be
merged with and into North Star (the "Merger"), (ii) all shares of the capital
stock of North Star issued and outstanding immediately prior to the Merger will
be converted into the right to receive an aggregate of 2,450,000 shares of the
Common Stock of Keystone (or approximately 25.1% of the shares of the Common
Stock of Keystone to be issued and outstanding immediately after the Merger) and
(iii) Ronald G. Brown, a director, officer and principal shareholder of North
Star, will become a director of Keystone.
B. North Star and the Shareholders are entering into this Agreement (i)
as a material inducement to Keystone to enter into, and to cause the Subsidiary
to enter into, the Merger Agreement and (ii) to ensure pooling-of-interests
accounting treatment for the Merger.
C. Ronald G. Brown and Kim D. Wood are the President and the Vice
President, Secretary and Treasurer, respectively, of North Star and are the sole
directors and the holders of an aggregate of 4,630.0125 shares of the Common
Stock of North Star (or approximately 68.5% of the shares of the Common Stock of
North Star issued and outstanding on the date hereof).
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the Merger Agreement, and intending to be legally bound hereby,
the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. Each Shareholder hereby represents
and warrants to Keystone as follows:
(a) The Shareholder is, and since at least January 1, 1995 has been,
the holder of record, and has, as since at least January 1, 1995 has had, the
sole power to vote, or to direct the voting of, and to dispose of, or to direct
the disposition of, that number of shares of the Common Stock of North Star set
forth below such Shareholder's name on the signature page hereof. Except for
such shares, the Shareholder has no right, title or interest of any kind
whatsoever in any shares of the capital stock or other securities of North Star
and, since January 1, 1995, the Shareholder has
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not engaged in the sale, exchange, transfer, redemption, reduction in any way of
his risk of ownership, short sale or other disposition, directly or indirectly,
of any interest in any shares of the capital stock or other securities of North
Star.
(b) All shares of the capital stock of North Star held by the
Shareholder are free and clear of all (i) liens, claims, charges, encumbrances,
security interests, equities, restrictions on transfer or any other defects in
title of any kind or description whatsoever and (ii) preemptive rights, options,
proxies, voting trusts or other agreements, understandings or arrangements
regarding the voting or the disposition of such shares, except for any such
encumbrances or proxies arising hereunder.
(c) The Shareholder has the legal right, power, capacity and
authority to execute, deliver and perform this Agreement without obtaining the
approval or consent of any person, and this Agreement is the legal, valid and
binding obligation of the Shareholder and is enforceable against the Shareholder
in accordance with its terms.
(d) Neither the execution and delivery of this Agreement nor the
consummation by the Shareholder of the transactions contemplated hereby (i) will
result in a violation of, constitute a default under, conflict with or require
any consent, approval or notice under, any contract, trust, commitment,
agreement, understanding, arrangement or restriction of any kind, or any
judgment, order, decree, statute, law, rule or regulation, to which the
Shareholder is a party or by which the Shareholder is bound or (ii) will result
in the creation or imposition of any lien, claim, charge, security interest,
encumbrance or restriction on any shares of the capital stock of North Star. If
the Shareholder is married and any shares of the capital stock of North Star
held by the Shareholder constitute community property, this Agreement has been
duly executed and delivered by, and constitutes the legal, valid and binding
agreement of, the Shareholder's spouse, enforceable against such person in
accordance with its terms.
(e) No broker, investment banker, financial adviser or other person
is entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby or by the
Merger Agreement based upon arrangements made by or on behalf of the
Shareholder.
(f) The Shareholder understands and acknowledges that Keystone is
entering into, and is causing the Subsidiary to enter into, the Merger Agreement
in reliance upon the Shareholder's execution and delivery of this Agreement.
The Shareholder acknowledges that the irrevocable proxy set forth in Section 7
is granted in consideration for the execution and delivery of the Merger
Agreement by Keystone and the Subsidiary.
