<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
FILE NO.: 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<CAPTION>
CALIFORNIA 5013 95-2920557
<S> <C> <C>
(STATE OR OTHER JURISDICTION
OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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)
--------------
JAMES C. LOCKWOOD
VICE PRESIDENT AND GENERAL COUNSEL
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
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:
<TABLE>
<S> <C>
JEFFREY E. LAGUEUX, ESQ. PAUL H. IRVING, ESQ.
PATTERSON, BELKNAP, WEBB & TYLER LLP MANATT, PHELPS & PHILLIPS, LLP
1133 AVENUE OF THE AMERICAS 11355 WEST OLYMPIC BOULEVARD
NEW YORK, NEW YORK 10036-6710 LOS ANGELES, CALIFORNIA 90064-1614
(212) 336-2000 (310) 312-4196
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement has become effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value .................... 3,092,656 $26.375 $81,568,900 $24,063
</TABLE>
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(1) The number of shares to be registered pursuant to this registration
statement has been determined on the basis of the product of (A) .80 (the
exchange ratio as defined in the merger agreement) and (B) the sum of
(i) 3,424,231 (the approximate number of outstanding shares of common
stock of Republic Automotive Parts, Inc. (the "Republic Common Stock")),
(ii) 201,500 (the approximate number of outstanding and exercisable
options to purchase shares of Republic Common Stock), (iii) 30,000 (the
approximate number of outstanding options to purchase shares of Republic
Common Stock which will become exercisable upon the consummation of the
merger) and (iv) 210,088 (the approximate number of outstanding
performance shares payable in Republic Common Stock).
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended
(the "Act"), based on the product of the estimated maximum number of
shares Republic to be acquired in the merger for stock of the Registrant
multiplied by the average of the high and low sale prices of Registrants'
Common Stock on May 12, 1998 ($26.375) as reported by the Nasdaq National
Market System.
(3) In accordance with Rule 457(b) of the Act, the fee of $14,323 paid
pursuant to Section 14(g) of the Securities Exchange Act of 1934, as
amended and Rule 0-11 thereunder at the time of the filing of the Proxy
Statement/Prospectus contained in this Registration Statement as
Registrant's preliminary proxy materials has been credited against the
registration fee payable in connection with this filing. Accordingly, an
additional fee of $9,740 is submitted herewith.
--------------
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 OF KEYSTONE
AUTOMOTIVE KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
INDUSTRIES, INC.]
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Keystone Automotive Industries, Inc. to be held at the Sheraton Fairplex, 601
West McKinley Avenue, Pomona, California 91768 on June 25, 1998, at 10:00 a.m.
At the special meeting, you will be asked to approve a merger pursuant to
which Republic Automotive Parts, Inc. will become a wholly owned subsidiary of
Keystone. When the merger is completed, each outstanding share of Republic
common stock will be converted into 0.80 of a share of Keystone common stock.
In addition, you will be asked to approve amendments to Keystone's amended and
restated Articles of Incorporation and its Bylaws, as amended, to eliminate
the requirement to have a classified board of directors.
Keystone's Board of Directors believes this strategic business combination
is an important step toward our goal of becoming the only national distributor
of independently produced aftermarket collision replacement parts for
automobiles and light trucks.
The Keystone Board has approved the merger agreement, believes that the
merger is fair to, and in the best interests of, Keystone and recommends that
you vote for approval of the merger. The Keystone Board also recommends that
you vote for the amendments to its Articles of Incorporation and Bylaws.
To assure your representation at the special meeting, please complete, sign,
date and return the enclosed proxy form promptly. This will allow your shares
to be voted, whether or not you attend the meeting. If you plan to attend the
meeting, check the appropriate box on the proxy card.
Sincerely yours,
Charles J. Hogarty
President and
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger, nor have they determined if this
Joint Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 1998 AND
IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT , 1998.
<PAGE>
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
NOTICE
We are holding a special meeting of stockholders of Keystone Automotive
Industries, Inc. on June 25, 1998, at 10:00 a.m. at the Sheraton Fairplex, 601
West McKinley Avenue, Pomona, California 91768.
Stockholders at the close of business on May 15, 1998, are entitled to vote
at the special meeting. The following items are on the agenda:
. Proposal to approve a merger agreement, pursuant to which Republic
Automotive Parts, Inc. will become a wholly owned subsidiary of Keystone.
When the merger is completed, each outstanding share of common stock of
Republic will be converted into the right to receive 0.80 of a share of
Keystone common stock.
. Proposal to approve amendments to Keystone's amended and restated
Articles of Incorporation and Bylaws, as amended, to eliminate the
requirement to classify the Board of Directors into three classes.
. Other business that may properly come before the special meeting.
By order of the Board of Directors,
/s/ James C. Lockwood
James C. Lockwood
Vice President--General Counsel
Secretary
700 East Bonita Avenue
Pomona, California 91767
May , 1998
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. A RETURN ENVELOPE
IS PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF REPUBLIC AUTOMOTIVE]
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Republic Automotive Parts, Inc. ("Republic") on June 25, 1998, at 1:00 p.m. at
the offices of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the
Americas, Conference Room 24D, New York, New York 10036.
At the special meeting, you will be asked to approve a merger agreement
pursuant to which Keystone Automotive Industries, Inc. ("Keystone") will
acquire Republic. When the merger is completed, each outstanding share of
Republic common stock will be converted into 0.80 of a share of Keystone
common stock.
The Republic Board has approved the merger agreement, believes that the
merger is fair to, and in the best interest of, Republic and recommends that
you vote for approval of the merger.
To assure your representation at the special meeting, please complete, sign,
date and return the enclosed proxy form promptly. This will allow your shares
to be voted whether or not you attend the meeting. If you plan to attend the
meeting, check the appropriate box on the proxy card. Please do not send in
your stock certificates with your proxy cards.
Sincerely yours,
/s/ Keith M. Thompson
Keith M. Thompson
President and
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger, nor have they determined if this
Joint Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 1998 AND
IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT , 1998.
<PAGE>
REPUBLIC AUTOMOTIVE PARTS, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
NOTICE
----------------
We are holding a special meeting of stockholders of Republic Automotive
Parts, Inc. on June 25, 1998, at 1:00 p.m. at the offices of Patterson,
Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, Conference Room 24D,
New York, New York 10036.
Stockholders at the close of business on May 15, 1998, are entitled to vote
at the special meeting. The following items are on the agenda:
. Proposal to approve a merger agreement pursuant to which Republic
Automotive Parts, Inc. ("Republic") will become a wholly owned
subsidiary of Keystone Automotive Industries, Inc. ("Keystone"). When
the merger is completed, each outstanding share of common stock of
Republic will be converted into the right to receive 0.80 of a share of
common stock of Keystone.
. Other business that may properly come before the special meeting.
By order of the Board of Directors.
/s/ Anthony R. Dainora
Anthony R. Dainora
Secretary
500 Wilson Pike Circle, Suite 115
P.O. Box 2088
Brentwood, Tennessee 37024
May , 1998
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. A RETURN ENVELOPE
IS PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 4
The Companies........................................................... 4
The Special Meetings.................................................... 4
Recommendations to Stockholders......................................... 5
The Merger.............................................................. 6
Affiliate Agreements.................................................... 9
Stock Option Agreement.................................................. 10
Keystone Summary Selected Consolidated Financial Information............ 11
Republic Summary Selected Consolidated Financial Information............ 12
Summary Selected Unaudited Pro Forma Combined Condensed Financial
Information............................................................ 13
Articles of Incorporation and Bylaw Amendments.......................... 14
Comparative Per Share Information....................................... 14
RISK FACTORS.............................................................. 16
Risks Related Primarily to the Merger................................... 16
Keystone Risk Factors................................................... 16
Republic Risk Factors................................................... 20
THE SPECIAL MEETINGS...................................................... 21
Times and Places; Purposes.............................................. 21
Voting Rights; Votes Required for Approval.............................. 22
Proxies................................................................. 23
THE MERGER................................................................ 25
Background of the Merger................................................ 25
Reasons for the Merger; Recommendations of the Boards of Directors...... 26
Opinions of Financial Advisors.......................................... 28
Interests of Certain Persons in the Merger.............................. 38
Accounting Treatment.................................................... 39
Certain Federal Income Tax Consequences................................. 39
Resale Restrictions..................................................... 40
Affiliate Agreements.................................................... 41
Stock Option Agreement.................................................. 41
Dissenters' Rights...................................................... 43
THE MERGER AGREEMENT...................................................... 45
The Merger.............................................................. 45
Exchange Procedures..................................................... 45
Representations and Warranties.......................................... 47
Conduct of Business Pending the Merger.................................. 47
No Solicitation of Transactions......................................... 48
Certain Covenants....................................................... 48
Employee Benefits....................................................... 48
Indemnification and Insurance........................................... 48
Conditions.............................................................. 48
Termination............................................................. 49
Termination Fees........................................................ 50
Expenses................................................................ 50
Amendment............................................................... 50
BUSINESS OF KEYSTONE...................................................... 51
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS OF REPUBLIC........................................................ 52
MARKET DATA................................................................. 53
KEYSTONE SELECTED CONSOLIDATED FINANCIAL INFORMATION........................ 54
REPUBLIC SELECTED CONSOLIDATED FINANCIAL INFORMATION........................ 56
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................. 57
Unaudited Pro Forma Combined Condensed Balance Sheet...................... 58
Unaudited Pro Forma Combined Condensed Statements of Income............... 59
Notes to Unaudited Pro Forma Combined Condensed Financial Statements...... 61
COMPARISON OF STOCKHOLDERS' RIGHTS.......................................... 63
AMENDMENTS TO KEYSTONE'S CHARTER AND BYLAWS................................. 67
LEGAL MATTERS............................................................... 68
EXPERTS..................................................................... 68
AVAILABLE INFORMATION....................................................... 69
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 69
FORWARD-LOOKING STATEMENTS--SAFE HARBOR PROVISIONS.......................... 70
FUTURE STOCKHOLDER PROPOSALS................................................ 71
</TABLE>
Appendix I
Agreement and Plan of Merger
Exhibit A Stock Option Agreement
Exhibit B Republic Affiliate Agreement
Exhibit C Keystone Affiliate Agreement
Appendix II
A. G. Edwards Fairness Opinion
Appendix III
Opinion of Societe Generale Securities Corporation
Appendix IV
Chapter 13 of the California General Corporation Law (Dissenters'
Rights)
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Keystone and Republic are proposing to merge because they believe that the
combination is an important strategic step toward forming a nationwide
system for distributing automotive aftermarket collision replacement parts.
The merger will also broaden Keystone's geographic coverage, expand
Republic's product line of aftermarket collision replacement parts and
enhance the working relationship with suppliers. For Republic, the merger
represents an attractive price for its shares of common stock and an
opportunity for Republic stockholders to participate in a rapidly-growing
company in the same industry.
A: Keystone and Republic also believe that the merger will enhance long-term
growth and create stockholder value in years to come.
Q: HOW WILL THE MERGER AFFECT ME?
A: When the merger is completed, Republic stockholders will receive 0.80 of a
share of Keystone common stock in exchange for each share of Republic common
stock they own.
A: Keystone will not issue fractional shares. Instead, Republic stockholders
will receive cash for any fractional share of Keystone common stock owed to
them based on the market value of Keystone common stock on the day before
the completion of the merger.
A: Following the merger, each Keystone share will remain outstanding.
Immediately after the merger, persons who were stockholders of Keystone
immediately before the merger will own approximately 83.4%, and former
stockholders of Republic will own approximately 16.6%, of the common stock
of Keystone.
A: Example:
. If you currently own 10,000 shares of Republic common stock, then after
the merger you will receive 8,000 shares of Keystone common stock.
. If you currently own 98 shares of Republic common stock, then after the
merger you will receive 78 shares of Keystone common stock and a check
for the market value of the .40 fractional share.
. If you currently own 100 shares of Keystone common stock, you will
continue to own those 100 shares of Keystone common stock after the
merger.
Q: WHAT DO I NEED TO DO NOW?
A: Indicate on your proxy card how you want to vote, and sign and mail it in
the enclosed return envelope as soon as possible, so that your shares may be
represented at your stockholders meeting. If you sign and send in your proxy
and do not indicate how you want to vote, your proxy will be counted as a
vote in favor of the proposals described in these proxy materials. If you
fail to sign and send in your proxy or you sign and send in your proxy but
you abstain from voting, it will be equivalent to a vote against the
proposals described in these proxy materials.
The Keystone stockholders special meeting and the Republic stockholders
special meeting will each take place on June 25, 1998. You may attend your
stockholders meeting and vote your shares in person, rather than voting by
proxy. In addition, you may revoke your proxy up to and including the day
of your stockholders meeting by following the directions on page 24 and
either change your vote or attend your stockholders meeting and vote in
person.
THE BOARDS OF DIRECTORS OF BOTH KEYSTONE AND REPUBLIC RECOMMEND VOTING IN
FAVOR OF THE PROPOSED MERGER.
1
<PAGE>
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares, if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. If you are either a Keystone or a
Republic stockholder, your broker will not be able to vote your shares on
the proposed merger without instructions from you.
Q: I AM A REPUBLIC STOCKHOLDER. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Republic stockholders will be sent
written instructions for exchanging their stock certificates. Keystone
stockholders will keep their existing certificates.
Q: WILL REPUBLIC STOCKHOLDERS HAVE DISSENTERS' RIGHTS?
A: Under Delaware corporate law, Republic stockholders do not have any rights
to an appraisal of the value of their shares in connection with the merger.
Q: WILL KEYSTONE STOCKHOLDERS HAVE DISSENTERS' RIGHTS?
A: Under California corporate law, Keystone stockholders will have appraisal
rights only if the holders of 5% or more of the outstanding Keystone common
stock perfect their dissenters' rights. For a description of these
requirements see page 43.
Q: IS THE EXCHANGE RATIO FIXED?
A: The 0.80 exchange ratio for Republic common stock will not change even if
the market price for Keystone common stock decreases before the merger is
completed. Accordingly, the market value of Keystone common stock you
receive may be lower than its current market value. To review certain risks
associated with the merger, see page 16.
Q: HOW WILL THE MERGER BE TREATED FOR ACCOUNTING PURPOSES?
A: The merger will be accounted for as a purchase of Republic by Keystone,
which means the purchase price, including costs directly related to the
merger, will be allocated to the assets acquired and liabilities assumed,
based on their estimated fair values at the time of completion of the
merger. To the extent the purchase price exceeds the fair value of
Republic's identified net assets, the excess will be recorded as cost in
excess of net assets acquired and amortized to expense over a period of 20
years. Results of operations of Republic will be included in Keystone's
financial statements after the closing of the merger.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of shares by Republic stockholders will be tax-free to Republic
stockholders for United States federal income tax purposes. However,
Republic stockholders will recognize gain on cash received in lieu of
fractional shares of Keystone's common stock. The merger also will be tax-
free to Keystone stockholders for United States federal income tax purposes.
To review the tax consequences to Republic and Keystone stockholders in
greater detail, see page 39.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Keystone and Republic are working toward completing the merger as quickly as
possible. It is anticipated that the merger will be completed effective at
12:01 a.m. on June 27, 1998.
2
<PAGE>
WHO CAN HELP ANSWER MY QUESTIONS?
If you have more questions about the merger you should contact:
KEYSTONE STOCKHOLDERS:
Keystone Automotive Industries, Inc.
700 East Bonita Avenue
Pomona, California 91767
Attention: James C. Lockwood
Vice President--General Counsel
Phone Number: (909) 624-8041
REPUBLIC STOCKHOLDERS:
Republic Automotive Parts, Inc.
500 Wilson Pike Circle, Suite 115
P.O. Box 2088
Brentwood, Tennessee 37024
Attention: Donald B. Hauk
Executive Vice President and Chief Financial Officer
Phone Number: (615) 373-2050 (Ext. 117)
3
<PAGE>
SUMMARY
This summary highlights certain information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents
referred to in the "Incorporation of Certain Documents by Reference" section at
the end of this document.
THE COMPANIES (page 51)
Keystone Automotive Industries, Inc.
700 East Bonita Avenue
Pomona, California 91767
(909) 624-8041
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 paint and other
materials used in repairing a damaged vehicle. These parts are distributed
primarily to collision repair shops throughout most of the United States. In
addition, Keystone recycles and produces chrome-plated and plastic bumpers and
remanufactures alloy wheels.
Republic Automotive Parts, Inc.
500 Wilson Pike Circle, Suite 115
P.O. Box 2088
Brentwood, Tennessee 37024
(615) 373-2050
Republic distributes a complete line of replacement parts primarily relating
to the mechanical systems contained in substantially all mass-produced makes
and models of automobiles manufactured within the last 15 years and most
mechanical replacement parts for mass-produced trucks and vans. Republic also
distributes a number of mechanical replacement parts for heavy-duty trucks,
snowmobiles, motorcycles, farm and marine equipment and other similar types of
machinery. These mechanical replacement parts are distributed through
Republic's automotive distribution centers and jobber stores. During the past
year, Republic began divesting certain of its mechanical replacement parts
distribution centers. Upon consummation of the merger, Keystone may continue
this divestiture program, which could ultimately result in the divestiture of
the entire mechanical replacement parts distribution business. In addition,
Republic also distributes aftermarket collision replacement parts to repair
damaged vehicles through its body parts and accessories distribution centers.
These centers sell to automotive collision repair shops and smaller parts
distributors.
THE SPECIAL MEETINGS (page 21)
When and where the meetings will be held. The Keystone stockholders meeting
will be held at 10:00 a.m., local time, on June 25, 1998 , at the Sheraton
Fairplex, 601 West McKinley Avenue, Pomona, California 91768. The Republic
stockholders meeting will be held at 1:00 p.m., local time, on June 25, 1998,
at the offices of Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the
Americas, Conference Room 24D, New York, New York 10036.
Purposes of the meetings. At the Keystone stockholders meeting, Keystone
stockholders will be asked to approve the merger agreement and the issuance of
shares of Keystone common stock to Republic stockholders upon completion of the
merger and to approve amendments to Keystone's amended and restated articles of
incorporation and bylaws, as amended, to eliminate the requirement to have a
classified board of directors.
4
<PAGE>
At the Republic stockholders meeting, Republic stockholders will be asked to
approve the merger agreement.
Record Date; Voting Power. Stockholders who owned shares as of the close of
business on May 15, 1998, the record date, are entitled to vote at their
respective stockholder meetings.
On the record date, there were 14,657,352 shares of Keystone common stock
allowed to vote at the Keystone stockholders meeting. At the Keystone
stockholders meeting, Keystone stockholders will have one vote for each share
of Keystone common stock they owned on the record date for the matter voted
upon.
On the record date, there were 3,424,231 shares of Republic common stock
allowed to vote at the Republic stockholders meeting. At the Republic
stockholders meeting, Republic stockholders will have one vote for each share
of Republic common stock they owned on the record date for the matter voted
upon.
Votes Required. The affirmative vote of a majority of the shares of Keystone
common stock outstanding on the record date is required to approve the merger
agreement and the issuance of shares of Keystone common stock to Republic
stockholders upon completion of the merger. The affirmative vote of two-thirds
of the shares of Keystone common stock outstanding on the record date is
required to approve the proposed amendments to Keystone's amended and restated
articles of incorporation and bylaws, as amended.
The affirmative vote of a majority of the shares of Republic common stock
outstanding on the record date is required to approve the merger agreement.
RECOMMENDATIONS TO STOCKHOLDERS (page 26)
Keystone. The Board of Directors of Keystone believes that the merger
agreement and the proposed issuance of shares is fair to, and in the best
interests of, Keystone and Keystone stockholders, and recommends that Keystone
stockholders vote FOR the proposal to approve the merger agreement and the
issuance of shares of Keystone common stock to Republic stockholders in
connection with the merger and FOR the proposed amendments to the amended and
restated articles of incorporation and bylaws, as amended.
Republic. The Board of Directors of Republic believes that the merger is fair
to, and in the best interests of, Republic stockholders, and recommends that
Republic stockholders vote FOR the proposal to approve the merger agreement.
Other Interests of Officers and Directors in the Merger. (page 38) In
considering the Boards' recommendations with regard to the merger, stockholders
should be aware that a number of Republic officers and directors have salary
continuation agreements or benefit plans that provide them with interests in
the merger that are different from, and in addition to, the interests of
Republic stockholders generally.
Generally, the named executive officers (the five most highly compensated
executive officers of Republic) hold vested stock options and performance
shares having the following approximate value as of May 15, 1998.
<TABLE>
<S> <C>
Edgar R. Berner............................................... $3,416,110
Keith M. Thompson............................................. 440,180
Donald B. Hauk................................................ 402,500
Thomas J. Rutkowski........................................... 394,135
Douglas G. Goetsch............................................ 273,635
</TABLE>
The aggregate value of such benefits for all executive officers as a group as
of May 15, 1998 is approximately $5,093,468. In addition, if employment of a
named executive officer were to terminate following the merger in circumstances
entitling such executive officer to benefits pursuant to the salary
continuation
5
<PAGE>
agreement to which he is a party, the approximate total amount of salary and
benefit payments and the value of accelerated stock options for such named
executive officer would be as follows as of May 15, 1998:
<TABLE>
<S> <C>
Edgar R. Berner................................................. $ 0
Keith M. Thompson............................................... 908,760
Donald B. Hauk.................................................. 592,882
Thomas J. Rutkowski ............................................ 230,270
Douglas G. Goetsch.............................................. 193,472
</TABLE>
The approximate amount of such payments for all executive officers as a group
as of May 15, 1998 would be $2,092,076. Upon the consummation of the merger,
Edgar R. Berner, Republic's Chairman, will receive accelerated vesting of the
portion of his performance share grant which was not vested at that time. The
aggregate value of the portion subject to accelerated vesting as of May 15,
1998 was $559,294. The approximate value of the stock options held by the non-
employee directors of Republic which would be subject to accelerated vesting in
connection with the merger as of May 15, 1998 would be $177,600.
Ownership of Keystone Following the Merger. Existing Keystone stockholders
will own approximately 83.4%, and former Republic stockholders will own
approximately 16.6%, of outstanding Keystone common stock immediately following
the merger. Based on a comparison of Keystone's historical consolidated
financial data as of and for the nine months ended December 26, 1997 and
Republic's historical consolidated financial data as of and for the nine months
ended September 30, 1997, the following percentages of net sales, net income,
total assets and stockholders' equity of the two companies combined would have
been attributable to Keystone and Republic, respectively:
<TABLE>
<CAPTION>
KEYSTONE REPUBLIC
-------- --------
<S> <C> <C>
Net sales.............................................. 56.8% 43.2%
Net income............................................. 76.6 23.4
Total assets........................................... 54.8 45.2
Stockholders' equity................................... 64.5 35.5
</TABLE>
Since the merger will be accounted for as a purchase of Republic by Keystone,
to the extent the purchase price exceeds the fair value of Republic's
identifiable net assets, the excess will be recorded as cost in excess of net
assets acquired. The percentages described above do not take into account any
purchase accounting adjustments.
THE MERGER (page 25)
The merger agreement is attached as Appendix I to this document. We encourage
you to read the merger agreement. It is the legal document governing the
merger.
What Republic Stockholders Will Receive in the Merger. As a result of the
merger, Republic stockholders will receive 0.80 of a share of Keystone common
stock in exchange for each share of Republic common stock (the "Exchange
Ratio"). No fractional shares will be issued. Instead, Republic stockholders
will receive a check in payment of any fractional share based on the market
value of Keystone common stock on the day prior to the completion of the
merger. Based on the closing price on May 15, 1998, the market value of 0.80 of
a share of Keystone Common Stock was $21.80.
Keystone Board of Directors and Management Following the Merger. Following
the merger, there will be no change in the Keystone Board of Directors or
executive officers. Officers of Republic (except for the Chairman of the Board
who will retire) will remain in their respective offices.
6
<PAGE>
Keystone Dividend Policy Following the Merger. Keystone has never paid a cash
dividend on shares of its common stock and currently intends to retain any
future earnings to provide funds to operate and expand its business. Future
dividends will be within the discretion of the Board of Directors, unless
limited by restrictions in credit agreements.
Conditions to the Merger. The completion of the merger depends upon meeting a
number of conditions, including the following:
. the approval of the merger agreement by the holders of a majority of the
outstanding shares of Republic common stock;
. the approval of the merger agreement and the issuance of Keystone common
stock by the holders of a majority of the outstanding shares of Keystone
common stock;
. no law shall be enacted or injunction entered which effectively
prohibits the merger or which causes a material adverse effect on either
Keystone or Republic;
. the fairness opinions of Keystone's and Republic's respective financial
advisors shall not have been withdrawn or modified materially;
. no material adverse change shall occur to the businesses, results of
operations or financial condition of either Keystone or Republic;
. holders of less than 5% of the outstanding shares of Keystone common
stock have dissented from the merger under California law; and
. the receipt of an opinion from Republic's tax counsel stating that the
merger will be tax-free to Republic's stockholders.
Certain of the conditions to the merger may be waived by the company entitled
to assert the condition. However, neither Keystone nor Republic currently
intend to waive any conditions.
Termination of the Merger Agreement. The companies can agree to terminate the
merger agreement without completing the merger, and either of the companies can
terminate the merger agreement without triggering payment of the termination
fee described below if any of the following occurs:
. the merger is not completed by August 31, 1998;
. the required approvals of either Keystone stockholders or Republic
stockholders are not received;
. any governmental entity permanently prohibits the merger; or
. the other company materially breaches any of its representations,
warranties, covenants or agreements under the merger agreement.
In addition, Keystone can terminate the merger agreement if the Board of
Directors of Republic:
. withdraws or modifies in any materially adverse manner its approval or
recommendation in favor of the merger agreement; or
. initiates, solicits or otherwise facilitates the making of an offer by a
third party to enter into a business combination with Republic.
Republic can terminate the merger agreement if it has received an offer to
enter into a business combination with a third party, its Board of Directors
determines that the offer is more favorable to the Republic stockholders from a
financial point of view than the merger agreement and, within the permitted
time, Keystone does not agree to modify the terms of the merger agreement so
that they are as favorable to the Republic stockholders as the third party
offer.
7
<PAGE>
Termination Fee. A termination fee of $1.9 million will be payable by
Republic to Keystone if Republic receives a proposal for an alternative
transaction under either of the following circumstances:
. the merger agreement is terminated because the Republic Board determines
that the alternative transaction is more favorable to its stockholders
from a financial point of view than the merger agreement and, within the
permitted time, Keystone does not agree to modify the terms of the
merger agreement so that they are as favorable to Republic stockholders,
or because the Republic Board withdraws or adversely modifies its
recommendation of the merger agreement or the Republic Board initiates,
solicits or otherwise facilitates the making of an offer by a third
party, then the termination fee becomes immediately payable; or
. the merger agreement is terminated because of the failure to obtain
Republic stockholders approval, and Republic enters into an agreement
within nine months of such termination with the third party proposing
such alternative transaction, which will acquire 35% or more of the
assets or equity securities of Republic, then the termination fee is
payable on the signing of such alternative agreement or consummation of
such acquisition.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act
prohibits the companies from completing the merger until after the companies
have furnished certain information and materials to the Antitrust Division of
the Department of Justice and the Federal Trade Commission, and a required
waiting period has ended. On March 2, 1998, the companies furnished the
required information and on April 1, 1998, the waiting period expired.
Accounting Treatment. The merger will be accounted for as a purchase of
Republic by Keystone, which means the purchase price, including costs directly
related to the merger, will be allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the time of the completion of
the merger. To the extent the purchase price exceeds the fair value of
Republic's identified net assets, the excess (approximately $9.1 million as of
December 26, 1997) along with the goodwill on Republic's financial statements
(approximately $9.7 million at December 31, 1997) will be recorded on
Keystone's books as cost in excess of net assets acquired and amortized to
expense over a period of 20 years resulting in annual amortization of
approximately $0.9 million. Results of operations of Republic will be included
in Keystone's financial statements after the closing of the merger.
Opinions of Financial Advisors. In deciding to approve the merger, the Board
of each company considered, among other things, the opinion of its respective
financial advisor. Keystone received a written opinion from its financial
advisor, A.G. Edwards & Sons, Inc. dated May 22, 1998, to the effect that, as
of such date, the consideration being paid by Keystone in the merger was fair,
from a financial point of view, to the Keystone stockholders. Republic received
the written opinion of its financial advisor, Societe Generale Securities
Corporation, dated May 18, 1998, to the effect that, as of such date, the
exchange ratio was fair, from a financial point of view, to the Republic
stockholders (other than Keystone and its affiliates). The full texts of the
written opinions of A.G. Edwards and Societe Generale Securities Corporation
are attached as Appendices II and III to this Joint Proxy Statement/Prospectus.
Stockholders are encouraged to read these opinions in their entirety as these
opinions set forth the assumptions made, the procedures followed, the matters
considered and the limitations on the reviews undertaken by each of A.G.
Edwards and Societe Generale Securities Corporation in arriving at their
respective opinions. A.G. Edwards has received a fee of $250,000 in connection
with rendering its fairness opinion. For rendering its opinion, Societe
Generale Securities Corporation will receive a fee from Republic of $250,000
upon consummation of the merger.
Federal Income Tax Consequences. Except for tax payable by Republic
stockholders because of cash received instead of fractional shares, no gain or
loss will be recognized by either Keystone, the Keystone stockholders, Republic
or the Republic stockholders as a result of the merger. The merger is
conditioned on receipt by Republic of a legal opinion with respect to the
federal income tax consequences to Republic stockholders.
8
<PAGE>
Tax matters are very complicated and the tax consequences of the merger to
each stockholder will depend on the facts of each individual stockholder's
circumstances. Stockholders should consult their own tax advisors for a full
understanding of the tax consequences of the merger.
Appraisal Rights. Under Delaware law, Republic stockholders have no right to
an appraisal of the value of their shares in connection with the merger. Under
California law, in the event that the holders of 5% or more of the outstanding
shares of Keystone common stock vote against the merger and make a written
demand upon Keystone for the purchase of dissenting shares in accordance with
the provisions of Chapter 13 of the California General Corporation Law, the
dissenting Keystone stockholders will be entitled to receive an amount equal to
the fair market value of their shares as of February 17, 1998, the last trading
day before the public announcement of the merger. See "The Merger--Dissenters'
Rights." The obligation of both Republic and Keystone to consummate the merger
is conditioned on holders of less than 5% of the outstanding Keystone common
stock having exercised their dissenters' rights under California law. While
this condition is waivable, neither company has a present intent to waive this
condition.
Certain Differences in Shareholders' Rights. Republic stockholders' rights
are currently governed by Delaware law, Republic's certificate of incorporation
and Republic's bylaws. Upon consummation of the merger, holders of the common
stock of Republic receiving the common stock of Keystone will become
stockholders of Keystone and their rights as such will be governed by
California law, the Keystone amended and restated articles of incorporation and
the Keystone bylaws. See "Comparison of Stockholders' Rights."
Comparative Per Share Market Price Information. Shares of Keystone and
Republic common stock are each traded on the Nasdaq National Market. On
February 17, 1998, the last full trading day on the Nasdaq National Market
prior to the public announcement of the proposed merger, Republic common stock
closed at $13.53 per share and Keystone common stock closed at $22.50 per
share. On May 15, 1998, Republic common stock closed at $21.25 per share and
Keystone common stock closed at $27.25 per share. Stockholders are urged to
obtain current market quotations for Keystone and Republic common stock.
Listing of Keystone Common Stock. Keystone intends to apply to have the
shares of Keystone common stock to be issued in connection with the merger
approved for trading on the Nasdaq National Market.
Forward-Looking Statements May Prove Inaccurate. Each company has made
forward-looking statements in this document (and in documents that are
incorporated by reference in this document) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of Keystone, Republic or the
combined company following the merger. Also, when words such as "believes,"
"expects," "anticipates" or similar expressions are used, they are intended to
identify forward-looking statements. Stockholders should note that many
factors, some of which are discussed elsewhere in this document and in the
documents which are incorporated by reference herein, could affect the future
financial results of Keystone, Republic or the combined company following the
merger and could cause those results to differ materially from those expressed
in the forward-looking statements contained or incorporated by reference in
this document.
AFFILIATE AGREEMENTS (page 41)
Each of the officers and directors of Republic and Keystone has agreed,
pursuant to affiliate agreements, to vote all shares of Republic and/or
Keystone common stock owned or acquired by him in favor of the merger and the
merger agreement and the other matters contemplated by the merger agreement.
In addition, each of the officers and directors of Republic has agreed to
vote his shares of Republic common stock against any third party merger or
merger agreement or similar transaction, any amendment of Republic's
certificate of incorporation or bylaws, or any other proposal or transaction
that would impede, frustrate, prevent or nullify the merger, the merger
agreement or the other transactions contemplated by the merger agreement.
9
<PAGE>
STOCK OPTION AGREEMENT (page 41)
Concurrently with the execution and delivery of the merger agreement, and as
a condition and inducement for Keystone to enter into the merger agreement,
Republic and Keystone entered into a stock option agreement pursuant to which
Republic granted Keystone an option to purchase up to 676,961 shares of
Republic common stock (or such other number of shares of Republic common stock
as shall represent 19.9% of the shares of Republic common stock issued and
outstanding at the time of exercise) at a price per share of $17.00. The option
becomes exercisable in the event that the merger agreement is terminated and
Keystone becomes entitled to the termination fee under the merger agreement.
Keystone's ability to profit from the option is subject to certain limitations.
10
<PAGE>
KEYSTONE SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
Keystone is providing the following summary selected consolidated financial
information to aid you in your analysis of the financial aspects of the merger.
This information was derived from Keystone's audited consolidated financial
statements for fiscal 1995, 1996 and 1997, and unaudited consolidated financial
statements for fiscal 1993 and 1994 and for the nine-month periods ended
December 27, 1996 and December 26, 1997. This information is only a summary,
and you should read it in conjunction with Keystone's historical consolidated
financial statements (and related notes) contained in its annual report on From
10-K, its supplemental consolidated financial statements contained in its
current report on Form 8-K (April 8, 1998) and other information that has been
filed with the Securities and Exchange Commission (the "Commission"). See
"Incorporation of Certain Documents by Reference" on page 69.
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE YEAR ENDED NINE MONTHS ENDED
----------------------------------------------------- -------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28, DECEMBER 27, DECEMBER 26,
1993 1994 1995(1) 1996 1997 1996 1997
----------- ----------- --------- --------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net sales............... $111,936 $125,781 $149,581 $178,076 $223,806 $162,118 $192,459
Net income.............. 1,465 2,028 4,197 4,980 10,010 7,312 10,459
Net income per share--
basic.................. 0.14 0.20 0.41 0.49 0.88 0.65 0.76
Net income per share--
diluted................ 0.14 0.20 0.41 0.49 0.87 0.65 0.76
(unaudited pro forma
information)
Pro forma net income(2). 1,239 1,861 3,492 4,722 8,722 6,334 9,273
Pro forma net income per
share--basic........... 0.12 0.18 0.34 0.46 0.76 0.56 0.68
Pro forma net income per
share--diluted......... 0.12 0.18 0.34 0.46 0.76 0.56 0.67
BALANCE SHEET DATA:
Working capital......... $ 11,767 $ 12,711 $ 15,230 $ 18,134 $ 30,154 $ 29,569 $ 69,003
Total assets............ 43,776 49,324 56,757 71,780 87,183 86,185 113,659
Total current
liabilities............ 24,008 28,501 30,252 38,335 38,240 38,056 19,412
Long-term debt
(excluding current
maturities)............ 3,011 2,235 4,063 7,021 2,087 5,385 372
Stockholders' equity.... 15,935 17,890 21,671 26,119 46,453 42,373 93,472
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Pro forma net income and pro forma net income per share information gives
effect to an income tax adjustment to reflect taxation of the income of two
corporations acquired by Keystone in January 1998 (accounted for as
poolings of interest) as "C" corporations, rather than an "S" corporations,
at an estimated statutory rate of approximately 39%.
11
<PAGE>
REPUBLIC SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
Republic is providing the following summary selected consolidated financial
information to aid you in your analysis of the financial aspects of the merger.
The information for fiscal 1993 through 1997 is derived from the audited
consolidated financial statements for Republic and unaudited consolidated
financial statements for the three-month periods ended March 31, 1997 and 1998.
The information is only a summary, and you should read it in conjunction with
Republic's historical consolidated financial statements (and related notes)
contained in its annual reports and other information that have been filed with
the Commission. See "Incorporation of Certain Documents by Reference" on page
69.
<TABLE>
<CAPTION>
AS OF OR FOR THE THREE
AS OF OR FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED MARCH 31,
------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net sales............... $91,683 $138,295 $154,611 $184,810 $188,953 $ 45,785 $41,140
Net income.............. 1,862 4,248 1,884 5,095 3,258 820 669
Net income per share--
basic.................. 0.60 1.29 0.56 1.50 0.96 0.24 0.20
Net income per share--
diluted................ 0.58 1.22 0.53 1.42 0.91 0.23 0.19
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $62,077 $ 78,258 $ 99,788 $105,697 $ 93,576 $107,189 $93,663
Long-term debt
(excluding current
maturities)............ 6,945 18,925 30,094 34,884 24,500 31,363 24,500
Stockholders' equity.... 32,869 40,115 42,998 48,093 51,556 48,913 52,365
</TABLE>
12
<PAGE>
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Keystone and Republic are providing the following unaudited pro forma
combined condensed financial information to give you a better picture of what
the results of operations and financial position of the combined business of
Keystone and Republic might have been had the merger occurred on an earlier
date. The unaudited pro forma combined condensed income statement data combines
information from the historical consolidated statements of income of Keystone
and Republic giving effect to the merger as if it had been completed at the
beginning of the earliest period presented. The unaudited pro forma combined
condensed balance sheet data combines information from the historical
consolidated balance sheets of Keystone and Republic giving effect to the
merger as if it had been completed on December 26, 1997.