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2. VOTING OF NORTH STAR SHARES. Each Shareholder hereby covenants and
agrees as follows:
(a) At any meeting of shareholders of North Star called to vote upon
the Merger Agreement, the Merger or the other transactions contemplated by the
Merger Agreement, or at any adjournment thereof, or in any other circumstances
in which a vote, consent or other approval with respect to the Merger Agreement,
the Merger or the other transactions contemplated by the Merger Agreement is
sought, the Shareholder shall vote (or cause to be voted) all shares of the
capital stock of North Star as to which he has the sole or shared voting power,
as of the record date established to determine the persons who have the right to
vote at such meeting or to grant such vote, consent or approval, in favor of the
Merger, the execution and delivery by North Star of the Merger Agreement and the
approval of the terms of the Merger Agreement, the Merger and each other
transaction contemplated by the Merger Agreement.
(b) At any meeting of shareholders of North Star, or at any
adjournment thereof, or in any other circumstances in which the vote, consent or
other approval of shareholders of North Star is sought, the Shareholder shall
vote (or cause to be voted) all shares of the capital stock of North Star as to
which he has the sole or shared voting power as of the record date established
to determine the persons who have the right to vote at such meeting or to grant
such vote, consent or the approval against (i) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale or acquisition of any debt or equity security or of any assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by North Star or (ii) any amendment of North Star's Articles of Incorporation or
Bylaws or (iii) any other proposal or transaction involving North Star, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the Merger, the Merger Agreement or any of the
other transactions contemplated by the Merger Agreement (each of the foregoing
matters set forth in clause (i), (ii) or (iii) above, a "Competing
Transaction").
(c) The Shareholder shall retain at all times the right to vote any
shares of the capital stock of North Star, in his sole discretion, on all
matters (other than those set forth in this Section 2) which are at any time or
from time to time presented to the shareholders of North Star generally.
(d) The Shareholder shall not, without the prior written consent of
Keystone in each instance, take any action that would alter or affect in any way
the right to vote any shares of the capital stock of North Star as to which the
Shareholder has the sole or shared voting power, including, but not limited to,
(i) transferring (whether by sale, gift, pledge or otherwise), or consenting to
the transfer of, any interest in any such shares, (ii) entering into any
contract, option or other agreement or understanding with respect to the voting
of such shares, (iii) granting any proxy, power of attorney or other
authorization in or with respect to the voting of such shares or (iv) depositing
such shares into a voting trust or entering into a voting agreement or
arrangement with respect thereto.
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3. RECOMMENDATIONS TO SHAREHOLDERS. Each Shareholder, in his capacity
as a director of North Star, (i) shall recommend to the shareholders of North
Star that they approve the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement at the North Star Meeting or at any other
meeting of the shareholders of North Star, or in any other circumstances in
which the vote, consent or approval of shareholders of North Star is sought with
respect thereto, and (ii) shall advise the shareholders of North Star to reject
any Competing Transaction; PROVIDED, however, that a Shareholder shall not be
obligated to take any action specified in clause (ii) if the Board of Directors
of North Star is advised in writing by Fredrickson & Byron, P.A. (or such other
counsel as is reasonably acceptable to Keystone) that such action would conflict
with the proper discharge of his fiduciary duties under applicable law.
4. ACCOUNTING TREATMENT. Notwithstanding any other provision of this
Agreement to the contrary, a Shareholder shall not take any action which, either
alone or together with any action by any other person, could preclude Keystone
from accounting for the business combination to be effected by the Merger as a
pooling of interests, including, but not limited to, (i) selling, assigning,
transferring or otherwise disposing of any shares of the capital stock or other
securities of North Star prior to the Merger, (ii) selling, assigning,
transferring or otherwise disposing of any interest in any shares of the Common
Stock of Keystone to be received by such Shareholder in the Merger or (iii)
taking any other action which, either alone or together with any other action by
any other person, could in any way reduce such Shareholder's risk of ownership
or investment in any shares of the capital stock of North Star prior to the
Merger or of Keystone received by such Shareholder in the Merger; PROVIDED,
however, that the restrictions on the shares of Keystone received in the Merger
shall terminate upon Keystone's publication of financial results covering a
period of at least thirty (30) days of combined operations of Keystone and North
Star following the Effective Time.