Keystone and Republic are providing this information for illustrative
purposes only. It does not necessarily reflect what the results of operations
or financial position of the combined companies would have been if the merger
had actually occurred on the dates noted above. This information also does not
necessarily indicate what the combined companies future consolidated results of
operations or financial position will be. This information does not reflect (a)
the effect of any potential changes in revenues or any operating synergies
which we may achieve by combining the resources of our companies, or (b) costs
associated with the combining of our companies, which we cannot presently
estimate.
The merger will be accounted for as a purchase of Republic by Keystone. In
connection with the merger, the purchase price will be allocated to the assets
acquired and liabilities assumed based upon their estimated fair values at the
consummation of the merger, with any excess allocated to goodwill. For a
description of the purchase method of accounting with respect to the merger,
see "The Merger--Accounting Treatment" on page 39.
Refer to "Unaudited Pro Forma Combined Condensed Financial Statements" on
page 57 for more details related to the information displayed.
<TABLE>
<CAPTION>
AS OF OR FOR THE
FOR THE YEAR ENDED NINE MONTHS ENDED
MARCH 28, 1997(1) DECEMBER 26, 1997(2)
------------------ --------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $408,616 $338,693
======== ========
Net income............................. $ 14,756 $ 13,711
======== ========
Net income per common share--basic..... $ 1.05 $ 0.84
======== ========
Net income per share--diluted.......... $ 1.03 $ 0.82
======== ========
Pro forma net income(3)................ $ 13,468 $ 12,525
======== ========
Pro forma net income per share--basic.. $ 0.95 $ 0.76
======== ========
Pro forma net income per share--
diluted............................... $ 0.94 $ 0.75
======== ========
BALANCE SHEET DATA:
Total assets........................... $223,527
Long-term debt (including current
maturities)........................... 28,235
Stockholders' equity................... 156,529
</TABLE>
13
<PAGE>
- --------
(1) Results for Keystone's year ended March 28, 1997 have been combined with
Republic's results for the year ended December 31, 1996.
(2) Results for Keystone's nine months ended December 26, 1997 have been
combined with Republic's results for the nine months ended September 30,
1997.
(3) Pro forma net income and pro forma net income per share gives effect to an
income tax adjustment to reflect taxation of the income of two corporations
acquired by Keystone in January 1998 (accounted for as poolings of
interest), as "C" corporations, rather than "S" corporations, at an
estimated statutory rate of approximately 39%.
ARTICLES OF INCORPORATION AND BYLAW AMENDMENTS (page 67)
The amended and restated articles of incorporation and the bylaws, as
amended, of Keystone currently would require Keystone to classify its Board of
Directors at its next annual meeting into three classes of directors, each
class of which would have three-year terms. To accomplish this and to comply
with California law, Keystone would have to increase the number of directors
from five to nine, thereby adding four new directors.
While the Keystone Board of Directors may eventually be expanded, the Board
does not believe that it would be in the best interests of Keystone to expand
the Board by four members at the next annual meeting of stockholders and is
therefore proposing to eliminate this requirement.
COMPARATIVE PER SHARE INFORMATION
The following table sets forth historical and pro forma Keystone and
historical and pro forma equivalent Republic information on a per share basis
for income and book value.
Pro forma net income was derived from the pro forma information presented
under "Unaudited Pro Forma Combined Condensed Financial Statements" on page 57.
The information for "Per equivalent Republic share" was calculated by
multiplying the related information for "Per share of Keystone common stock" by
0.80, which is the exchange ratio of Keystone common stock for each share of
Republic common stock. The historical book value per share information was
based upon outstanding shares of common stock for each respective company. The
number of outstanding shares of Keystone common stock have been adjusted, for
the pro forma data presented, to include the shares of Keystone common stock
estimated to be issued in the merger.
14
<PAGE>
The information set forth below is only a summary and you should read it in
conjunction with the "Unaudited Pro Forma Combined Condensed Financial
Statements" on page 57, and the respective audited and unaudited consolidated
financial statements of Keystone and Republic. The audited and unaudited
consolidated financial statements of Keystone and Republic are incorporated
into this Joint Proxy Statement/Prospectus by reference. See "Incorporation of
Certain Documents by Reference" on page 69.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
HISTORICAL:
Per share of Republic common stock:
Book value(1)............................ $13.90 $14.82
Net income assuming:
Basic.................................. 1.50 0.94
Diluted................................ 1.42 0.89
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED MARCH NINE MONTHS ENDED
28, 1997 DECEMBER 26, 1997
----------------- ------------------
<S> <C> <C>
HISTORICAL:
Per share of Keystone common stock:
Book value(1)............................ $ 3.95 $ 7.39
Pro forma net income assuming:(2)
Basic.................................. 0.76 0.68
Diluted................................ 0.76 0.67
UNAUDITED PRO FORMA:(3)
Per share of Keystone common stock:
Book value............................... 7.47 8.92
Pro forma net income--basic.............. 0.95 0.76
Pro forma net income--diluted............ 0.94 0.75
Per equivalent Republic share:(4)
Book value............................... 5.98 7.14
Net income--basic........................ 0.76 0.61
Net income--diluted...................... 0.75 0.60
</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.
(2) See note 2 to Keystone's Summary Selected Consolidated Financial
Information.
(3) Combines Keystone's nine months ended December 26, 1997 with Republic's
nine months ended September 30, 1997 and Keystone's year ended March 28,
1997 with Republic's year ended December 31, 1996.
(4) Per equivalent common share data is calculated by multiplying the pro forma
amounts per share of Keystone common stock by the exchange ratio to be used
in the merger of 0.80 of a share of Keystone common stock for each share of
Republic common stock.
15
<PAGE>
RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere in this document (including the Keystone risk factors on page 16 and
the Republic risk factors on page 20 and the risks that actual results may
vary materially from those anticipated in the forward-looking statements
contained in and incorporated by reference into this document as described
under the caption "Forward-Looking Statements--Safe Harbor Provisions" on page
70), stockholders of Keystone and Republic should consider the following risks
in deciding whether to approve the proposals described herein.
RISKS RELATED PRIMARILY TO THE MERGER
Risks Associated With Keystone's Operation of Republic and the Integration
of the Two Companies. The merger of a wholly owned subsidiary of Keystone with
and into Republic (the "Merger") involves the integration of two companies
that have previously operated independently. The consolidation of certain
functions, systems and procedures present significant management challenges.
There can be no assurance that such actions will be successfully accomplished
as rapidly as currently expected. Moreover, although the primary purpose of
such actions will be to realize direct cost savings and other operating
efficiencies, there can be no assurance of the extent to which such cost
savings and efficiencies will be achieved.
Further, in addition to distributing aftermarket collision replacement parts
to collision repair shops (Keystone's sole business), over 60% of Republic's
sales for the year ended December 31, 1997 involve the distribution of
mechanical replacement parts for automobiles and trucks through an extensive
distribution network to service stations, repair shops, individuals and
others. There can be no assurance that Keystone will be successful in
operating this mechanical replacement parts distribution business or that, in
the alternative, it will be able to divest this business over time at prices
which will justify Keystone having acquired Republic.
Risks Associated With Fixed Exchange Ratio. Upon completion of the Merger,
each share of Republic common stock (the "Republic Common Stock") will be
converted into the right to receive 0.80 of a share of Keystone common stock
(the "Keystone Common Stock"). The exchange ratio is a fixed number and will
not be adjusted in the event of any increase or decrease in the price of
either Keystone Common Stock or Republic Common Stock. As a result, the value
of the shares of Keystone Common Stock received by Republic stockholders (the
"Republic Stockholders") in the Merger will vary depending on fluctuations in
the value of Keystone Common Stock. Such fluctuations may be the result of
changes in the business, operations or prospects of Keystone, general market
and economic conditions or other factors. Accordingly, there can be no
assurance that the value of the Merger consideration on the date of this Joint
Proxy Statement/Prospectus will be the same as on the date of the special
meetings of the stockholders of Keystone and Republic or at the effective time
of the Merger.
Dilution. For the holders of Keystone Common Stock, on a pro forma basis,
management of Keystone does not believe that the Merger will have a dilutive
effect on earnings per share for the fiscal year ended March 27, 1998.
However, depending upon the performance of Republic subsequent to the Merger,
the Merger may result in dilution to Keystone's earnings per share in future
fiscal years.
The shares of Keystone Common Stock to be issued to Republic Stockholders at
the effective time are expected to represent approximately 16.6% of the number
of shares of Keystone Common Stock outstanding immediately after the effective
time. Accordingly, the Merger will have the effect of reducing the percentage
voting interest in Keystone represented by a share of Keystone Common Stock
immediately prior to the effective time.
KEYSTONE RISK FACTORS
Acquisition Strategy. A principal component of Keystone's growth strategy is
to acquire other independent distributors of aftermarket collision replacement
parts operating in new geographic markets, as well as to increase its
penetration in existing markets. Since April 1993, Keystone has completed 22
acquisitions of a total of
16
<PAGE>
74 service centers, located primarily in the Northeast, Midwest, Mid-Atlantic
and South, of which 13 have been consolidated with existing locations and four
have been closed. Keystone's ability to maintain or exceed its historical
growth rate will depend in large part on its ability to execute successfully
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 favorable terms
(including obtaining acquisition financing, if necessary), to maintain and
expand the sales and profitability of the acquired centers and to anticipate
the changes that continued growth would impose on its financial reporting and
control systems, data processing systems and management. There can be no
assurance that Keystone will be successful in executing its strategy.
Acquisition Risks. Although Keystone investigates the operations and assets
that it acquires, there may be liabilities that Keystone fails or is unable to
discover, and for which Keystone as a successor owner or operator may be
responsible. Keystone seeks to mitigate the risk of these potential
liabilities by obtaining indemnities and warranties from the seller and, in
some cases, deferring payments of a portion of the purchase price. However,
these indemnities, warranties and holdbacks, if obtained, may not fully cover
the liabilities due to their limited scope, amounts or duration, the limited
financial resources of the indemnitor or warrantor or other reasons. Under the
Merger Agreement (as defined below), there are no deferred payments and the
indemnities and warranties generally do not survive the consummation of the
Merger. In addition, acquisitions accounted for under the purchase method of
accounting generally involve the recording of goodwill and deferred charges on
Keystone's balance sheet, which are amortized over varying periods of time of
up to 15 years. This amortization has the effect of reducing Keystone's
reported earnings. At December 26, 1997, Keystone had recorded approximately
$4.5 million in goodwill, net of accumulated amortization, and approximately
$4.4 million in deferred charges, net of accumulated amortization, primarily
related to noncompetition agreements, which are amortized over the terms of
those agreements. It is anticipated that the Merger will be accounted for as a
purchase, resulting in an increase in recorded goodwill by an amount equal to
approximately $18.9 million, which will be amortized over 20 years.
The efficient and effective integration of acquired companies' operations is
necessary for Keystone's acquisition strategy to be successful. This generally
requires, among other things, an integration of purchasing, distribution,
marketing and sales efforts, pricing, employee benefits policies, liquidity
and capital expenditure requirements, management teams and management
information and other systems. The challenges of integration may be increased
by the need to coordinate geographically separated organizations and by
concluding more than one large acquisition within a short period of time, such
as the acquisition of Inteuro in January 1998 (the "Inteuro Transaction") and
the Merger. In addition, the integration generally requires a commitment of
management resources which may temporarily divert attention from day-to-day
operations of Keystone.
Republic Merger. The Merger involves the issuance of approximately 2.9
million shares of Keystone Common Stock, or an increase in its outstanding
shares of approximately 19.9% (not including up to an additional 254,000
shares of Keystone Common Stock which may be issued (i) upon exercise of
options or pursuant to rights granted under Republic's Stock Compensation Plan
and (ii) upon exercise of options granted under the 1997 Republic Stock Option
Plan for Non-employee Directors). Republic is a substantial corporation with
business activities spread over a wide geographic area from Alaska to Georgia.
Consequently, all the risks described above under "Acquisition Risks" are
applicable to the proposed transaction.
Competition. Based upon industry estimates, Keystone believes that 85% of
collision parts replacement for automobiles and light trucks are supplied by
original equipment manufacturers ("OEMs"), compared with approximately 10% by
independent distributors of aftermarket collision replacement parts and an
additional 5% by distributors of salvaged parts. Keystone competes directly
with, and 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
replacement parts. Accordingly, OEMs are in a position to exert pricing and
other competitive pressures on Keystone and other independent distributors,
which could have a material adverse effect on the results of operations of
Keystone. The aftermarket collision
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replacement parts distribution industry is highly fragmented. Typically,
Keystone's competitors are independently owned distributors having from one to
three distribution centers. Keystone anticipates that it will encounter
significant competition in the future, including competition from automobile
dealerships, distributors of salvage parts, buying groups and other large
distributors.
Dependence on Key and Foreign Suppliers. Keystone is dependent on a small
number of suppliers. For the fiscal year ended March 28, 1997, the ten largest
suppliers accounted for approximately 43% 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. In fiscal 1997 and fiscal 1998, approximately
71% of the products distributed by Keystone were manufactured in the United
States or Canada and approximately 25% were imported directly from
manufacturers in 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 future relations between China and Taiwan.
To date, Keystone has not been adversely impacted by the current "Asian
Crisis," but there can be no assurance that the Company's sources of supply
will not be impacted in the future. The percentage of imported products 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 Keystone's
Taiwanese sources of supply or in its relationship with its suppliers located
in Taiwan could have a material adverse effect on Keystone.
Continued Acceptance of Aftermarket Collision Replacement Parts. Based upon
industry sources, Keystone estimates that approximately 87% of automobile
collision repair work is paid for in part by insurance; accordingly,
Keystone's business is highly dependent upon the continued acceptance of
aftermarket collision replacement parts by the insurance industry and the
governmental agencies that regulate insurance companies and the ability of
insurers to recommend the use of such parts for collision repair jobs, as
opposed to OEM parts. Keystone's business is also dependent upon the continued
acceptance of such parts by collision repair shops and their customers.
Consolidation in the Collision Repair Industry. 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, training and other
value-added services, which may have a material adverse effect on Keystone's
sales and profitability.
Decline in the Number of Collision Repairs. The number of collision repairs
has declined significantly in recent years, 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.
Compliance with Government Regulations; Environmental Hazards. Keystone is
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 Keystone's
operations 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 or the operator of a business may be liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, property owned or used in the business, as well as
related costs of investigation and property damage. Such laws often impose
such liability without regard to whether the owner, lessee or operator knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Other than as described below with
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respect to its bumper plating operations, Keystone does not currently generate
substantial hazardous waste in the ordinary course of its business. Keystone
believes that 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 operator of an acquired service center or other facility did not create a
material environmental problem for which Keystone could be responsible or that
future uses or conditions (including, without limitation, changes in
applicable laws and regulations) will not result in material environmental
liability to 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.
Keystone acquired North Star's bumper plating operations in March 1997. In
addition, Keystone currently conducts limited bumper plating operations at one
site and previously conducted similar operations at 11 additional sites which
were closed between 1983 and 1993. Keystone's bumper plating operations, which
use a number of hazardous materials, are subject to a variety of federal and
state laws and regulations relating to environmental matters, including the
release of hazardous materials into the air, water and soil. Keystone
endeavors to ensure that its bumper plating operations comply with applicable
environmental laws and regulations. Compliance with such laws and regulations
has not had a material effect on Keystone's capital expenditures, earnings or
competitive position, and no material capital expenditures with respect to
Keystone's bumper plating operations are anticipated during the next 12
months. Although Keystone believes it is in substantial compliance with all
applicable environmental laws and regulations relating to its bumper plating
operations, there can be no assurance that Keystone's current or former
operations have 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 adverse effect on Keystone's operations. Any inadvertent mishandling
of hazardous materials or similar incident could result in costly remediation
efforts and administrative and legal proceedings, which could materially and
adversely affect Keystone's business and results of operations. In addition,
future environmental regulations could add to overall costs of Keystone's
bumper plating business or otherwise materially and adversely affect these
operations.
Volatility of Stock Price. The trading price of Keystone's Common Stock may
be subject to significant fluctuations as a result of 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 or
industry. There can be no assurance that the market price of Keystone's Common
Stock will not decline below the current market price. It is possible that in
some future quarter, Keystone's operating results will be below the
expectations of public market analysts or investors. In such event, the price
of Keystone Common Stock may be materially and adversely affected.
Shares Eligible for Future Sale. At May 15, 1998, there were 14,657,352
shares of Keystone Common Stock outstanding. Of these shares, the 8,325,000
shares sold in Keystone's two public offerings and 3,450,000 shares,
originally issued in acquisitions concluded in March 1997 and January 1998,
are freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except for any such
shares held by an "affiliate" of Keystone. The remaining 2,882,352 shares are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act and, accordingly, may not be sold without registration under
the Securities Act or pursuant to an applicable exemption therefrom. 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 upon the
exercise of stock options granted under Keystone's 1996 Employee Stock
Incentive Plan, as amended.
In addition, if the Merger is consummated, an additional 2,907,456 shares of
Keystone Common Stock will be issued (not including up to an additional
254,000 shares of Keystone Common Stock which may be issued upon the exercise
of Republic stock options being assumed by Keystone), the substantial majority
of which will be freely tradeable without restriction or further registration.
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Management Information Systems and Year 2000 Issue. At the present time, the
ordering, shipment, storage and delivery of Keystone's products are managed
through four centralized information systems located at Keystone's corporate
headquarters and at the headquarters of North Star and Inteuro (wholly owned
subsidiaries) and All Makes Body Parts, a division ("All Makes"). These
systems receive periodic information from regional hubs and service centers
regarding the location and availability of products, customers, sales and
other financial operating data.
North Star, Inteuro and All Makes have each developed and maintain their own
computerized order taking, inventory control and management information
systems, which are similar to Keystone's systems. Summary financial
information is transmitted on a periodic basis from North Star's, Inteuro's
and All Makes' headquarters to Keystone's executive offices.
In January 1998, Keystone purchased a comprehensive enterprise software
package for accounting, distribution and inventory planning. The
implementation of this package is in the beginning stages. It is anticipated
that this software package will allow Keystone to standardize business
practices at each of its service centers on a company-wide basis as well as
standardize the information transmitted to the Keystone's executive offices
resulting in the receipt of information on a more timely basis. This will
enable management to, among other things, identify inventory needs and
financial trends faster and more effectively. It is anticipated that the
implementation and deployment of the system to the service centers will be
completed by the end of December 1999.
While it is estimated that the total cost (hardware and software) to install
the new software package will be substantial, management does not believe that
it will be material in relationship to Keystone's financial position. However,
there can be no assurance that the implementation of the new software package
will not involve significant unexpected costs or that unanticipated problems
encountered in the conversion from the present system will not have a material
adverse effect on Keystone's results of operations.