5. COMPETING TRANSACTIONS. Each Shareholder shall refrain, and shall
cause any investment banker, attorney or other adviser or representative of the
Shareholder or North Star to refrain, directly or indirectly, from (i)
soliciting, initiating or encouraging the submission of any Competing
Transaction or (ii) participating in any discussions or negotiations regarding,
or furnishing to any person any information with respect to, or taking any other
action to facilitate any inquiries or the making of any Competing Transaction;
PROVIDED, however, that a Shareholder who is a director or officer of North Star
may take any such action if, but only if, the Board of Directors of North Star
is advised in writing by Fredrickson & Byron, P.A. (or such other counsel as is
reasonably acceptable to Keystone) that the failure of a director or officer to
take such action would conflict with the proper discharge of his fiduciary
duties under applicable law.
6. EXCHANGE OF STOCK. Upon the satisfaction or waiver of the conditions
to the obligation of North Star to consummate the Merger, which conditions are
set forth in Article VIII of the Merger Agreement, each Shareholder shall
exchange all shares of the capital stock of North Star held by him for the
consideration provided in the Merger Agreement.
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7. GRANT OF IRREVOCABLE PROXY.
(a) Each Shareholder hereby irrevocably grants to, and appoints,
Keystone and Charles J. Hogarty, the Chief Operating Officer of Keystone, and
John M. Palumbo, a Vice President of Keystone, in their respective capacities as
officers of Keystone, and any individual who hereafter shall succeed to any such
office of Keystone, and each of them individually, the Shareholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of the Shareholder to vote all shares of the capital stock of North
Star as to which the Shareholder has the sole or shared voting power, or to
grant a consent or approval in respect of such shares, (i) in favor of the
Merger, the execution and delivery of the Merger Agreement and the approval of
the terms thereof and of each other transaction contemplated by the Merger
Agreement and (ii) against any Competing Transaction.
(b) Each Shareholder hereby represents that any proxies heretofore
given in respect of any shares of the capital stock of North Star are not
irrevocable, and that any such proxies hereby are revoked.
(c) Each Shareholder hereby affirms that the irrevocable proxy set
forth in this Section 7 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Shareholder under this Agreement. Each Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Each Shareholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable and coupled with an interest in accordance with the provisions of
Section 302 A.449 subd. 2 of the Minnesota Business Corporation Act.
8. RESTRICTIONS ON DISPOSITION OF KEYSTONE SHARES.
(a) Each Shareholder acknowledges that he has been advised that (i)
the Merger constitutes a transaction covered by Rule 145 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), (ii) prior to the
Merger such Shareholder may be deemed to be an "affiliate" of North Star within
the meaning of Rule 145, (iii) after the Merger, such Shareholder may be deemed
to be an "affiliate" of Keystone and (iv) the transfer of any shares of the
Common Stock of Keystone held by such Shareholder, whether received by him in
the Merger or otherwise, may be restricted.
(b) A Shareholder shall not sell, transfer, pledge, hypothecate or
otherwise dispose of any interest in any shares of the capital stock or other
securities of Keystone, including, but not limited to, any shares of Common
Stock received in the Merger or any securities which may be issued as a dividend
or otherwise distributed thereon or with respect thereto or issued or delivered
in exchange or substitution therefor, unless (i) such sale, transfer or
disposition is effected pursuant to an effective registration statement under,
and in compliance with, the Securities Act or (ii) such
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Shareholder shall deliver to Keystone an opinion of legal counsel, which opinion
shall be in form or substance reasonably satisfactory to Keystone, to the effect
that such sale, transfer or disposition is exempt from the registration
requirements of the Securities Act; PROVIDED, however, that the Shareholder may
make bona fide gifts or distributions without consideration of such securities
so long as the recipients thereof agree not to sell, transfer or otherwise
dispose of such securities except as provided herein.
(c) Each Shareholder has consulted such legal counsel and financial
advisors as he has deemed appropriate, in his sole discretion, with respect to
his obligations under this Section 8.
9. LEGEND.
(a) Each Shareholder shall stamp, print or type, or shall cause to be
stamped, printed or typed, the following legend on the face of any certificate
evidencing shares of the Common Stock or other securities of North Star held by
such Shareholder or of Keystone received in the Merger:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO AN
AFFILIATE AGREEMENT DATED AS OF DECEMBER 6, 1996, A COPY OF WHICH
IS ON FILE AT THE OFFICES OF THE COMPANY."
(b) The foregoing legend shall be removed promptly after Keystone's
publication of financial results covering a period of at least thirty (30) days
of combined operations of Keystone and North Star following the Effective Time
and replaced with a legend reasonably acceptable to counsel for Keystone and
counsel for the Shareholders referring to restrictions under Rule 145.