The third party vendor has advised Keystone that the new enterprise software
package is year 2000 compliant and management believes that it will provide a
comprehensive solution to the year 2000 problem as it relates to Keystone. It
is believed that once successfully installed throughout Keystone, the new
system should eliminate any additional costs with respect to this problem.
Keystone intends to have discussions with its significant vendors to determine
the extent to which Keystone may be affected by the failure of these parties
to correct their own year 2000 issues. There can be no assurance that year
2000 issues at Keystone's vendors will not have a material adverse effect on
Keystone.
REPUBLIC RISK FACTORS
Mechanical Replacement Parts Business. Over 60% of Republic's sales for the
year ended December 31, 1997 involve the distribution of mechanical
replacement parts for automobiles and trucks. This business is highly
fragmented and competitive. Some of Republic's competitors have substantially
greater financial and other resources than it does. In addition, the business
has been adversely affected by the improving mechanical reliability and
enhanced warranty coverage of new vehicles being produced. As the number of
domestic and imported vehicle models in the United States has increased,
Republic has been required to make substantial investments in inventory and
warehousing space in order to supply an increasing number of mechanical
replacements parts to its customers.
Suppliers. Republic purchases the majority of its products from
approximately 100 principal manufacturers and other suppliers, some of whom
are competitors of Republic and some of whom are in foreign countries,
primarily Taiwan. Republic's purchases of products from suppliers in foreign
countries are subject to the customary risks of doing business abroad,
including, among other things, transportation delays, currency fluctuations,
political instability, the imposition of tariffs, import and export controls
or quotas, as well as the uncertainty regarding the future relationship
between The People's Republic of China and Taiwan.
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Compliance with Government Regulations; Environmental Hazards. Republic is
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 Republic's operations with respect to various matters,
including worker safety, community and employee "right to know" laws and laws
regulating clean air and water. Republic believes that it is in substantial
compliance with all applicable laws and regulations but no assurance can be
given that Republic's current or former operations have not, or will not in
the future, violate such laws or regulations or that compliance with such laws
or regulations will not have a material adverse effect on Republic's results
of operations.
Management Information Systems and Year 2000 Issue. Republic has attempted
to assess its exposure to the impact of the year 2000 issue on its information
systems. This issue affects computer systems that may not properly recognize
the year 2000. This could result in system failures or miscalculations that
could have a material adverse effect on Republic's results of operations. For
its mechanical replacement parts distribution business and jobber stores,
Republic has contracted with a third party provider of software and hardware
systems to the automotive industry to provide all new systems. These systems
are presently being installed and, although no assurance can be given,
Republic believes that the new systems will be year 2000 compliant. For its
aftermarket collision replacement parts business, it is anticipated that
Republic will use Keystone's software package. In the event the Merger is not
consummated for any reason, Republic will conduct a search to replace its
existing software and hardware systems for its aftermarket collision
replacement parts business which are not year 2000 compliant. Any new software
selected will be year 2000 compliant. The costs for both of these new systems
are expected to be substantial and there can be no assurance that the
installation of these new systems will not result in costs in excess of the
amounts projected or that unanticipated problems encountered in the conversion
from the present systems will not have a material adverse effect on Republic's
results of operations.
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Keystone Common Stock (the
"Keystone Stockholders") by the Keystone Board of Directors (the "Keystone
Board") for use at a special meeting of stockholders or any adjournment or
postponement thereof (the "Keystone Stockholders Meeting") and (ii) from the
Republic Stockholders by the Republic Board of Directors (the "Republic
Board") for use at a special meeting of stockholders or any adjournment or
postponement thereof (the "Republic Stockholders Meeting" and collectively
with the Keystone Stockholders Meeting, the "Stockholders Meetings").
TIMES AND PLACES; PURPOSES
Keystone. The Keystone Stockholders Meeting will be held at the Sheraton
Fairplex, 601 West McKinley Avenue, Pomona, California 91768, on June 25,
1998, starting at 10:00 a.m., local time. At the Keystone Stockholders
Meeting, the Keystone Stockholders will be asked to consider and vote upon two
separate proposals: a proposal to approve the Agreement and Plan of Merger,
dated as of February 17, 1998 (the "Merger Agreement"), among Keystone, KAI
Merger, Inc., a Delaware corporation and direct, wholly owned subsidiary of
Keystone ("Merger Sub"), and Republic, providing for the merger of Merger Sub
with and into Republic and the issuance of shares of Keystone Common Stock to
the Republic Stockholders upon consummation of the Merger (the "Keystone
Merger Proposal") and (ii) a proposal to approve amendments to Keystone
Amended and Restated Articles of Incorporation (the "Keystone Charter") and
Bylaws, as amended (the "Keystone Bylaws"), to eliminate the requirement to
have a classified Board of Directors (the "Keystone Charter and Bylaw
Proposal"). A copy of the Merger Agreement is included as Appendix I to this
Joint Proxy Statement/Prospectus. At the Keystone Stockholders Meeting, the
Keystone Stockholders will also be asked to consider and vote upon such other
matters as may properly come before the Keystone Stockholders Meeting.
Republic. The Republic Stockholders Meeting will be held at the offices of
Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the Americas, Conference
Room 24D, New York, New York 10036, on June 25,
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1998, starting at 1:00 p.m., local time. At the Republic Stockholders Meeting,
the Republic Stockholders will be asked to consider and vote upon a proposal
to approve the Merger Agreement, pursuant to which Republic will become a
wholly owned subsidiary of Keystone (the "Republic Proposal"). When the Merger
is completed, each outstanding share of Republic Common Stock will be
converted into the right to receive 0.80 of a share of Keystone Common Stock
(the "Exchange Ratio").
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Keystone. The Keystone Board has fixed the close of business on May 15, 1998
as the Keystone Record Date. Only holders of record of shares of Keystone
Common Stock on the Keystone Record Date are entitled to notice of and to vote
at the Keystone Stockholders Meeting and any adjournments or postponements
thereof. As of the Keystone Record Date, there were 14,657,352 shares of
Keystone Common Stock, held by approximately 87 stockholders of record,
outstanding and entitled to vote at the Keystone Stockholders Meeting.
Each holder of record, as of the Keystone Record Date, of Keystone Common
Stock is entitled to vote in accordance with the terms of Keystone's Charter,
which provides that holders of Keystone Common Stock will be entitled to one
vote per share of Keystone Common Stock held. The presence, in person or by
proxy, of the holders of a majority of the shares then issued and outstanding
and entitled to vote at the Keystone Stockholders Meeting is necessary to
constitute a quorum.
Under the Keystone Charter, Keystone Bylaws and the California General
Corporation Law (the "California Code"), the affirmative vote, in person or by
proxy, of the holders of a majority of the shares of Keystone Common Stock
outstanding on the Keystone Record Date and entitled to vote, is required to
approve the Keystone Merger Proposal, and the affirmative vote, in person or
by proxy, of the holders of two-thirds of the shares of Keystone Common Stock
outstanding on the Keystone Record Date and entitled to vote, is required to
approve the Keystone Charter and Bylaw Proposal.
As of May 15, 1998, directors and executive officers of Keystone and their
affiliates as a group beneficially owned, and will be entitled to vote at the
Keystone Stockholders Meeting, 1,429,122 shares of Keystone Common Stock, or
approximately 9.8% of the outstanding shares of Keystone Common Stock.
If fewer shares of Keystone Common Stock are voted in favor of the Keystone
Merger Proposal than the number required for approval, it is expected that the
Keystone Stockholders Meeting will be postponed or adjourned for the purpose
of allowing additional time for soliciting and obtaining additional proxies or
votes and, at any subsequent reconvening of the Keystone Stockholders Meeting,
all proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the Keystone Stockholders Meeting, except
for any proxies that have effectively been revoked or withdrawn. If fewer
shares of Keystone Common Stock are voted for the Keystone Charter and Bylaw
Proposal than the number required for approval, it is not expected that the
Keystone Stockholders Meeting will be postponed or adjourned.
The Keystone Merger Proposal and the Keystone Charter and Bylaw Proposal are
separate proposals and the approval or disapproval of one proposal will have
no impact on the other proposal. For example, if the Keystone Merger Proposal
is approved, Keystone intends to proceed with the Merger, whether or not the
Keystone Charter and Bylaw Proposal is approved.
Republic. The Republic Board has fixed the close of business on May 15,
1998, as the Republic Record Date. Only holders of record of shares of
Republic Common Stock on the Republic Record Date are entitled to notice of
and to vote at the Republic Stockholders Meeting and any adjournments or
postponements thereof. On the Republic Record Date, there were 3,424,231
shares of Republic Common Stock, held by approximately 425 stockholders of
record, outstanding and entitled to vote at the Republic Stockholders Meeting.
Each holder of record of Republic Common Stock on the Republic Record Date
is entitled to one vote per share of Republic Common Stock held. The presence,
in person or by proxy, of the holders of a majority of the
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shares then issued and outstanding and entitled to vote at the Republic
Stockholders Meeting is necessary to constitute a quorum.
Under the Republic Certificate of Incorporation (the "Republic Certificate")
and the Delaware General Corporation Law (the "Delaware Corporate Law"), the
affirmative vote, in person or by proxy, of the holders of a majority of the
shares of Republic Common Stock outstanding on the Republic Record Date and
entitled to vote, is required to approve the Republic Proposal.
As of May 15, 1998, directors and executive officers of Republic and their
affiliates as a group beneficially owned, and will be entitled to vote at the
Republic Stockholders Meeting, 387,673 shares of Republic Common Stock, or
approximately 11.3% of the outstanding shares of Republic Common Stock.
If fewer shares of Republic Common stock are voted in favor of the Republic
Proposal than the number required for approval, it is expected that the
Republic Stockholders Meeting will be postponed or adjourned for the purpose
of allowing additional time for soliciting and obtaining additional proxies or
votes and, at any subsequent reconvening of the Republic Stockholders Meeting,
all proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the Republic Stockholders Meeting, except
for any proxies that have effectively been revoked or withdrawn.
PROXIES
Keystone. Stockholders of record of Keystone Common Stock may vote by proxy
by signing, dating and mailing their proxies in the postage paid envelope
provided.
All shares of Keystone Common Stock represented by properly executed proxies
received prior to or at the Keystone Stockholders Meeting and not revoked will
be voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed and returned proxy, such
proxy will be voted "FOR" the Keystone Merger Proposal and the Keystone
Charter and Bylaw Proposal. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum, will
not be voted. Because the affirmative vote of a majority of the shares of
Keystone Common Stock outstanding and entitled to vote on the Keystone Record
Date is required for approval of the Keystone Merger Proposal (two-thirds vote
with respect to the Keystone Charter and Bylaw Proposal), a proxy marked
"ABSTAIN" will have the effect of a vote against the Keystone Merger Proposal
and the Keystone Charter and Bylaw Proposal. Under National Association of
Securities Dealers, Inc. ("Nasdaq") rules, brokers and nominees are precluded
from exercising their voting discretion on the Keystone Merger Proposal and
the Keystone Charter and Bylaw Proposal and, for this reason, absent specific
instructions from the beneficial owner of shares, are not permitted to vote
such shares on the Keystone Merger Proposal or the Keystone Charter and Bylaw
Proposal (a "broker non-vote"). Because the affirmative vote of the majority
of the shares of Keystone Common Stock outstanding and entitled to vote on the
Keystone Merger Proposal is required for approval of the Keystone Merger
Proposal (two-thirds vote with respect to the Keystone Charter and Bylaw
Proposal), a broker non-vote with respect to the Keystone Merger Proposal and
the Keystone Charter and Bylaw Proposal will have the effect of a vote against
the Keystone Merger Proposal and the Keystone Charter and Bylaw Proposal.
Shares represented by broker non-votes will, however, be counted for purposes
of determining whether there is a quorum at the Keystone Stockholders Meeting.
Republic. All shares of Republic Common Stock represented by properly
executed proxies received prior to or at the Republic Stockholders Meeting and
not revoked will be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly executed and
returned proxy, such proxy will be voted "FOR" the Republic Proposal. A
properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum, will not be voted. Because the
affirmative vote of a majority of the shares of Republic Common Stock
outstanding on the Republic Record Date is required for approval of the
Republic Proposal, a proxy marked "ABSTAIN" will have the effect of a vote
against the Republic Proposal. Under Nasdaq rules, brokers and nominees are
precluded from exercising their voting
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discretion on the Republic Proposal and, for this reason, absent specific
instructions from the beneficial owner of shares, are not permitted to vote
such shares on the Republic Proposal. Because the affirmative vote of a
majority of the shares of Republic Common Stock outstanding on the Republic
Record Date is required for approval of the Republic Proposal, a broker non-
vote with respect to the Republic Proposal will have the effect of a vote
against the Republic Proposal. Shares represented by broker non-votes will,
however, be counted for purposes of determining whether there is a quorum at
the Republic Stockholders Meeting.
General. It is not expected that any matter not referred to herein will be
presented for action at either of the Stockholders Meetings. If any other
matters are properly brought before the Keystone Stockholders Meeting or the
Republic Stockholders Meeting or any adjournments or postponements thereof,
the persons named in the proxies as proxy appointees will have discretion to
vote on such matters in accordance with their best judgment. The grant of a
proxy will also confer discretionary authority on the persons named in the
proxy as proxy appointees to vote in accordance with their best judgment on
matters incident to the conduct of the Stockholders Meetings, including
(except as stated in the following sentence) postponement or adjournment for
the purpose of soliciting additional votes. However, shares represented by
proxies that have been voted "AGAINST" the Keystone Merger Proposal or the
Keystone Charter and Bylaw Proposal or the Republic Proposal will not be used
to vote "FOR" postponement or adjournment of the Keystone Stockholders Meeting
or the Republic Stockholders Meeting for the purpose of allowing additional
time for soliciting additional votes "FOR" the Keystone Merger Proposal, the
Keystone Charter and Bylaw Proposal or the Republic Proposal, as the case
may be.
A Keystone Stockholder or Republic Stockholder may revoke that stockholder's
proxy at any time prior to its use by delivering to the corporate secretary of
the appropriate corporation, as the case may be, a signed notice of
revocation, by a later dated vote by proxy, or by attending the Keystone
Stockholders Meeting or the Republic Stockholders Meeting, as the case may be,
and voting in person. Attendance at the Keystone Stockholders Meeting or the
Republic Stockholders Meeting will not in and of itself constitute the
revocation of a proxy.
Keystone and Republic will each bear one-half of the cost of printing and
mailing this Joint Proxy Statement/Prospectus. The cost of solicitation of
proxies will be paid by Keystone for the Keystone proxies and by Republic for
the Republic proxies. In addition to solicitation by mail, proxies may be
solicited in person by directors, officers and employees of Keystone or
Republic, as the case may be, without additional compensation, and by
telephone, telegram, facsimile or similar method. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to send
proxy material to beneficial owners; and Keystone and Republic, as the case
may be, will, upon request, reimburse them for their reasonable expenses in so
doing. Republic has retained Corporate Communications, Inc. to aid in the
solicitation of proxies at a fee of $2,500 plus expenses. To the extent
necessary in order to ensure sufficient representation at the Keystone
Stockholders Meeting and the Republic Stockholders Meeting, Keystone or
Republic, respectively, may request the return of proxies by telephone or
telegram. The extent to which this will be done necessarily depends entirely
upon how promptly proxies are returned.
REPUBLIC STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING REPUBLIC
COMMON STOCK WITH THE ENCLOSED PROXY CARD. A LETTER OF TRANSMITTAL WITH
INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES REPRESENTING REPUBLIC
COMMON STOCK WILL BE MAILED TO REPUBLIC STOCKHOLDERS AS SOON AS PRACTICABLE
AFTER THE CONSUMMATION OF THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
In 1994, Keith M. Thompson, Republic's President and Chief Executive
Officer, and Donald B. Hauk, Republic's Executive Vice President and Chief
Financial Officer, met with Charles J. Hogarty, who was then Keystone's
President, and other representatives of Keystone. At this meeting, Mr.
Thompson and Mr. Hauk raised the possibility of Republic acquiring Keystone.
At that time, Keystone was a closely held corporation. The strategic benefits
and issues associated with such a transaction were discussed, but the proposal
was not pursued further at that time.
In May 1997, Mr. Hogarty contacted Mr. Thompson to inquire whether Republic
had any interest in pursuing a possible joint venture operation with Keystone
in the Pittsburgh, Pennsylvania area. The strategic benefits and issues
associated with such a transaction were discussed, but the proposal was not
pursued further at that time.
In December 1997, Mr. Thompson and Mr. Hauk met with Mr. Hogarty and John M.
Palumbo, Keystone's Vice President, Treasurer and Chief Financial Officer, for
a social dinner at an industry trade show in Las Vegas, Nevada. During the
course of the dinner, they discussed the overall strategic benefits of a
possible business combination between Keystone and Republic.
Following this meeting, Mr. Thompson met with Edgar R. Berner, Republic's
Chairman of the Board, and Mr. Hauk in early January 1998 to review Republic's
strategic position and alternative scenarios for future business operations.
At the conclusion of a meeting held on January 13, 1998, Mr. Thompson was
authorized to contact Mr. Hogarty regarding the possibility of negotiating a
business combination between Republic and Keystone.
During January and February 1998, Mr. Thompson and Mr. Hauk had several
discussions with Mr. Hogarty and Mr. Palumbo concerning the overall strategic
benefits of a business combination between Keystone and Republic and the
respective managements conducted a broad review of the financial implications
of such a transaction. Initially, Mr. Hogarty expressed an interest in only
acquiring Republic's aftermarket collision replacement parts business, but
later expanded the discussion to encompass a possible business combination
involving Republic's entire business.
On January 22, 1998, Republic and Keystone entered into a confidentiality
agreement relating to, among other things, the information to be provided by
each company to the other in connection with the proposed business
combination.
During the remainder of January 1998 and early February 1998,
representatives of the two companies had several meetings and telephone
conversations reviewing various aspects of a possible business combination
between Republic and Keystone and negotiating the terms of such proposed
business combination.
A special meeting of the Keystone Board was held on February 14, 1998 and
continued into the morning of February 15, 1998 to consider the proposed
transaction. Members of management reviewed material aspects of the proposed
transaction and reported on the due diligence review of Republic's business
and financial condition and related issues. Keystone's General Counsel
reviewed various provisions of the proposed Merger Agreement and discussed
fiduciary duties. A.G. Edwards & Sons, Inc. ("A.G. Edwards") presented its
financial analysis of the transaction and advised the Keystone Board that, in
its opinion, the Exchange Ratio was fair to Keystone Stockholders from a
financial point of view. After receiving such presentations and advice and
reviewing additional information relating to the transaction, the entire
Keystone Board unanimously approved the Merger Agreement and the transactions
contemplated thereunder.
A special meeting of the Republic Board was held on February 14, 1998 to
consider the proposed transaction. Members of management reviewed material
aspects of the proposed transaction and reported on the
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due diligence review of Keystone's business and financial condition and
related issues. Republic's outside counsel, Patterson, Belknap, Webb & Tyler
LLP ("Patterson, Belknap"), reviewed the provisions of the proposed Merger
Agreement, the Stock Option Agreement and the Affiliate Agreement and
discussed the fiduciary duties of the Republic Board. Representatives of UBS
Securities LLC ("UBS Securities"), which was acting as Republic's financial
advisor at that time, reviewed with the Republic Board information concerning
the business, results of operations, financial position and prospects of each
of Republic and Keystone and various matters relevant to the Republic Board's
consideration of a potential transaction with Keystone. A second special
meeting of the Republic Board was held on February 16, 1998 to further
consider the proposed transaction. The Republic Board received a detailed
report from UBS Securities regarding the fairness opinion of such firm with
respect to the Exchange Ratio, background information regarding each of
Republic and Keystone and a pro forma overview of the combined entity. UBS
Securities delivered its oral opinion to the Republic Board that, as of such
date, the Exchange Ratio was fair, from a financial point of view, to the
stockholders of Republic. After receiving such presentations and advice and
reviewing additional information relating to the transaction, the entire
Republic Board unanimously approved the Merger Agreement and the transactions
contemplated thereunder.
Following the meetings of their respective boards of directors, Keystone and
Republic executed the Merger Agreement on February 17, 1998 and publicly
announced the Merger prior to the opening of trading in shares of their
respective common stock on February 18, 1998.
As a result of the departure from UBS Securities of a key individual
involved in the preparation of its fairness opinion, Republic elected to
terminate the engagement of UBS Securities as its financial advisor effective
April 14, 1998. Following the termination of the engagement of UBS Securities,
Republic engaged Societe Generale Securities Corporation ("SGSC") as its
financial advisor in connection with the Merger. On April 15, 1998, SGSC
delivered its oral opinion to the Republic Board that, as of such date, the
Exchange Ratio was fair, from a financial point of view, to the stockholders
of Republic (other than Keystone or any of its affiliates).
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Keystone.
THE KEYSTONE BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, KEYSTONE AND ITS STOCKHOLDERS. THE
KEYSTONE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT THE KEYSTONE STOCKHOLDERS VOTE FOR APPROVAL OF THE KEYSTONE
MERGER PROPOSAL.
The Keystone Board believes that the Merger represents an excellent
strategic acquisition for Keystone and that it will enhance Keystone's
position as the leading distributor of aftermarket collision replacement parts
produced by independent manufacturers for automobiles and light trucks.
Through its Fenders & More subsidiary, Republic distributes aftermarket
collision replacement parts through 23 service centers, which serve 14 states
primarily in the Southeast and Texas. The acquisition of Republic will result
in an expansion of Keystone's distribution network into 16 additional cities
and result in an expansion of the product lines offered in the present
Republic service centers. The Keystone Board believes that this Merger is an
important step in making Keystone the only truly national distributor of
aftermarket collision replacement parts. In addition, the Keystone Board also
believes that Keystone will benefit from increased economics of scale,
stronger purchasing power and increased product and market diversification.
In reaching its determination to approve the Merger Agreement and recommend
approval of the Keystone Merger Proposal, the Keystone Board considered a
number of factors, including, without limitation, the following:
. the judgment, advice and analysis of Keystone's management with respect
to the strategic, financial and operational benefits of the Merger,
based in part on the business, financial, accounting, and legal due
diligence investigations performed with respect to Republic;
. the cost reductions and operating efficiencies that may be realized by
the combined company as a result of the Merger which, if realized,
should serve to make the combined company more competitive;
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. information concerning the financial condition, results of operations,
businesses, prospects and stock price performance of Keystone and
Republic;
. current industry, economic and market conditions;
. the terms and conditions of the Merger Agreement and the Exchange Ratio,
which were considered fair from the standpoint of Keystone in light of
the financial condition, results of operations, businesses, prospects
and stock price performance of Keystone and Republic; and
. the opinion of A.G. Edwards that the terms of the Merger are fair, from
a financial point of view, to Keystone Stockholders. A.G. Edwards'
opinion was expressed after review of the factors referred to in their
opinion and was based on various assumptions and subject to various
limitations which were reviewed by the Keystone Board as part of the
presentation by A.G. Edwards; see "Opinion of Financial Advisors--
Keystone."
In addition, the Keystone Board considered certain factors which may be
characterized as countervailing considerations, including, without limitation,
the following:
. The risks inherent in operating an entirely new line of business and the
financial and business risks inherent in divesting certain portions or
all of that new line of business following the Merger, if the Keystone
Board so determines;
. the fact that, based on the recent trading prices for Keystone Common
Stock and Republic Common Stock immediately prior to the announcement of
the Merger, the Republic Stockholders would receive a substantial
premium over the then current market price of Republic Common Stock;
. the risks inherent in attempting to integrate successfully the
operations of Republic and Keystone and the difficulties that may be
encountered in achieving the anticipated synergies from the Merger;
. the fact that the transaction would be accounted for using the purchase
method of accounting which would require the amortization over a period
of time of the excess of the purchase price over the fair value of
Republic's identified net assets; and
. the severance and other arrangements between Republic and certain
officers and directors as described below under the caption "Interests
of Certain Persons in the Merger."
The foregoing discussion of the information and factors considered and given
weight by the Keystone Board is not intended to be exhaustive but is believed
to include all material factors considered by the Keystone Board. In addition,
in reaching the determination to approve the Merger Agreement and recommend
approval of the Keystone Merger Proposal, in view of the wide variety of
factors considered in connection with its evaluation thereof, the Keystone
Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to the
different factors. The Keystone Board did not attempt to analyze the fairness
of the Merger in isolation from the considerations as to the businesses of
Keystone and Republic, the strategic merits of the Merger or the other
considerations referred to above. The Keystone Board also did not distinguish
between factors that support a determination that the Merger is "fair" and
factors that support a determination that the Merger is in the "best
interests" of Keystone's stockholders.
Republic.
THE REPUBLIC BOARD, BY UNANIMOUS VOTE AT THE FEBRUARY 16, 1998 SPECIAL
MEETING, HAS APPROVED THE MERGER AGREEMENT, BELIEVES THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, REPUBLIC AND ITS STOCKHOLDERS, AND
RECOMMENDS THAT REPUBLIC STOCKHOLDERS VOTE FOR APPROVAL OF THE REPUBLIC
PROPOSAL.
In arriving at its decision to approve the Merger Agreement and the Merger
and recommend the approval and adoption of the Merger Agreement by the
Republic Stockholders, the Republic Board took into account several factors,
although no particular weight was specifically assigned to any one or more of
such factors. These factors included, among others: (i) the recent and
historical market prices of Republic Common Stock in
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comparison with the ratio at which Republic Common Stock would be converted
into Keystone Common Stock pursuant to the Merger; (ii) the oral opinion of
UBS Securities that, as of February 16, 1998, the Exchange Ratio was fair to
the holders of Republic Common Stock (other than Keystone and its affiliates),
from a financial point of view; (iii) the oral opinion SGSC (subsequently
confirmed by delivery of the written opinion of SGSC dated May 18, 1998,
attached to this Joint Proxy Statement/Prospectus as Appendix III, the
conclusion of which written opinion is substantially similar in all material
respects to such oral opinion) that, as of the date of such opinion, the
Exchange Ratio was fair to the holders of Republic Common Stock (other than
Keystone and its affiliates), from a financial point of view; (iv) the
business, financial requirements, prospects and competitive position of
Republic; (v) the recent and historical market prices of Keystone Common
Stock; (vi) the fact that Republic may terminate the Merger Agreement if a
third party makes an offer which the Republic Board believes, in good faith
after consultation with Republic's financial advisor, constitutes an offer for
a transaction more favorable in the aggregate to the Republic Stockholders
from a financial point of view than the Merger, and certain other conditions
are met, recognizing, however, that the effect of certain other provisions of
the Merger Agreement, including the payment of a termination fee to Keystone
under certain circumstances, and the grant by Republic of an option to
purchase Republic Common Stock set forth in the Stock Option Agreement, may
increase the costs of or otherwise render less likely and less effectual any
such alternative offer; (vii) the business, prospects and competitive position
of Keystone; and (viii) such other factors as the Republic Board deemed
appropriate. After careful consideration of the foregoing factors and
consultation with financial and legal advisors, the Republic Board concluded
that the terms of the Merger Agreement, which were negotiated at arm's length
as described in "Background of the Merger" are fair to and in the best
interests of Republic and the Republic Stockholders. See "Background of the
Merger," "Opinions of Financial Advisors--Republic," "Stock Option Agreement,"
"Termination Fees," "Keystone Summary Selected Historical Financial
Information" and "Republic Summary Selected Historical Financial Information."
OPINIONS OF FINANCIAL ADVISORS
Keystone.
The Keystone Board has engaged A.G. Edwards to deliver a written opinion as
to the fairness, from a financial point of view, to the Keystone Stockholders
of the Merger Consideration (defined as the Exchange Ratio of 0.80 of a share
of Keystone Common Stock for each share of Republic Common Stock). On
February 14, 1998, at a meeting of the Keystone Board held to evaluate the
proposed Merger, A.G. Edwards rendered an oral opinion to the Keystone Board,
which was subsequently confirmed in a written opinion dated May 22, 1998, to
the effect that, as of such date and based upon and subject to various
considerations set forth in the opinion, the Merger Consideration paid by
Keystone was fair, from a financial point of view, to the Keystone
Stockholders. A.G. Edwards has agreed to update its opinion as of the date of
the closing of the Merger.
A.G. Edwards is a nationally recognized securities and investment banking
firm, and as part of its business is regularly engaged in, among other things,
the valuation of businesses and their securities in connection with mergers
and acquisitions, leveraged buyouts, negotiated underwritings, competitive
bids, secondary distribution of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
A.G. Edwards was selected as financial advisor based upon such expertise, its
reputation in investment banking and mergers and acquisitions, and its
historical relationship with Keystone. Timothy C. McQuay, Managing Director--
Investment Banking of A.G. Edwards, is a member of the Board of Directors of
Keystone.
In arriving at its opinion, A.G. Edwards activities included, but were not
limited to, the following: (i) a review of the of Merger Agreement and related
documents; (ii) conversations with management of Keystone and Republic,
respectively, regarding the nature and extent of the terms of the Merger;
(iii) a review of publicly available information regarding Keystone and
Republic, respectively, which A.G. Edwards deemed relevant, including
Keystone's and Republic's annual and quarterly reports, proxy statements and
other relevant filings with the Commission through the fiscal periods ended
December 26, 1997 and December 31, 1997, respectively, and research reports
and analyst opinions; (iv) a review of financial projections for Keystone for
fiscal years 1998 through 2003, as provided by Keystone's management, and
Republic for the 1998 calendar year, as provided by Republic's management; (v)
an investigation of certain other internal operating and financial information
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regarding Keystone and Republic, supplied to A.G. Edwards by the management of
Keystone and Republic, concerning the business, operations and financial
prospects of Keystone and Republic, and as combined entities; (vi) a review of
the industries in which Keystone and Republic operate; (vii) a review of the
reported price and trading activity for Keystone Common Stock and Republic
Common Stock; (viii) a review of publicly available information concerning
certain other companies that A.G. Edwards believed to be relevant in
evaluating Keystone and Republic and the trading of such companies'
securities; (ix) a review of information relating to the nature and financial
terms of certain other mergers or acquisitions that A.G. Edwards considered
relevant in evaluating the Merger; and (x) an assessment of other information
that A.G. Edwards considered relevant to its analyses.
In rendering its opinion, A.G. Edwards has relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other information, publicly available or furnished to, or otherwise discussed
with, A.G. Edwards for the purposes of this opinion as described above. With
respect to financial forecasts and/or other information provided to or
otherwise discussed with A.G. Edwards, A.G. Edwards assumed, and it has been
advised by the senior management of Keystone and Republic, that such forecasts
and other information were reasonably prepared on a basis that reflects the
best currently available estimates and business judgments of the senior
management of Keystone and Republic. The Keystone Board has not specifically
engaged A.G. Edwards to, and therefore A.G. Edwards has not, verified the
accuracy or completeness of any such information nor has A.G. Edwards made any
evaluation or appraisal of any assets or liabilities of Keystone or Republic.
A.G. Edwards did not express an opinion as to what the value of the Keystone
Common Stock will be when issued to the Republic Stockholders pursuant to the
Merger or the price at which Keystone Common Stock will trade subsequent to
the Merger. A.G. Edwards' opinion is necessarily based upon financial and
other conditions and circumstances existing and disclosed to it as of May 22,
1998. A.G. Edwards was not asked to, nor did it, participate in the
negotiation of the Exchange Ratio with Republic.
THE FULL TEXT OF THE WRITTEN OPINION OF A.G. EDWARDS AS OF MAY 22, 1998,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEWS
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX II TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. KEYSTONE
STOCKHOLDERS ARE URGED TO READ THE OPINION, TOGETHER WITH THE ASSUMPTIONS AND
CONSIDERATIONS SET FORTH THEREIN, IN ITS ENTIRETY. A.G. EDWARDS' OPINION IS
NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS AS IN EFFECT ON,
AND THE INFORMATION MADE AVAILABLE TO A.G. EDWARDS AS OF, THE DATE THEREOF.
A.G. EDWARDS' OPINION AS EXPRESSED HEREIN, IN ANY EVENT, IS LIMITED TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE KEYSTONE STOCKHOLDERS, OF THE
MERGER CONSIDERATION TO BE PAID PURSUANT TO THE MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY KEYSTONE STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE KEYSTONE STOCKHOLDERS MEETING. THE SUMMARY OF
THE OPINION OF A.G. EDWARDS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The following is a summary of the material financial analyses presented by
A.G. Edwards to the Board of Directors of Keystone on February 14, 1998 in
connection with providing its oral opinion and does not purport to be a
complete description of the analyses performed by A.G. Edwards. A.G. Edwards
arrived at its opinion based on the results of all of its analyses as a whole
and did not draw any specific conclusions from or with regard to any one
method of analysis. The ranges of valuations resulting from any particular
analysis described below should not be taken to be A.G. Edwards' view of the
actual value of Republic.
Selected Company Analyses. A.G. Edwards reviewed and compared certain
financial information relating to Keystone and Republic with publicly
available financial and operating information of 12 publicly traded companies
(together, the "Selected Companies"). The Selected Companies include AutoZone,
Inc., Discount Auto Parts, Eichlin, Inc., Genuine Parts Co., Hahn Automotive,
O'Reilly Automotive, Parts Source, Inc., Pep Boys--Manny, Moe and Jack, R&B
Inc., Brad Ragen, Inc., Trak Auto Corp. and Tyler Corp. None of the
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Selected Companies used in A.G. Edwards' analyses is identical to Keystone or
Republic. A.G. Edwards' analyses involved complex considerations and judgments
concerning differences in the potential financial and operating
characteristics of the Selected Companies and other factors regarding the
trading values of the securities of the Selected Companies.
A.G. Edwards considered among other multiples and ratios: (i) the range
(adjusted for Republic) and median (median corresponding to the adjusted range
for Republic) of the Selected Companies' market capitalization (defined as
market value of common equity, plus book value of debt and preferred stock
less cash and cash equivalents) to the four most recent fiscal quarters
earnings before interest, taxes, depreciation and amortization ("LTM EBITDA"),
defined as the "EBITDA Multiple" for Keystone and the "Adjusted EBITDA
Multiple" for Republic, and the four most recent fiscal quarters earnings
before interest and taxes ("LTM EBIT"), defined as the "EBIT Multiple" for
Keystone and the "Adjusted EBIT Multiple" for Republic; (ii) the range
(adjusted for Republic) and median (median corresponding to the adjusted range
for Republic) of the Selected Companies' common equity market value to
estimated earnings (the "Price/Estimated Earnings Multiple" for Keystone, and
the "Adjusted Price/Estimated Earnings Multiple" for Republic) for the current
fiscal year and for the 1998 fiscal year of the Selected Companies based on
FirstCall Corporation research estimates as of February 13, 1998; and (iii)
the similarity of the Selected Companies to Keystone and Republic. A.G.
Edwards adjusted the range of multiples (and corresponding medians) of the
Selected Companies to make comparisons to Republic appropriate.
A.G. Edwards' analyses indicated that the Selected Companies': (i) EBITDA
Multiple ranged from 7.0x to 20.1x, with a median of 9.7x, compared with an
EBITDA Multiple of 11.5x for Keystone; (ii) EBIT Multiple ranged from 9.2x to
33.2x, with a median of 13.1x, compared with an EBIT Multiple of 13.8x for
Keystone; (iii) current fiscal year Price/Estimated Earnings Multiple ranged
from 10.0x to 26.3x, with a median of 17.3x, compared with a current fiscal
year Price/Estimated Earnings Multiple of 23.2x for Keystone; and (iv) 1998
Price/Estimated Earnings Multiples ranged from 9.9x to 21.9x, with a median of
16.0x, compared with a 1998 Price/Estimated Earnings Multiple of 18.9x for
Keystone. A.G. Edwards' analyses also considered the Selected Companies': (i)
LTM EBIT margins, which ranged from 1.3% to 12.1%, with a median of 9.4%,
compared with an LTM EBIT margin of 8.2% for Keystone; (ii) LTM EBITDA
margins, which ranged from 2.2% to 14.9%, with a median of 10.4%, compared
with an LTM EBITDA margin of 9.9% for Keystone; (iii) two-year compound annual
growth rate ("CAGR") of sales for the two most recent fiscal years, which
ranged from 0.6% to 49.5%, with a median of 14.3%, compared with a two-year
CAGR of sales of 21.0% for Keystone.
A.G. Edwards' analyses indicated that the Selected Companies': (i) Adjusted
EBITDA Multiple ranged from 7.0x to 9.7x, with a median of 8.4x, compared with
an EBITDA Multiple of 5.9x for Republic; (ii) Adjusted EBIT Multiple ranged
from 9.2x to 11.7x, with a median of 10.5x, compared with an EBIT Multiple of
8.5x for Republic; (iii) current fiscal year Adjusted Price/Estimated Earnings
Multiple ranged from 10.0x to 13.7x, with a median of 11.9x, compared with a
current fiscal year Price/Estimated Earnings Multiple of 15.3x for Republic;
and (iv) 1998 Adjusted Price/Estimated Earnings Multiples ranged from 9.9x to
13.2x, with a median of 11.6x, compared with a 1998 Price/Estimated Earnings
Multiple of 12.7x for Republic. A.G. Edwards' analyses also considered the
Selected Companies': (i) LTM EBIT margins, which ranged from 1.3% to 12.1%,
with a median of 9.4%, compared with an LTM EBIT margin of 4.8% for Republic;
(ii) LTM EBITDA margins, which ranged from 2.2% to 14.9%, with a median of
10.4%, compared with an LTM EBITDA margin of 7.0% for Republic; (iii) two-year
CAGR of sales for the two most recent fiscal years, which ranged from 0.6% to
49.5%, with a median of 14.3%, compared with a two-year CAGR of sales of 15.6%
for Republic.