10. STOP TRANSFER ORDERS.
(a) North Star shall not register the transfer of any certificate
representing any shares of the capital stock or other securities of North Star
now held or hereafter acquired by any Shareholder, unless such transfer is made
pursuant to the Merger Agreement.
(b) Keystone shall not register the transfer of any certificate
representing any shares of the Common Stock of Keystone received by a
Shareholder in the Merger, except as expressly permitted by this Agreement.
11. TERMINATION. All rights and obligations of the parties under this
Agreement shall terminate upon the date upon which the Merger Agreement is
terminated in accordance with Section 9.1 thereof.
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12. SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the rights
or duties hereunder shall be assigned, in whole or in part, by operation of law
or otherwise, by any of the parties without the prior written consent of each
other party. Any assignment in violation of the foregoing shall be void. This
Agreement and the obligations of a Shareholder hereunder shall attach to all
shares of the capital stock of North Star now held or hereafter acquired by such
Shareholder and shall inure to the benefit of and shall be binding upon any
person to which legal or beneficial ownership of such shares shall pass, whether
by operation of law or otherwise, including, but not limited to, the
Shareholder's permitted heirs, representatives, successors or assigns. In the
event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of North Star, or the
acquisition of any interest in additional shares of the capital stock of North
Star by any Shareholder, the number of shares subject to the terms of this
Agreement shall be adjusted appropriately and this Agreement and the obligations
hereunder shall attach to any interest in any additional shares of the capital
stock of North Star issued to or acquired by such Shareholder.
13. INDEMNIFICATION.
(a) Each party hereto shall indemnify each other party hereto and
hold it harmless against and in respect of any and all payments, damages,
demands, claims, losses, expenses, costs, obligations and liabilities
(including, but not limited to, reasonable attorneys' fees and costs) which
arise or result from or are related to any breach by such indemnifying party or
failure by such indemnifying party to perform any of its representations,
warranties, commitments, obligations, covenants or conditions hereunder.
Consummation of the transactions contemplated hereby shall not be deemed or
construed to be a waiver of any right or remedy of the indemnified party nor
shall this section or any other provision of this Agreement be deemed or
construed to be a waiver of any ground of defense by the indemnified party.
(b) The party indemnified hereunder (the "Indemnitee") shall promptly
notify the indemnifying party (the "Indemnitor") of the existence of any claim,
demand or other matter involving liabilities to third parties to which the
Indemnitor's indemnification obligations would apply and shall give the
Indemnitor a reasonable opportunity to defend the same at its own expense and
with counsel of its own selection (who shall be approved by the Indemnitee,
which approval shall not be unreasonably withheld); PROVIDED, however, that the
Indemnitee at all times also shall have the right to fully participate in the
defense at its own expense. If the Indemnitor within a reasonable time after
such notice fails to defend such claim, or fails to pursue such defense
vigorously once commenced, the Indemnitee shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter on behalf, for the
account and at the risk and expense of the Indemnitor. Except as provided in
the preceding sentence, the Indemnitee shall not compromise or settle the claim
or other matter without the prior written consent of the Indemnitor in each
instance. If the claim is one that cannot by its nature be defended solely by
the Indemnitor, the Indemnitee shall make available all information and
assistance that the Indemnitor reasonably may request; PROVIDED, however, that
any associated expenses shall be paid by the Indemnitor.
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14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by the parties hereto in this
Agreement (including, but not limited to, statements contained in any schedule
or certificate or other instrument delivered by or on behalf of any party hereto
or in connection with the transactions contemplated hereby) shall survive the
date hereof and any investigations, inspections, examinations or audits made by
or on behalf of any party.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
16. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, one (1) week after
having been placed in the mail, registered or certified, postage prepaid,
addressed to the party to whom it is directed at the address set forth on the
signature page hereof or (iii) if given by telex or telecopier, when such notice
or other communication is transmitted to the telex or telecopier number
specified on the signature page hereof and the appropriate answer back or
telephonic confirmation is received. Any party may change the address to which
such notices are to be addressed by giving the other parties notice in the
manner herein set forth.