Selected Transaction Analyses. A.G. Edwards analyzed certain available
information relating to 50 selected precedent transactions involving
automotive aftermarket companies completed since May 1995 (the "Selected
Transactions"), in which the purchaser owned 100% of the equity of the seller
on a pro forma basis. Among other things, A.G. Edwards analyzed: (i) an
adjusted range and median of the transaction price (defined as common equity
value to be paid, the "Transaction Price") as a multiple of the four most
recent fiscal quarters ("LTM") earnings; (ii) an adjusted range and median of
the aggregate purchase price (defined as common equity value, plus the book
value of debt and preferred stock to be assumed less cash and cash
equivalents, the "Aggregate Purchase Price") to LTM sales, LTM EBITDA and LTM
EBIT. A subset of 23 of the Selected
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Transactions did not have available data and therefore were excluded from the
Transaction Price and Aggregate Purchase Price multiple analyses. For both the
Transaction Price and Aggregate Purchase Price multiples, A.G. Edwards
adjusted the range of multiples (and corresponding medians) to make
comparisons to Republic appropriate.
The Selected Transactions included in the Transaction Price and Aggregate
Purchase Price multiples analyses were (buyer listed first and division
description listed in parentheses): O'Reilly Automotive, Inc./Hi-Lo
Automotive, Inc.; Keystone Automotive Industries, Inc./Inteuro Parts
Distributors, Inc.; Lund International/Deflecta-Shield Corporation; Global
Motorsport Group/Chrome Specialties, Inc.; Spartech Corporation/Echlin, Inc.
(Preferred Plastic Sheet); Oxford Automotive, Inc./Howell Industries, Inc.;
Hayes Wheels International/Lemmerz Holding GmbH; Tomkins Plc/Stant
Corporation; Tower Automotive, Inc./A.O. Smith Corp. (Automotive Products
Div.); Keystone Automotive Industries, Inc./North Star Plating Co.; Magna
International/Douglas & Lomason Company; Turbodyne Technologies, Inc./Pacific
Baja Metals Holdings Inc.; TBC Corporation/Big O Tires, Inc.; Drew Industries,
Inc./Shoals Supply Inc.; APS Holding Corporation/Parts, Inc.; Brainerd
International Inc./Colonel's Inc.; Echlin, Inc./American Electronic
Components; Republic Automotive Parts, Inc./Beacon Auto Parts; Douglas &
Lomason Company/Bestop, Inc.; Johnstown America Industries/Bestrom Seating,
Inc.; Echlin, Inc./Preferred Technical Group Int'l; Mark IV
Industries/Purolator Products Co.; APS Holding Corporation/Sieg Company; Stant
Corporation/Fedco Automotive Components Company; Deflecta-Shield Corp./Delta
III; Deflecta-Shield Corp./Trailmaster Products, Inc. (Ashton Corp.); Republic
Automotive Parts, Inc./AEA (Automotive Parts Dist. Business).
A.G. Edwards' analyses indicated that the Selected Transactions': (i)
adjusted Transaction Price as a multiple of LTM earnings ranged from 10.2x to
17.7x, with a median of 14.0x, compared with 19.8x implied for the Merger
using the closing stock price for Keystone Common Stock on February 13, 1998;
(ii) adjusted Aggregate Purchase Price as a multiple of LTM sales ranged from
0.4x to 1.0x, with a median of 0.7x, compared with 0.5x implied for the Merger
using the closing price for Keystone Common Stock on February 13, 1998; (iii)
adjusted Aggregate Purchase price as a multiple of LTM EBITDA ranged from 5.9x
to 10.4x, with a median of 8.2x, compared with 7.9x implied for the Merger
using the closing price for Keystone Common Stock on February 13, 1998; and
(iv) adjusted Aggregate Purchase Price as a multiple of LTM EBIT ranged from
8.8x to 12.2x, with a median of 10.5x, compared with 10.4x implied for the
Merger using the closing price for Keystone Common Stock on February 13, 1998.
No transaction used in A.G. Edwards' analyses is identical to the Merger.
A.G. Edwards' analyses involved complex considerations and judgments
concerning differences in acquisition values of the comparable transactions.
Pro Forma Merger Analyses. A.G. Edwards prepared pro forma analyses of the
impact of the Merger on the Keystone Stockholders. Using actual earnings for
calendar year 1997 and First Call Corporation research estimates for calendar
year 1998 for Keystone, and earnings estimates for calendar year 1998 for
Republic, prepared by Republic's management and as adjusted by A.G. Edwards,
along with certain other estimates and assumptions, A.G. Edwards estimated the
impact of the Merger on the Keystone Stockholders. A.G. Edwards adjusted
Republic's calendar year 1997 and 1998 earnings estimates provided by
Republic's management to account for, among other assumptions, operating
synergies created by the Merger, the risk of achieving forecasted performance,
and the possible divestiture of Republic's Distribution Centers/Stores
business segment after the closing of the Merger. Both purchase and pooling
accounting scenarios were reviewed. A.G. Edwards' analyses indicated that if
the Merger was accounted for: (i) as a purchase, at a price range of $19.00 to
$26.00 per share of Keystone Common Stock, the Merger would be accretive to
Keystone calendar year 1997 earnings per share in a range of 16.0% to 2.9%,
and would be accretive to dilutive to Keystone calendar year 1998 estimated
earnings per share in a range of 15.4% to (7.7)%; and (ii) as a pooling of
interests, at a price range of $19.00 to $26.00 per share of Keystone Common
Stock, the Merger would be accretive to Keystone calendar year 1997 earnings
per share in a range of 17.7% to 14.9%, and would be accretive to Keystone
calendar year 1998 estimated earnings per share in a range of 16.8% to 1.9%.
Accretion/dilution for calendar year 1997 and calendar year 1998 was
calculated as the percentage change from the calendar year 1997 Keystone
earnings per
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share to the pro forma calendar year 1997 earnings per share, and the calendar
year 1998 Keystone estimated earnings per share to the pro forma calendar year
1998 estimated earnings per share, respectively.
Change of Control Stock Price Premium Analyses. A change of control stock
price premium is the percentage increase in the price of a stock from a
specific period prior to the announcement of a change of control transaction
to the price paid per share of stock in the transaction. A.G. Edwards reviewed
the trading history of Republic Common Stock at periods of five days, 30 days
and 60 days prior to rendering its opinion to the Keystone Board on February
14, 1998, as a basis for determining a range of prices that could be expected
to be paid in a transaction that changes control of Republic. A.G. Edwards
also reviewed selected change of control transactions from a large database of
manufacturing and distribution companies to determine a range of historic
median change of control stock price premiums ("Control Premiums") at periods
of five days, 30 days and 60 days prior to the announcement of each
transaction. A.G. Edwards then applied these Control Premiums to Republic's
stock price levels at periods of five days, 30 days and 60 days prior to
rendering its opinion to the Keystone Board on February 14, 1998.
A.G. Edwards' analyses indicated that the Control Premiums over trading
levels at periods of five days, 30 days and 60 days prior to the announcement
of the change of control transactions were in a range of 25% to 35%. A.G.
Edwards' analyses also indicated that applying the range of Control Premiums
to Republic's closing stock price five days, 30 days and 60 days prior to A.G.
Edwards rendering its opinion to the Keystone Board on February 14, 1998,
yields stock price ranges of $16.56 to $17.89, $16.56 to $17.89 and $17.50 to
$18.90, respectively.
Other Information Considered and Analyses. In rendering its opinion, A.G.
Edwards considered other information and conducted certain other analyses
including, among other things, a review of: (i) the history of the trading
prices and volume for Keystone Common Stock and Republic Common Stock,
respectively; (ii) the historical ratio of the daily closing price of Keystone
Common Stock and Republic Common Stock over a twelve-month period ending
February 13, 1998; (iii) the publicly reported share holdings of Keystone
Common Stock and Republic Common Stock, respectively; and (iv) selected
published analyst reports on Keystone and Republic and certain of the Selected
Companies including analysts' estimates as to the earnings growth potential of
each of the individual companies discussed in such reports.
The preparation of a fairness opinion is not necessarily susceptible to
partial analyses and the summary set forth above must be considered as a
whole. Furthermore, selecting portions of such analyses or of the above
summary, without considering all factors and analyses would create an
incomplete view of the processes underlying the analyses set forth in A.G.
Edwards' fairness opinion. In arriving at its fairness opinion, A.G. Edwards
considered the results of all such analyses and did not attribute any
particular weight to any analysis or factor considered by it.
In performing its analyses, A.G. Edwards made numerous assumptions with
respect to industry performance and general business and economic conditions,
which are beyond the control of Keystone or Republic. The analyses performed
by A.G. Edwards 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 A.G.
Edwards' analysis of the fairness of the Merger Consideration, from a
financial point of view, to the Keystone Stockholders, and were provided to
the Keystone Board in connection with the delivery of A.G. Edwards' fairness
opinion. In addition, as described above, A.G. Edwards' opinion and
presentation to the Keystone Board was one of many factors taken into
consideration by the Keystone Board of in making its determination to approve
the Merger Agreement. A.G. Edwards' opinion does not address the relative
merits of the Merger as compared to any alternative business transactions in
which Keystone might engage.
Terms of A.G. Edwards' Engagement. The terms of engagement of A.G. Edwards
by Keystone are set forth in a letter agreement between A.G. Edwards and
Keystone (the "A.G. Edwards Engagement Letter"). Pursuant to the terms of the
A.G. Edwards Engagement Letter, as compensation for rendering its fairness
opinion to the Keystone Board, Keystone has paid A.G. Edwards a fee of
$250,000. In addition, Keystone has agreed to
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reimburse A.G. Edwards for the reasonable fees of A.G. Edwards' counsel, and
for A.G. Edwards' travel and out-of-pocket expenses incurred in connection
with its engagement. Keystone has agreed to indemnify A.G. Edwards against
certain liabilities in connection with the engagement of A.G. Edwards.
Republic
On April 15, 1998, at the request of the Republic Board, SGSC rendered its
oral opinion to the Republic Board (subsequently confirmed by delivery of a
written opinion dated May 18, 1998) to the effect that, as of the date of such
opinion, and subject to the various assumptions and limitations set forth in
such opinion, the Exchange Ratio was fair, from a financial point of view, to
the Republic Stockholders (other than Keystone or any of its affiliates).
THE FULL TEXT OF THE OPINION OF SGSC, DATED MAY 18, 1998, WHICH SETS FORTH,
AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SGSC, IS ATTACHED AS
APPENDIX III TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF REPUBLIC COMMON STOCK ARE URGED TO READ THIS
OPINION IN ITS ENTIRETY. THE OPINION OF SGSC IS DIRECTED ONLY TO THE EXCHANGE
RATIO AND DOES NOT ADDRESS THE UNDERLYING DECISION BY REPUBLIC TO ENGAGE IN
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF REPUBLIC
COMMON STOCK AS TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE REPUBLIC
PROPOSAL. FURTHERMORE, SGSC EXPRESSES NO VIEW AS TO THE PRICE OR TRADING RANGE
FOR SHARES OF KEYSTONE COMMON STOCK FOLLOWING THE CONSUMMATION OF THE MERGER.
THE SUMMARY SET FORTH HEREIN OF THE OPINION OF SGSC IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED HERETO AS
APPENDIX III.
In connection with its opinion, SGSC reviewed and considered such financial
and other matters as it deemed relevant, including, among other things: (i)
the Merger Agreement; (ii) certain publicly available information for Republic
and Keystone, including each of the annual reports of Republic and Keystone
filed on Form 10-K for the years ended December 31, 1996 and December 31, 1997
in the case of Republic, and for the year ended March 28, 1997 in the case of
Keystone, and the quarterly report of Keystone filed on Form 10-Q for the
quarter ended December 26, 1997; (iii) certain internal financial analyses,
financial forecasts, reports and other information concerning Republic and
Keystone furnished to SGSC by the respective managements of Republic and
Keystone; (iv) discussions SGSC has had with certain members of the
managements of each of Republic and Keystone concerning the historical and
current business operations, financial conditions and prospects of Republic
and Keystone and such other matters SGSC deemed relevant; (v) the reported
price and trading histories of the shares of Republic Common Stock and
Keystone Common Stock as compared to the reported price and trading histories
of certain publicly traded companies SGSC deemed relevant; (vi) the respective
financial conditions of Republic and Keystone as compared to the financial
conditions of certain other companies SGSC deemed relevant; (vii) certain
financial terms of the Merger as compared to the financial terms of selected
other business combinations SGSC deemed relevant; and (viii) such other
information, financial studies, analyses and investigations and such other
factors that SGSC deemed relevant for the purposes of its opinion.
In conducting its review and arriving at its opinion, SGSC, with Republic's
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information that was
provided to SGSC by Republic and Keystone, respectively, or publicly
available, and SGSC did not undertake any responsibility for the accuracy,
completeness or reasonableness of, or independently to verify, such
information. SGSC, with Republic's consent, assumed that the financial
forecasts which it examined were reasonably prepared by the respective
managements of Republic and Keystone on bases reflecting the best currently
available estimates and good faith judgments of such managements as to the
competitive, operating and regulatory environments and the related financial
performance of Republic and Keystone, as the case may be, for the relevant
periods. SGSC was informed by Republic, and has assumed, that the Merger will
qualify as
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a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. SGSC also assumed that the Merger will be
consummated on the terms and conditions set forth in the Merger Agreement,
without waiver or amendment of such terms and conditions. SGSC did not make or
obtain any independent evaluations, valuations or appraisals of the assets or
liabilities of Republic or Keystone, nor was it furnished with any such
materials. SGSC's services to Republic with respect to the Merger were
comprised solely of providing financial advisory services, as described in the
SGSC Engagement Letter (as defined below). Additionally, SGSC was engaged
solely for purposes of rendering an opinion as to the fairness, from a
financial point of view, of the Exchange Ratio, to the Republic Stockholders
(other than Keystone or any of its affiliates) and SGSC was not authorized or
requested to, and did not, solicit alternative offers for Republic or its
assets, nor did SGSC investigate any alternative transactions that may be
available to Republic. The opinion of SGSC is necessarily based upon economic
and market conditions and other circumstances as they existed and could be
evaluated by SGSC on the date thereof.
In connection with rendering its opinion to the Republic Board, SGSC
performed a variety of financial analyses which are summarized below. The
following summary does not purport to be a complete description of all the
analyses performed and factors considered by SGSC in connection with its
opinion. SGSC believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without consideration of all factors and analyses, could create a misleading
view of the analyses and the processes underlying SGSC's opinion. SGSC arrived
at its ultimate opinion based on the results of all the analyses undertaken by
it and assessed as a whole, and did not draw conclusions from or with regard
to any one method of analysis. The preparation of a fairness opinion is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. With respect to the
analysis of selected publicly traded companies and the analysis of selected
acquisitions summarized below, no company utilized as a comparison is either
identical or directly comparable to Republic or Keystone and such analyses
necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading or acquisition values of
the companies concerned. The estimates of future performance of Republic and
Keystone provided by the respective managements of Republic and Keystone in or
underlying SGSC's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
In performing its analyses, SGSC made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Republic or Keystone.
Estimates of values of companies or assets do not purport to be appraisals or
necessarily to reflect the prices at which companies or their securities
actually may be sold. None of the analyses performed by SGSC was assigned a
greater significance by SGSC than any other.
SGSC discussed with the respective managements of Republic and Keystone
internal earnings estimates for Republic and Keystone, respectively, and
certain other prospective information. Republic and Keystone do not publicly
disclose internal management estimates of the type provided to SGSC in
connection with its review of the financial terms of the Merger. Such
estimates were preliminary in nature, prepared solely for internal purposes,
and are subjective in many respects and are, therefore, susceptible to
interpretations and periodic revisions based on actual experience and business
developments. Such estimates were based on numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related
to general economic, regulatory and competitive conditions. Accordingly,
actual results could vary significantly from those reflected in such
estimates.
The following is a brief summary of the analyses performed by SGSC and
reviewed with the Republic Board in connection with its opinion.
Comparative Stock Price Performance--SGSC reviewed the recent stock market
performance of Republic Common Stock and Keystone Common Stock and compared
such performance to that of the S&P 500 Index, the S&P Auto Parts and
Equipment Index and a group of selected publicly traded companies deemed
relevant by SGSC for the purposes of its analysis: AutoZone, Inc., Discount
Auto Parts, Inc., Genuine Parts Company, Hahn
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Automotive Warehouse, Inc., Motorcar Parts and Accessories, Inc., O'Reilly
Automotive, Inc., The Pep Boys Manny, Moe & Jack, TBC Corporation, Republic
and Keystone (collectively, the "Automotive Aftermarket Companies"). SGSC
observed that over the period from June 21, 1996 to April 9, 1998, Republic
Common Stock underperformed Keystone Common Stock by 109.8%, over the period
from January 3, 1995 to April 9, 1998, underperformed an equal-weighted index
of the Automotive Aftermarket Companies (excluding Republic), the S&P 500
Index and the S&P Auto Parts and Equipment Index by 31.3%, 101.4% and 40.9%,
respectively, and over the period from April 9, 1997 to April 9, 1998,
underperformed Keystone Common Stock, an equal-weighted index of the common
stocks of the Automotive Aftermarket Companies (excluding Republic), the S&P
500 Index and the S&P Auto Parts and Equipment Index by 39.7%, 14.0%, 30.1%
and 20.8%, respectively. SGSC also observed that over the period from June 21,
1996 to April 9, 1998, Keystone Common Stock outperformed an equal-weighted
index of the Automotive Aftermarket Companies (excluding Keystone), the S&P
500 Index and the S&P Auto Parts and Equipment Index by 116.0%, 71.7% and
95.1%, respectively, and over the period from April 9, 1997 to April 9, 1998,
outperformed an equal-weighted index of the Automotive Aftermarket Companies
(excluding Keystone), the S&P 500 Index and the S&P Auto Parts and Equipment
Index by 29.7%, 9.6% and 18.9%, respectively.
Analysis of Selected Publicly Traded Companies--SGSC compared certain
financial information and operating statistics of Republic with corresponding
financial information and operating statistics of each of the Automotive
Aftermarket Companies (excluding Republic), and certain financial information
and operating statistics of Keystone with corresponding financial information
and operating statistics for each of the Automotive Aftermarket Companies
(excluding Keystone). Such financial information and operating statistics
included, among other things, certain historical profitability margins,
certain historical and projected growth rates, market values of equity, total
enterprise values and certain implied financial multiples. Among other things,
this analysis indicated that the implied financial multiples for (i) the
Automotive Aftermarket Companies, excluding Republic, were as follows: (a)
total enterprise value as a multiple of last twelve months net sales ranged
from 1.89x to 0.50x, with a median of 1.29x and an average of 1.22x; (b) total
enterprise value as a multiple of last twelve months earnings before interest,
taxes, depreciation and amortization ("EBITDA") ranged from 13.7x to 7.6x,
with a median of 10.4x and an average of 10.6x; (c) total enterprise value as
a multiple of last twelve months earnings before interest and taxes ("EBIT")
ranged from 16.6x to 9.4x, with a median of 11.8x and an average of 13.0x; (d)
market price as a multiple of last twelve months earnings per share ("EPS")
ranged from 27.3x to 11.8x, with a median of 19.5x and an average of 19.8x;
and (e) market price as a multiple of estimated calendar 1998 EPS ranged from
21.5x to 10.3x, with a median of 17.9x and an average of 17.0x; and (ii) for
the Automotive Aftermarket Companies, excluding Keystone, were as follows: (a)
total enterprise value as a multiple of last twelve months net sales ranged
from 1.89x to 0.47x, with a median of 1.15x and an average of 1.12x; (b) total
enterprise value as a multiple of last twelve months EBITDA ranged from 13.2x
to 7.6x, with a median of 10.3x and an average of 9.9x; (c) total enterprise
value as a multiple of last twelve months EBIT ranged from 16.2x to 9.4x, with
a median of 11.6x and an average of 12.5x; (d) market price as a multiple of
last twelve months EPS ranged from 27.3x to 11.8x, with a median of 18.7x and
an average of 19.1x; and (e) market price as a multiple of estimated calendar
1998 EPS ranged from 20.6x to 10.3x, with a median of 17.3x and an average of
16.4x. SGSC observed that the implied financial multiples based on closing
market prices on February 17, 1998 (one day prior to the announcement of the
transaction) (i) for Republic were as follows: (a) total enterprise value as a
multiple of last twelve months net sales of 0.37x (0.45x based on the Exchange
Ratio and a closing price for Keystone Common Stock of $22.50 on February 17,
1998); (b) total enterprise value as a multiple of last twelve months EBITDA
of 6.0x (7.4x based on the Exchange Ratio and a closing price for Keystone
Common Stock of $22.50 on February 17, 1998); (c) total enterprise value as a
multiple of last twelve months EBIT of 9.1x (11.3x based on the Exchange Ratio
and a closing price for Keystone Common Stock of $22.50 on February 17, 1998);
(d) market price as a multiple of last twelve months EPS of 13.6x (18.1x based
on the Exchange Ratio and a closing price for Keystone Common Stock of $22.50
on February 17, 1998); and (e) market price as a multiple of estimated
calendar 1998 EPS of 12.5x (16.7x based on the Exchange Ratio and a closing
price for Keystone Common Stock of $22.50 on February 17, 1998); and (ii) for
Keystone were as follows: (a) total enterprise value as a multiple of last
twelve months net sales of 1.27x; (b) total enterprise value as a multiple of
last twelve months EBITDA of 12.7x; (c) total enterprise value as a
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multiple of last twelve months EBIT of 15.5x; (d) market price as a multiple
of last twelve months EPS of 23.1x; and (e) market price as a multiple of
estimated calendar 1998 EPS of 20.1x. All EPS estimates for the Automotive
Aftermarket Companies (excluding Republic and Keystone) were based on publicly
available, consensus analyst estimates as reported by First Call Corporation,
and EPS estimates for Republic and Keystone were based on the estimates of the
respective managements of such companies. All implied financial multiples,
except those noted above, were based on closing market prices on April 9,
1998.
Analysis of Selected Acquisitions--SGSC reviewed 13 selected merger and
acquisition transactions involving automotive aftermarket distributors, all of
which were announced since the beginning of 1993 (the "Selected
Acquisitions"). SGSC analyzed the equity purchase price, total enterprise
value, certain implied financial multiples and the premiums over prevailing
market prices based on certain public information for each of the Selected
Acquisitions. This analysis indicated that the implied financial multiples of
the Selected Acquisitions were as follows: (a) total enterprise value as a
multiple of last twelve months net sales ranged from 1.29x to 0.32x, with a
median of 0.55x and an average of 0.59x; (b) total enterprise value as a
multiple of last twelve months EBITDA ranged from 14.0x to 7.5x, with a median
of 10.0x and an average of 10.4x; (c) total enterprise value as a multiple of
last twelve months EBIT ranged from 19.6x to 9.2x, with a median of 11.7x and
an average of 14.3x; and (d) equity purchase price as a multiple of last
twelve months net income ranged from 30.4x to 16.6x, with a median of 20.5x
and an average of 22.6x. Additionally, this analysis indicated that the
premiums represented by the purchase price to the market price of the subject
company in the Selected Acquisitions one day and four weeks prior to the
announcement of the subject transaction ranged from 33.8% to 20.0%, with a
median of 25.5% and an average of 26.4%, and from 58.2% to 22.2%, with a
median of 42.2% and an average of 40.9%, respectively. SGSC observed that the
financial multiples of Republic implied by the Exchange Ratio and based on a
closing price for Keystone Common Stock of $24.13 on April 9, 1998, were:
(i) total enterprise value as a multiple of last twelve months net sales of
0.48x; (ii) total enterprise value as a multiple of last twelve months EBITDA
of 7.8x; (iii) total enterprise value as a multiple of last twelve months EBIT
of 11.9x; and (iv) equity purchase price as a multiple of last twelve months
net income of 20.1x. Additionally, SGSC observed that the premiums to the
market price of Republic Common Stock on February 17, 1998 (one day prior to
the announcement of the transaction), and four weeks prior to February 17,
1998, implied by the Exchange Ratio and a closing price for Keystone Common
Stock of $24.13 on April 9, 1998, were 42.6% and 39.1%, respectively.
In addition, SGSC reviewed 16 selected merger and acquisition transactions
involving publicly traded automotive parts and equipment companies, all of
which were announced since the beginning of 1991 (the "Selected Publicly
Traded Automotive Parts and Equipment Company Acquisitions"), and analyzed the
premiums paid over prevailing market prices in such transactions. This
analysis indicated that the median and average premiums represented by the
purchase price to the market price of the subject company one day and four
weeks prior to the announcement of the subject transaction for the Selected
Publicly Traded Automotive Parts and Equipment Company Acquisitions were 22.0%
and 22.7%, respectively, and 43.0% and 42.8%, respectively. SGSC observed that
the premiums to the market price of Republic Common Stock on February 17, 1998
(one day prior to the announcement of the transaction), and four weeks prior
to February 17, 1998, implied by the Exchange Ratio and a closing price for
Keystone Common Stock of $24.13 on April 9, 1998, were 42.6% and 39.1%,
respectively.
Discounted Cash Flow Analysis. SGSC performed a discounted cash flow
analysis using financial forecasts furnished by Republic's management for each
of the calendar years 1998 through 2002. Based on such forecasts, SGSC
calculated Republic's EBIT and Free Cash Flow (defined for this purpose as
forecasted unleveraged net income adjusted for forecasted depreciation and
amortization, forecasted capital expenditures and forecasted working capital
requirements) for 1998 through 2002. SGSC discounted such stream of Free Cash
Flows back to December 31, 1997, using discount rates ranging from 10.0% to
12.0%. To estimate the residual value of Republic at the end of 2002, SGSC
applied terminal multiples of 7.5x to 9.5x to the forecasted 2002 EBIT and
discounted such value estimates back to December 31, 1997, using discount
rates ranging from 10.0% to 12.0%. SGSC determined the range of discount rates
and terminal multiples based on a variety of factors,
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including, among other things, analyses of the estimated cost of capital of
Republic, the range of market multiples for the Automotive Aftermarket
Companies and general market conditions. SGSC then added the present values of
the Free Cash Flows and the present values of the residual values to derive a
range of implied enterprise values for Republic. These calculations resulted
in implied values per share of Republic Common Stock ranging from $12.67 to
$18.94. SGSC also performed a discounted cash flow analysis using financial
forecasts furnished by Keystone's management for each of the fiscal years 1998
through 2003. Based on such forecasts, SGSC calculated Keystone's EBIT and
Free Cash Flow for 1998 through 2003. SGSC discounted such stream of Free Cash
Flows back to December 31, 1997, using discount rates ranging from 10.0% to
12.0% To estimate the residual value of Keystone at the end of 2003, SGSC
applied terminal multiples of 9.0x to 11.0x to the forecasted 2003 EBIT and
discounted such value estimates back to December 31, 1997, using discount
rates ranging 10.0% to 12.0%. SGSC determined the range of discount rates and
terminal multiples based on a variety of factors, including, among other
things, analyses of the estimated cost of capital of Keystone, the range of
market multiples for the Automotive Aftermarket Companies and general market
conditions. SGSC then added the present values of the Free Cash Flows and the
present values of the residual values to derive a range of implied enterprise
values for Keystone. These calculations resulted in implied values per share
of Keystone Common Stock ranging from $20.66 to $27.07.
Exchange Ratio Analysis--SGSC reviewed the ratios of the prices of Republic
Common Stock to Keystone Common Stock over various periods ending February 17,
1998 (one day prior to the announcement of the transaction), and calculated
the premium represented by the Exchange Ratio to these ratios. The ratios of
closing stock prices of Republic Common Stock to Keystone Common Stock for the
various periods ending February 17, 1998, were 0.825 for the average of the
previous year, 0.685 for the average of the previous six months, 0.627 for the
average of the previous three months, 0.616 for the average of the previous
two months, 0.610 for the average of the previous one month, 0.522 for the 52-
week low, 1.129 for the 52-week high, 0.631 for the day four weeks prior to
February 17, 1998, and 0.601 on February 17, 1998. SGSC observed that the
Exchange Ratio represented premiums/(discounts) of (3.1)%, 16.8%, 27.6%,
29.9%, 31.2%, 53.3%, (29.1)%, 26.8% and 33.0%, respectively, to the
aforementioned ratios of the prices of Republic Common Stock to Keystone
Common Stock.
Contribution Analysis--SGSC analyzed the pro forma contribution of each of
Republic and Keystone to the resultant combined company if the Merger were to
be consummated. Such analysis was based on historical information and the
estimates of the respective managements of Republic and Keystone. Such
analysis indicated that for the calendar years 1997, 1998 and 1999, Republic
would contribute approximately 42.4%, 38.4% and 36.9%, respectively, of the
net sales of the combined company, approximately 31.1%, 26.6% and 24.3%,
respectively, of the EBITDA of the combined company, approximately 26.5%,
23.5% and 22.2%, respectively, of the EBIT of the combined company and
approximately 21.8%, 19.2% and 18.6%, respectively, of the net income of the
combined company. SGSC observed that the Exchange Ratio implied pro forma
ownership of the outstanding common stock of the combined company of 15.7% for
holders of Republic Common Stock and pro forma ownership of the outstanding
common stock of the combined company, adjusted to include options outstanding
for each of Republic and Keystone, of 16.4% for holders of Republic Common
Stock.
Pro Forma Merger Analysis--SGSC analyzed certain pro forma financial effects
resulting from the Merger, including the impact of the Merger on Keystone's
projected EPS for the calendar years 1998 and 1999. Based on the estimates of
the respective managements of Republic and Keystone and the Exchange Ratio,
and assuming that the Merger is treated as a purchase for accounting purposes,
the results of the pro forma merger analysis suggest that, without giving
effect to any potential operating synergies that may result from the Merger,
the Merger will be moderately accretive to Keystone's EPS in each of the
calendar years 1998 and 1999. The actual results achieved by the combined
company could vary from projected results and the variations could be
material.
SGSC is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, competitive biddings,
private placements, public financings and valuations for corporate, estate and
other purposes.
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Republic and SGSC have entered into a letter agreement, dated April 14, 1998
(the "SGSC Engagement Letter"), relating to the services to be provided by
SGSC to Republic in connection with the Merger. Pursuant to the SGSC
Engagement Letter, Republic has agreed to pay SGSC for its services a fee of
$250,000 in connection with the delivery of the opinion of SGSC, payable at
the closing of the Merger. In addition, Republic has agreed to reimburse SGSC
for its expenses, including the reasonable fees and disbursements of its
counsel. Pursuant to an additional letter dated April 14, 1998, Republic also
has agreed to indemnify SGSC against certain liabilities, including
liabilities under the federal securities laws arising in connection with its
engagement by Republic.
In the ordinary course of business, SGSC and its affiliates actively trade
securities and may, from time to time, trade the securities of Republic and
Keystone for their own accounts and for the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Salary Continuation Agreements. Five executive officers have entered into
salary continuation agreements (the "Salary Continuation Agreements") with
Republic which provide for certain benefits following a change in control of
Republic (such as the Merger) in certain circumstances. These Salary
Continuation Agreements were entered into on April 26, 1990 in the cases of
Mr. Thompson and Mr. Hauk and December 11, 1997 in the cases of Mr. Rutkowski,
Mr. Goetsch and Mr. Dainora and provide, in general, that in the event a third
party takes any steps to effect a change in control (as defined therein) of
Republic, the executive agrees not to voluntarily leave the employ of Republic
and to continue to render services to Republic until the third party has
abandoned or terminated the effort to effect the change in control or until
the change in control has been consummated. In the event the executive
fulfills this condition, Republic agrees to pay him Severance Benefits (as
defined below) if there is an Involuntary Termination (as defined below) of
the executive within a specified period of time following the consummation of
the change in control. For Mr. Thompson and Mr. Hauk the specified period is
two years and for Mr. Rutkowski, Mr. Goetsch and Mr. Dainora the specified
period is one year. An Involuntary Termination is defined as (i) a termination
by Republic of the executive's employment other than as a result of his death,
disability or attaining normal retirement age or (ii) a termination of the
executive's employment by the executive after any reduction in his base
salary, any material reduction in his fringe benefits, his relocation to a
location outside a 50 mile radius of his current office without his consent, a
material decrease in his responsibilities or authority or any other material
adverse change in the condition of his employment. The Severance Benefits
consist of (i) the continued periodic payment of the executive's then-current
annual base salary and fringe benefits for the specified period and (ii) the
acceleration of the exercisability of all unexercisable stock options held by
the executive to be effective immediately prior to or concurrently with the
occurrence of the change in control. The Severance Benefits payable to Mr.
Thompson and Mr. Hauk are not subject to any offset for amounts earned by them
from other employers, but the Severance Benefits payable to Mr. Rutkowski, Mr.
Goetsch and Mr. Dainora are subject to offset on a dollar-for-dollar basis
beginning six months following the date of the Involuntary Termination to the
extent of any salary or fringe benefits received by the executive from another
employer. In the event of the death of the executive during the period
Severance Benefits are payable to him, all remaining Severance Benefits are
payable to his designee, or if there is no such designee, to his estate.
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Performance Share Agreements. Edgar Berner, Chairman of the Board of
Republic, entered into a Performance Share Agreement dated September 21, 1989.
The agreement provides an award cycle commencing September 21, 1989, and
continuing until September 21, 1999. The program target is to compensate and
retain Mr. Berner as Chairman of Republic. If Mr. Berner is employed as
Chairman of Republic on September 21, 1999, the program target will have been
100% met. All performance shares will be forfeited by Mr. Berner in the event
that he terminates his employment with Republic prior to a "Terminating
Event." A "Terminating Event" is defined as one of the following occurrences:
(i) the program target is considered to have been 100% met as provided above;
(ii) Mr. Berner is terminated by Republic for any reason as Chairman; (iii)
Mr. Berner dies while he is an employee of Republic or (iv) there is a change
in control of Republic (such as the Merger). The initial award was 65,760
shares of Republic Common Stock plus an additional amount of shares of
Republic Common Stock equivalent to 12% per annum of such number of shares, as
compounded, calculated with the starting date of September 21, 1990 and
prorated over the number of days which have elapsed subsequent to such date
and prior to the date the Terminating Event occurs. Effective August 2, 1993,
Mr. Berner's interest in the performance share program was transferred to an
irrevocable trust, of which he is neither a trustee nor a beneficiary, for the
benefit of his descendants. Effective April 3, 1997, Mr. Berner's performance
share program was amended to include a provision providing for earlier payment
if there is a change in control (such as the Merger) of the Company prior to
September 21, 1999. The amount so payable would be equal to the benefits
forfeited under the performance share program granted on September 21, 1989 as
a result of a change in control occurring prior to September 21, 1999.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. Under this method of
accounting, the purchase price, including costs directly related to the
Merger, will be allocated to the assets acquired and liabilities assumed based
upon their estimated fair values as of the date of consummation, with any
excess purchase consideration allocated to cost in excess of net assets
acquired. The operating results of Republic will be included with those of
Keystone from the date of consummation. See "Unaudited Pro Forma Combined
Condensed Financial Statements." Keystone is electing to account for the
Merger as a purchase so that it will have the flexibility to divest some or
all of Republic's business involving the distribution of mechanical
replacement parts for automobiles, trucks, vans, snowmobiles, motorcycles and
farm and marine equipment, during the first two years after completion of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the material United States federal
income tax consequences of the Merger to a Republic Stockholder. Because
Keystone Stockholders immediately before the Merger will not be required to
exchange or otherwise dispose of their shares in Keystone as a result of the
Merger, the Merger will not cause any United States federal income tax
consequences to such stockholders by virtue of their ownership of Keystone
Common Stock.
The income tax discussion set forth in this section is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations issued thereunder, administrative rulings and judicial authority
as of the date hereof. All of the foregoing are subject to change, possibly
retroactively, and any such change could affect the continuing validity of the
discussion. The discussion does not address all aspects of United States
federal income taxation that may be important to particular stockholders who
are subject to special treatment under United States federal income tax laws,
such as dealers in securities, banks, insurance companies, tax-exempt
organizations and stockholders who are not citizens or residents of the United
States or who acquired their Republic Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation or through a tax-qualified
retirement plan. The effects of any applicable foreign, state, local or other
tax laws are also not addressed. In addition, this discussion assumes that
Republic Stockholders hold their shares of Republic Common Stock as capital
assets, as defined in the Code. Republic Stockholders should consult their own
tax advisors as to the particular tax consequences of the Merger to them,
including income tax return reporting
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requirements, the applicability and effect of foreign, state, local and other
tax laws, and the effect of any proposed change in the tax law.
The Merger is conditioned on the receipt by Republic of an opinion from its
tax counsel, Patterson, Belknap, substantially to the effect that the Merger
will be treated as a reorganization within the meaning of Section 368(a) of
the Code for United States federal income tax purposes. It is the opinion of
Patterson Belknap that, assuming the Merger qualifies as a reorganization, the
Merger will have the following principal United States federal income tax
consequences:
. no gain or loss will be recognized by Republic Stockholders upon their
receipt in the Merger of Keystone Common Stock in exchange for their
Republic Common Stock;
. the tax basis of new Keystone Common Stock received in the Merger by a
Republic Stockholder will be the same as the basis to the stockholder of
the Republic Common Stock exchanged therefor;
. the holding period for Keystone Common Stock received by a Republic
Stockholder in the Merger will include the holding period of such
stockholder in the Republic Common Stock exchanged therefor, provided
that the Republic Common Stock is held as a capital asset at the
Effective Time; and
. if a Republic Stockholder receives cash in lieu of the issuance of a
fractional share of Keystone Common Stock, such cash amount will be
treated as received in exchange for a fractional share of Keystone
Common Stock; gain or loss recognized as a result of that exchange will
be equal to the cash amount received for the fractional share of
Keystone Common Stock reduced by the portion of the stockholder's tax
basis in the shares of Republic Common Stock exchanged that is allocable
to such fractional share of Keystone Common Stock; and such gain or loss
will be a capital gain or loss, provided that the Republic Common Stock
is held by such stockholder as a capital asset at the Effective Time.