17. GOVERNING LAW. The validity, construction and interpretation of this
Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
18. HEADINGS. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
19. ATTORNEYS' FEES. In the event any party takes legal action to enforce
any of the terms of this Agreement, the unsuccessful party to such action shall
pay the successful party's expenses (including, but not limited to, attorneys'
fees and costs) incurred in such action.
20. THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than the parties hereto and their
successors and assigns any rights or remedies under or by reason of this
Agreement.
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21. INJUNCTIVE RELIEF. North Star and the Shareholders each hereby
acknowledge and agree that the obligations of the Shareholders hereunder are
unique and Keystone would not have an adequate remedy at law for money damages
in the event of the breach or threatened breach of any provision of this
Agreement. Accordingly, Keystone shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages or being required to post any bond or undertaking in
connection with any such action. This provision with respect to injunctive
relief shall not diminish, however, the right of Keystone to any other relief or
to claim and recover damages.
22. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each one of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
23. FURTHER ASSURANCES. Each party hereto shall, from time to time at and
after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request to carry out the purpose and intent of this Agreement.
24. JURISDICTION.
(a) Each party hereto irrevocably submits to the non-exclusive
jurisdiction of any court of the State of California or the United States of
America sitting in the City of Los Angeles over any suit, action or proceeding
arising out of or relating to this Agreement. To the fullest extent it may
effectively do so under applicable law, each party irrevocably waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(b) Each party hereto agrees, to the fullest extent it may
effectively do so under applicable law, that a judgment in any suit, action or
proceeding of the nature referred to hereinabove brought in any such court shall
be conclusive and binding upon such person and its successors and assigns and
may be enforced in the courts of the United States of America or the State of
California (or any other courts to the jurisdiction of which such person is or
may be subject) by a suit upon such judgment.
(c) Each party hereto consents to process being served in any suit,
action or proceeding of the nature referred to hereinabove by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to the address of the other set forth in Section 16. Each party
agrees that such service (i) shall be deemed in every respect effective service
of process upon such person in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon and personal delivery to such person.
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25. DEFINED TERMS. Capitalized terms used and not otherwise defined in
this Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
26. SEVERABLE PROVISIONS. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Agreement as of the day and year first above written.
KEYSTONE: KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By \s\ Charles J. Hogarty
-----------------------------------------------
Charles J. Hogarty, Chief Operating Officer
700 East Bonita Avenue
Pomona, California 91767
NORTH STAR: NORTH STAR PLATING COMPANY
By \s\ Ronald G. Brown
-----------------------------------------------
Ronald G. Brown, President
3621 Marshall Street, N.E.
Minneapolis, Minnesota 55418
SHAREHOLDERS:
\s\ Ronald G. Brown
--------------------------------------------------
RONALD G. BROWN
2001 Crestview Lane
Brainerd, Minnesota 56401
Number of shares: 4,272.2625
\s\ Kim D. Wood
--------------------------------------------------
KIM D. WOOD
12415 44th Avenue North
Plymouth, Minnesota 55442
Number of shares: 357.75
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SPOUSAL CONSENT
I am the spouse of __________________, a Shareholder in the above
Agreement. I understand that I may consult independent legal counsel as to the
effect of this Agreement and the consequences of my execution of this Agreement
and, to the extent I felt it necessary, I have discussed it with legal counsel.
I hereby confirm this Agreement and agree that it shall bind my interest in the
Shares, if any.
-------------------------------
(Print Name)
-------------------------------
(Signature)
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APPENDIX F
CALIFORNIA CORPORATIONS CODE, SECTIONS 1300 - 1304
SECTION 1300. CORPORATE PURCHASE OF DISSENTING SHARES
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO DISSENTING SHAREHOLDERS; DEMAND FOR PURCHASE OF SHARES
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the
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reorganization by its outstanding shares (Section 152) within 10 days after the
date of such approval, accompanied by a copy of Sections 1300, 1302, 1303,
1304 and this section, a statement of the price determined by the corporation
to represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SHAREHOLDER CERTIFICATES OR NOTICE; TIME LIMIT FOR SUBMISSION
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE; INTEREST; FILING OF AGREEMENTS; TIME FOR PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING OR TO DETERMINE
FAIR MARKET VALUE
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to
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the shareholder, but not thereafter, may file a complaint in the superior court
of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
F-3
<PAGE>
APPENDIX G
MINNESOTA BUSINESS CORPORATION ACT
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1 ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely
affects the rights or preferences of the shares of the dissenting
shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
G-1
<PAGE>
(d) A plan of exchange, whether under this chapter or under chapter
322B to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2 BENEFICIAL OWNERS. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3 RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4 OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1 DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
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<PAGE>
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1, up to and including the date of payment, calculated at the
rate provided in section 549.09 for interest on verdicts and judgments.
Subd. 2 NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3 NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4 NOTICE OF PROCEDURE; DEPOSIT OF SHARES. a. After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired
the shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
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<PAGE>
Subd. 5 PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement income for
a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares
and a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6 SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subd. 7 PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a
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<PAGE>
constituent domestic corporation shall file the petition in the county in this
state in which the last registered office of the constituent corporation was
located. The petition shall name as parties all dissenters who have demanded
payment under subdivision 6 and who have not reached agreement with the
corporation. The corporation shall, after filing the petition, serve all
parties with a summons and copy of the petition under the rules of civil
procedure. Nonresidents of this state may be served by registered or certified
mail or by publication as provided by law. Except as otherwise provided, the
rules of civil procedure apply to this proceeding. The jurisdiction of the
court is plenary and exclusive. The court may appoint appraisers, with powers
and authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the share,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount by
which the fair value of shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
Subd. 8 COSTS, FEES; EXPENSES. b. The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
Laws 1981, c. 270, Section 81, eff. July 1, 1981. Amended by laws 1987, c.
104, Sections 30 to 33; Laws 1993, c. 17, Sections 41, 42.
534337
G-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their Articles of Incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interest of the corporation or its shareholders or that involve the absence of
good faith on the part of the director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders, (vi) any improper
transaction between a director and the corporation in which the director has a
material financial interest, or (vii) the making of an illegal distribution to
shareholders or any illegal loan or guaranty. The Registrant's Restated
Articles of Incorporation contain such a provision.
The Bylaws of the Registrant require the Registrant to indemnify its
directors and officers to the fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with its
directors and executive officers that require the Registrant to indemnify the
directors and executive officers to the fullest extent permitted by applicable
law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits.
EXHIBIT
NO. DESCRIPTION
-------- -----------
2.1**** Merger Agreement dated December 6, 1996.
3.1+++ Amended and Restated Bylaws of the Registrant. [3.4]*
3.2+++ Restated Articles of Incorporation of the Registrant. [3.5]*
4.1+++ Form of stock certificate.
5.1** Opinion of Manatt, Phelps & Phillips, LLP.
8.2** Opinion of Fredrikson & Byron, P.A. regarding tax matters.
10.1+ Employment Agreement dated June 20, 1996, between the Registrant
and Virgil K. Benton II. [10.1]*
10.2+ Employment Agreement dated June 20, 1996, between the Registrant
and Charles J. Hogarty. [10.2]*
10.3+ Employment Agreement dated June 20, 1996, between the Registrant
and Al A. Ronco. [10.3]*
10.4+ Employment Agreement dated June 20, 1996, between the Registrant
and Robert L. Blanton. [10.4]*
10.5**** Form of Employment Agreement between North Star and Ronald G.
Brown.
10.6**** Form of Employment Agreement between North Star and Kim D. Wood.
10.7+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Virgil K. Benton II. [10.5]*
10.8+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Charles J. Hogarty. [10.6]*
10.9+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Al A. Ronco. [10.7]*
II-1
<PAGE>
EXHIBIT
NO. DESCRIPTION
-------- -----------
10.10+ Indemnification Agreement dated June 20, 1996, between the
Registrant and Robert L. Blanton. [10.8]*
10.11+ Indemnification Agreement dated June 20, 1996, between the
Registrant and John M. Palumbo. [10.9]*
10.12**** Form of Indemnification Agreement between Keystone Automotive
Industries, Inc. and Ronald G. Brown.
10.13**** Form of Indemnification Agreement between Keystone Automotive
Industries, Inc. and Kim D. Wood.
10.14+ Keystone Automotive Industries, Inc. 1996 Stock Incentive Plan,
together with forms of incentive stock option, non-qualified
stock option and restricted stock agreements. [10.10]*
10.15+ The Registrant's Employee Defined Benefit Pension Plan, as
amended. [10.11]*
10.16+ The Registrant's Employee Stock Ownership Plan, as amended.
[10.12]*
10.17+ The Registrant's 1989 Restricted Stock Option Plan. [10.13]*
10.18+ Lease Agreement, dated January 5, 1995, between V-JAC
Properties, Ltd. and the Registrant. [10.14]*
10.19+ Lease Agreement, dated January 5, 1995, between B-J Properties,
Ltd. and the Registrant. [10.15]*
10.20+ Lease and Option Agreement, dated April 1, 1995, between Benton
Real Properties, Inc. and the Registrant. [10.16]*
10.21+ Lease and Option Agreement, dated January 1, 1991, between
Benton Real Properties, Inc. and the Registrant. [10.17]*
10.22+ Lease Agreement, dated January 5, 1995, between V-JAC
Properties, Ltd. and the Registrant. [10.18]*
10.23+ Loan and Security Agreement, dated December 17, 1990, between
Union Bank and the Registrant, as amended. [10.19]*
10.24++ Letter dated May 24, 1996 from Union Bank to the Registrant.
[10.19.1]*
10.25+ Term Loan Rider, dated December 17, 1990, between Union Bank and
the Registrant. [10.20]*
10.26+ Inventory Rider Agreement, dated December 17, 1990, between
Union Bank and the Registrant, as amended. [10.21]*
10.27+ Term Promissory Note, dated December 17, 1990, by the Registrant
in favor of Union Bank. [10.22]*
10.28+ Letter of Credit/Bankers Acceptance Rider, dated December 17,
1990, between Union Bank and the Registrant, as amended.
[10.23]*
10.29+ ERISA Rider, dated December 17, 1990, between Union Bank and the
Registrant. [10.24]*
10.30+ Equipment Rider, dated December 17, 1990, between Union Bank and
the Registrant, as amended. [10.25]*
10.31+ Waiver Letter, dated April 15, 1994, between Union Bank and the
Registrant. [10.26]*
10.32+ Promissory Note, dated September 28, 1992, from the Registrant
to the order of Bumper Exchange, Inc. [10.27]*
10.33**** Underwriting Agreement dated June 20, 1996, among the
Registrant, certain selling shareholders and Morgan Keegan &
Company, Inc. and Crowell, Weedon & Co., as representatives of
the several underwriters.
10.34**** Letter Agreement dated January 15, 1996, between Registrant and
Crowell, Weedon & Co.
II-2
<PAGE>
EXHIBIT
NO. DESCRIPTION
-------- -----------
10.35**** Affiliate Agreement dated December 6, 1996, among the
Registrant, North Star Plating Company, Ronald G. Brown and Kim
D. Wood.
10.36**** Form of Registration Rights Agreement among the Registrant,
North Star Plating Company, Ronald G. Brown and Kim D. Wood.
10.37**** Voting Agreement dated December 6, 1996, among the Registrant,
North Star Plating Company, Virgil K. Benton, II, Charles J.
Hogarty, Al A. Ronco, Robert L. Blanton and John M. Palumbo.
23.1 Consent of Ernst & Young LLP, independent auditors of Keystone.
23.2 Consent of Ernst & Young LLP, independent auditors of North Star
Plating Company.
23.3 Consent of Manatt, Phelps & Phillips, LLP (see Exhibit 5.1).
23.4 Consent of Fredrikson and Byron, P.A. (see Exhibit 8.2).
23.5** Consent of FMV Opinions, Inc.
24.1**** Power of Attorney (see signature page).
27.1*** Financial Data Schedule.
99.1**** Keystone Proxy Card.
__________________
* Indicates the exhibit number of the document in the original filing.
** To be filed by amendment.
*** Not applicable -- no updated interim or annual financial statements.
**** Filed as an exhibit to the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on December 23, 1996 (333-18663).
+ Filed as an exhibit to the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on April 18, 1996 (File
No. 333-3994).
++ Filed as an exhibit to Amendment No. 1 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 30, 1996.
+++ Filed as an exhibit to Amendment No. 2 to the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on June 17,
1996.
Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts -- Keystone
Automotive Industries, Inc.
Schedule II Valuation and Qualifying Accounts -- North Star Plating
Company
All other schedules are omitted because they are not applicable or the
required information is shown in the Registrant's financial statements or the
related notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding
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<PAGE>
the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement.
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Proxy
Statement/Information Statement/Prospectus pursuant to Item 4 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first-class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pomona, State of
California, on February 14, 1997.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By /s/ CHARLES J. HOGARTY
--------------------------------------
Charles J. Hogarty,
Chief Operating Officer
Pursuant to the Securities Act of 1933, this Amendment has been signed
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ VIRGIL K. BENTON II* Chairman of the Board and Chief Executive February 14, 1997
- ----------------------------- Officer (Principal Executive Officer)
Virgil K. Benton II
/s/ CHARLES J. HOGARTY President, Chief Operating Officer and February 14, 1997
- ----------------------------- Director
Charles J. Hogarty
/s/ AL A. RONCO* Executive Vice President, Secretary and February 14, 1997
- ------------------------------ Director
Al A. Ronco
/s/ ROBERT L. BLANTON* Vice President -- Finance February 14, 1997
- ------------------------------ (Principal Financial and Accounting
Robert L. Blanton Officer)
/s/ JOHN M. PALUMBO Vice President and Treasurer February 14, 1997
- ------------------------------
John M. Palumbo
/s/ TIMOTHY C. MCQUAY* Director February 14, 1997
- ------------------------------
Timothy C. McQuay
/s/ GEORGE E. SEEBART* Director February 14, 1997
- ------------------------------
George E. Seebart
*By /s/ CHARLES J. HOGARTY
- ------------------------------
Charles J. Hogarty,
Attorney-In-Fact
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
Keystone Automotive Industries, Inc.
We have audited the financial statements of Keystone Automotive
Industries, Inc. as of March 29, 1996, and March 31, 1995 and for each of the
three years in the period ended March 29, 1996, and have issued our report
thereon dated May 24, 1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule of Keystone Automotive
Industries, Inc. listed in Item 21(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
May 24, 1996
S-1
<PAGE>
Item 21(b)
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------------------- ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 25, 1994
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . $ 359 $ 253 $ -- $ 239(1) $ 373
Allowance for slow-moving inventory . . . . $ -- $ 147 $ -- $ 147 $ --
Year ended March 31, 1995
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . 373 229 -- 226(1) 376
Allowance for slow-moving inventory . . -- 1,263 -- 43 1,220
Year ended March 31, 1996
Reserve and allowances deducted form asset
accounts:
Allowance for uncollectible accounts . . . 376 241 -- 33(1) 280
Allowance for slow-moving inventory . . . . 1,220 542 -- 1,508 254
</TABLE>
_________________
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
North Star Plating Company
We have audited the financial statements of North Star Plating
Company as of September 30, 1996, 1995 and for each of the three years in the
period ended September 30, 1996, and have issued our report thereon dated
November 11, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule of North Star Plating
Company listed in Item 21(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Minneapolis, Minnesota
November 11, 1996
S-3
<PAGE>
Item 21(b)
NORTH STAR PLATING COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------------------- ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . . $ 35 $ 52 -- $ 37(1) $ 50
Year ended September 30, 1995
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . . 50 64 -- 39(1) 75
Year ended September 30, 1996
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts . . . . . 75 259 -- 89(1 245
</TABLE>
_________________
(1) Uncollectible accounts written off, net of recoveries.
S-4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption, "Experts"
and "Selected Financial Data" and to the use of our report dated May 24, 1996
with respect to the financial statements and schedules, included in the Proxy
Statement/Information Statement of Keystone Automotive Industries, Inc. that is
made a part of the Registration Statement (Form S-4 No. 333-18663) and
Prospectus of Keystone Automotive Industries, Inc. for the registration of
2,450,000 shares of its Common Stock.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 13, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption, "Experts"
and "Selected Financial Data" and to the use of our report dated November 11,
1996, with respect to the financial statements and schedule of North Star
Plating Company included in the Proxy Statement/Information Statement of
Keystone Automotive Industries, Inc. and North Star Plating Company that is made
a part of the Registration Statement (Form S-4 No. 333-18663) and Prospectus of
Keystone Automotive Industries, Inc. for the registration of 2,450,000 shares of
its common stock.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
February 13, 1997