The foregoing tax opinion will be based on certain factual assumptions and
on representations made by Keystone and Republic. The tax opinion cannot be
relied upon if any of such factual assumptions is, or later becomes,
inaccurate. No ruling from the Internal Revenue Service concerning the tax
consequences of the Merger has been requested, and the tax opinion will not be
binding upon the Internal Revenue Service or the courts. If the Merger is
consummated, and it is later determined that the Merger did not qualify as a
tax-free reorganization, each Republic Stockholder will recognize taxable gain
or loss in the Merger equal to the difference between the fair market value of
the Keystone Common Stock received at the time of the Merger and such
stockholder's basis in the Republic Common Stock exchanged therefor.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX EFFECTS OF THE MERGER.
REPUBLIC STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
Any cash payments to which a Republic Stockholder or other payee is entitled
pursuant to the Merger will be subject to backup withholding at a rate of 31%
unless either (i) the stockholder or other payee provides its taxpayer
identification number (social security number or employer identification
number) and certifies that such number is correct or (ii) an exemption from
backup withholding applies under the applicable law and regulations.
RESALE RESTRICTIONS
All shares of Keystone Common Stock received by Republic Stockholders in the
Merger will be freely transferable, except that shares of Keystone Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Republic at the time of the Republic
Stockholders Meeting 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 Republic or Keystone generally
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include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party, as well as principal stockholders of such party.
AFFILIATE AGREEMENTS
Keystone. The Merger Agreement requires Keystone to exercise all reasonable
efforts to cause each of its executive officers and directors to execute the
affiliate agreement, which is attached to the Merger Agreement as Exhibit C,
which provides that each such person will vote all shares of Keystone Common
Stock as to which the person has shared or sole voting power (x) for the
approval of the Merger Agreement, the Merger and the related transactions and
(y) against any amendment to the Keystone Charter or Bylaws and any other
merger or acquisition or any other proposal or transaction which would in any
manner frustrate or prevent the Merger.
Republic. The Merger Agreement requires Republic to exercise all reasonable
efforts to cause each of its executive officers and directors to execute the
affiliate agreement, which is attached to the Merger Agreement as Exhibit B,
which provides that each such person will not offer to sell, transfer or
otherwise dispose of any of the shares of Keystone Common Stock issued to such
person in or pursuant to the Merger unless (a) such sale, transfer or other
disposition is made pursuant to an effective registration statement under the
Securities Act or (b) such person delivers to Keystone an opinion of legal
counsel that such sale, transfer or other disposition is exempt from the
registration under the Securities Act.
In addition, each of such executive officers and directors agrees (i) to
recommend to the Republic Stockholders that they approve the Merger Agreement
and reject any third party competing offers, unless the Republic Board
determines in good faith that doing so would result in a breach of their
fiduciary duties under applicable law and (ii) to vote all shares of Republic
Common Stock as to which such person has shared or sole voting power (x) for
the approval of the Merger Agreement, the Merger and the related transactions
and (y) against any amendment to the Republic Certificate or bylaws and any
competing transaction or other proposal which would in any manner frustrate or
prevent the Merger.
STOCK OPTION AGREEMENT
General. Concurrently with the execution and delivery of the Merger
Agreement, and as a condition and inducement for Keystone to enter into the
Merger Agreement, Keystone and Republic entered into the stock option
agreement (the "Stock Option Agreement"), which is attached to the Merger
Agreement as Exhibit A, pursuant to which Republic granted Keystone an option
to purchase up to 676,961 shares of Republic Common Stock (or such other
number of shares of Republic Common Stock as represent 19.9% of the shares of
Republic Common Stock issued and outstanding at the time of exercise) at a
price per share of $17.00.
The following is a summary of certain provisions of the Stock Option
Agreement, which summary is qualified in its entirety by reference to the
Stock Option Agreement attached to this Joint Proxy Statement/Prospectus as
Exhibit A to Appendix I.
Exercise of the Option. The option granted pursuant to the Stock Option
Agreement is exercisable only upon the occurrence of certain specified events
(each a "Triggering Event") inconsistent with the consummation of the Merger
pursuant to the Merger Agreement. These include, but are not limited to:
. termination of the Merger Agreement by either Keystone or Republic as a
result of a failure of the Republic Stockholders to approve the Merger
as a result of an acquisition proposal from a third party and thereafter
within nine months Republic enters into an agreement to consummate a
transaction with that third party;
. termination of the Merger Agreement by Republic as a result of
Republic's proposing to enter into a written agreement with a third
party with respect to an acquisition transaction which is superior to
the terms of the Merger Agreement from a financial point of view and
Keystone's election not to revise the terms of the Merger such that they
are at least as favorable to Republic as the third party offer; or
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. termination of the Merger Agreement by Keystone as a result of (x) the
Republic Board having withdrawn or adversely modified its approval or
recommendation of the Merger Agreement, (y) a willful and intentional
breach by Republic of its agreement not to directly or indirectly
solicit acquisition proposals, or (z) actions by Republic which would be
in breach of its agreement not to solicit acquisition proposals but for
certain approved actions.
If the Merger Agreement is terminated in a manner that does not immediately
render the option exercisable, the option may thereafter become exercisable
upon the occurrence of a Triggering Event, provided the option has not
expired.
Expiration. The right to exercise the option expires under various
circumstances, including, but not limited to (1) the Effective Time of the
Merger, or (2) the earlier of (x) 90 days after Keystone becomes entitled to
receive the Termination Fee and (y) the date Keystone is no longer potentially
entitled to receive the Termination Fee.
Limitation on Profit. Keystone may not realize Total Profit (as described
below) in excess of $1.1 million upon the exercise of the option. In the event
the Total Profit exceeds $1.1 million, to reduce the Total Profit to $1.1
million or less, Keystone, at its sole election, shall either (1) reduce the
number of shares of Republic Common Stock which Keystone is entitled to
purchase under the option, (2) deliver cash to Republic, (3) deliver to
Republic for cancellation shares of Republic Common Stock previously purchased
by Keystone, or (4) any combination thereof.
"Total Profit" is precisely defined in the Stock Option Agreement, but is
intended to approximate the excess of the market value of Republic Common
Stock (based on Nasdaq National Market closing prices of Republic Common Stock
just prior to the date of exercise) over the option exercise price of $17.00
per share of Republic Common Stock.
Adjustment of Number of Shares. The number and type of securities subject to
the option and the purchase price of the shares of Republic Common Stock are
subject to adjustment upon any change in the Republic Common Stock by reason
of dividend, stock split, recapitalization, combination, exchange of shares or
other similar transactions or events such that Keystone will receive (upon
exercise of the option) the same number and class of securities as if the
option had been exercised immediately prior to the occurrence of such
transaction or event. The number of shares of Republic Common Stock subject to
the option also will be adjusted in the event Republic issues additional
shares of Republic Common Stock, such that the number of shares of Republic
Common Stock subject to the option represents 19.9% of the shares of Republic
Common Stock issued and outstanding at the time of exercise.
Repurchase at the Option of Keystone. During the six-month period following
a Triggering Event, Keystone has the right to require Republic to repurchase
the option and, to the extent permitted by the Delaware Corporate Law, all
shares of Republic Common Stock purchased by Keystone pursuant to previous
exercises of the option.
Any repurchase will be at a price calculated pursuant to a formula specified
in the Stock Option Agreement. Generally, the repurchase price equals the sum
of (1) the option price paid by Keystone upon exercises of the option, (2) the
excess of the market/offer price over $17.00, multiplied by the number of
shares of Republic Common Stock with respect to which the option has not been
exercised or with respect to which the option has been exercised by Keystone
and of which Keystone still has beneficial ownership of the shares of Republic
Common Stock, multiplied by the number of all of such shares. The portion of
the repurchase price in excess of the exercise price paid by Keystone is
limited to $1.1 million.
Under the Stock Option Agreement, "the market/offer price" generally refers
to the highest price per share of Republic Common Stock (1) at which a tender
or exchange offer has been made, (2) to be paid by any third party
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pursuant to an agreement with Republic or (3) in the market during the six
months prior to Keystone's exercise of its right to require Republic to
repurchase the option or the underlying shares of Republic Common Stock.
Registration Rights. Keystone has certain rights to require registration of
any shares of Republic Common Stock purchased pursuant to the Stock Option
Agreement, if necessary under the securities laws to enable Keystone to sell
such shares.
Effect of Option Agreement. Certain aspects of the Stock Option Agreement
may have the effect of discouraging persons who might now or prior to the
Effective Time be interested in acquiring all of or a significant interest in
Republic from considering or proposing such an acquisition, even if such
persons were prepared to offer higher consideration per share for Republic
Common Stock than the consideration set forth in the Merger Agreement.
DISSENTERS' RIGHTS
Keystone. Because the Keystone Common Stock is traded on the Nasdaq National
Market, dissenters' rights will be available to the Keystone Stockholders only
if the holders of five percent (5%) or more of the Keystone Common Stock make
a written demand upon Keystone for the purchase of dissenting shares in
accordance with Chapter 13 ("Chapter 13") of the California Code. If this
condition is satisfied and the Merger is consummated, stockholders of Keystone
who dissent from the Merger by complying with the procedures set forth in
Chapter 13 would be entitled to receive an amount equal to the fair market
value of their shares as of February 17, 1998, the last trading day before the
public announcement of the Merger. The high, low and closing sale prices for
the Keystone Common Stock on February 17, 1998 were $22.50, $21.75 and $22.50,
respectively. A copy of Chapter 13 of the California Code is attached hereto
as Appendix IV and should be read for more complete information concerning
dissenters' rights, THE REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA CODE 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 Keystone Stockholders and is qualified in its entirety
by reference to Appendix IV.
In order to be entitled to exercise dissenters' rights, a Keystone
Stockholder must vote "AGAINST" the Merger. Thus, any Keystone Stockholder 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 Keystone Stockholder 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 stockholder will lose any dissenters'
rights. In addition, if the Keystone Stockholder abstains from voting his or
her shares, the Keystone Stockholder will lose his or her dissenters' rights.
Further, in order to preserve his or her dissenters' rights, a Keystone
Stockholder must make a written demand upon Keystone for the purchase of
dissenting shares and payment to such Keystone Stockholder of their fair
market value, specifying the number of shares held of record by such
stockholder and a statement of what the stockholder claims to be the fair
market value of those shares as of February 17, 1998. Such demand must be
addressed to Keystone Automotive Industries, Inc., 700 East Bonita Avenue,
Pomona, California 91767; Attention: James C. Lockwood, Secretary, and must be
received by Keystone not later than the date of the Keystone Stockholders
Meeting. A vote "Against" the Merger does not constitute such written demand.
If the holders of five percent (5%) or more of the outstanding shares of
Keystone Common Stock have submitted a written demand for Keystone to purchase
their shares, these demands are received by Keystone on or before the date of
the Keystone Stockholders Meeting and the Merger is approved by the Keystone
Stockholders, Keystone will have ten days after such approval to send to those
stockholders who have voted against the approval of the Merger and submitted a
written demand, written notice of such approval accompanied by a copy of
Chapter 13 of the California Code, a statement of the price determined by
Keystone to represent the fair market value of the dissenting shares as of
February 17, 1998, and a brief description of the procedure to be followed if
a Keystone Stockholder desires to exercise dissenters' rights. Within 30 days
after the date on
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which the notice of the approval of the Merger is mailed, the dissenting
stockholder 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
exchanged for certificates of appropriate denomination so stamped or endorsed.
Any shares of Keystone Common Stock that are transferred prior to their
submission for endorsement lose their status as dissenting shares.
If Keystone and the dissenting stockholder agree that the surrendered shares
are dissenting shares and agree upon the price of the shares, the dissenting
stockholder 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
market 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 stockholder fail to agree upon a fair market value
of such shares of Keystone Common Stock, then the dissenting stockholder must,
within six months after the notice of approval is mailed, file a complaint in
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 stockholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' 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.
A dissenting shareholder may not withdraw his or her dissent or demand for
payment unless Keystone consents to such withdrawal.
Any Keystone Stockholder who effectively dissents from the Merger and who
receives cash for his or her shares will recognize a gain (or loss) for
federal income tax purposes equal to the amount by which the cash received for
those shares exceeds (or is less than) the stockholder's tax basis for the
shares. The amount of that gain (or loss), if any, will be treated as ordinary
income (or loss) or long-term or short-term capital gain (or loss) depending
on the length of time the shares are held by the dissenter, whether the shares
are held as a capital asset, and whether the dissenter is deemed to own shares
of Keystone Common Stock pursuant to the attribution rules of Section 318 of
the Code. In certain circumstances, a dissenter can be deemed for tax purposes
to own shares that are actually owned by a non-dissenter that is related to
the dissenter, with the possible result that the cash received in the exercise
of the dissenter's rights could be treated as a dividend received pursuant to
a corporate distribution rather than an amount received pursuant to a sale or
exchange of the Keystone Common Stock.
Republic. Under the Delaware Corporate Law, Republic Stockholders are not
entitled to any appraisal rights. See "Comparison of Stockholders' Rights."
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix I to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER
Pursuant to the Merger Agreement and, subject to the terms and conditions
thereof, at the Effective Time (as defined below), Merger Sub will be merged
with and into Republic, and the separate corporate existence of Merger Sub
will thereupon cease. Republic will be the surviving corporation in the Merger
and will be a wholly owned subsidiary of Keystone. Although Republic will be a
subsidiary of Keystone, certain aspects of its business, primarily related to
the distribution of aftermarket collision parts, will be integrated into
Keystone's existing business. The Merger will have the effects specified under
Delaware Corporate Law.
After the satisfaction or waiver of all conditions to the Merger, and
provided that the Merger Agreement has not been terminated or abandoned,
Keystone and Republic will cause a Certificate of Merger to be executed,
acknowledged and filed with the Secretary of State of the State of Delaware as
provided in Section 251 of the Delaware Corporate Law (the "Certificate of
Merger"). The time at which the Merger becomes effective is referred to as the
Effective Time.
As a result of the Merger, and without any action on the part of the holders
thereof, each share of Republic Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 0.80 of a share of Keystone Common Stock, will cease to be outstanding
and will be canceled and retired. Each holder of a certificate representing
any such shares of Republic Common Stock will thereafter cease to have any
rights with respect to such shares of Republic Common Stock, except the right
to receive, without interest, shares of Keystone Common Stock and cash for
fractional interests of Keystone Common Stock (as described in "--Exchange
Procedures") upon the surrender of such Certificate. Each share of Republic
Common Stock held in Republic's treasury at the Effective Time will cease to
be outstanding and will be canceled and retired without payment of any
consideration therefor. Based upon 3,424,231 shares of Republic Common Stock
issued and outstanding on the Republic Record Date, Keystone will issue an
aggregate of 2,739,385 shares of Keystone Common Stock (not including up to an
additional 254,000 shares of Keystone Common Stock which may be issued upon
the exercise of Republic stock options being assumed by Keystone and up to an
additional 168,071 shares of Keystone Common Stock which may be issued
pursuant to Republic's performance share program being assumed by Keystone).
At the Effective Time, each option to purchase shares of Republic Common
Stock outstanding at the Effective Time under the Republic Stock Compensation
Plan (a "Republic Option") will, by virtue of the Merger, and without any
further action on the part of Republic or the holder of any such Republic
Option, be assumed by Keystone and will be converted into an option to
purchase Keystone Common Stock. Each Republic Option assumed by Keystone will
be exercisable upon the same terms and conditions, including vesting, as under
the applicable Republic Stock Compensation Plan and the applicable option
agreement issued thereunder, except that (i) each such Republic Option will be
exercisable for that whole number of shares of Keystone Common Stock (rounded
to the nearest whole share) into which the number of shares of Republic Common
Stock subject to such Republic Option immediately prior to the Effective Time
would be converted in the Merger, and (ii) the option price per share of
Keystone Common Stock will be an amount equal to the aggregate exercise price
for the shares of Republic Common Stock which underlie the Republic Option
divided by the number of full shares of Keystone Common Stock purchasable upon
exercise of that option after the Merger (the option price per share being
rounded to the nearest full cent). No payment will be made for fractional
interests, rather, the aggregate number of shares to be issued under any
assumed Republic Option will be rounded to the nearest whole number.
EXCHANGE PROCEDURES
Promptly after the Effective Time, U.S. Stock Transfer Corporation,
Glendale, California (the "Exchange Agent") will mail to each person who was,
at the Effective Time, a holder of record of shares of Republic Common Stock,
a letter of transmittal to be used by such holders in forwarding their
certificates representing
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shares of Republic Common Stock (individually a "Certificate" and collectively
the "Certificates"), and instructions for effecting the surrender of the
Certificates in exchange for certificates representing shares of Keystone
Common Stock. Upon surrender to the Exchange Agent of a Certificate for
cancellation, together with such letter of transmittal, the holder of such
Certificate will be entitled to receive a certificate representing that number
of whole shares of Keystone Common Stock and cash in lieu of any fractional
shares (as described below), which such holder has the right to receive in
respect of the Certificate surrendered, and the Certificate so surrendered
will be canceled.
REPUBLIC STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A LETTER OF TRANSMITTAL.
No fractional shares of Keystone Common Stock will be issued, and any holder
of shares of Republic Common Stock entitled under the Merger Agreement to
receive a fractional share will be entitled to receive only a cash payment in
lieu thereof, which payment will be an amount equal to the product of the
"Closing Price" of a share of the Keystone Common Stock multiplied by the
fractional percentage of a share of Keystone Common Stock to which such holder
would otherwise be entitled. The "Closing Price" of a share of Keystone Common
Stock will be the closing price of a share of Keystone Common Stock on the
Nasdaq National Market (as reported by The Wall Street Journal, West Coast
edition) on the last trading day prior to the Effective Time.
No dividends or other distributions on shares of Keystone Common Stock, if
any are declared or made, will be paid with respect to any shares of Republic
Common Stock or other securities represented by a Certificate until such
Certificate is surrendered for exchange as provided in the Merger Agreement.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there will be paid to the holder of certificates representing
shares of Keystone Common Stock issued in exchange therefor, (i) at the time
of such surrender, the amount of any dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
shares of Keystone Common Stock and not paid, less the amount of any
withholding taxes which may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender thereof and a payment
date subsequent to surrender thereof payable with respect to such whole shares
of Keystone Common Stock less the amount of any withholding taxes which may be
required thereon. No interest will be paid or accrued on cash in lieu of
fractional shares and unpaid dividends and distributions, if any, which will
be paid upon surrender of Certificates.
At or after the Effective Time, there will be no further transfers of shares
of Republic Common Stock on Republic's transfer books.
Any portion of the monies from which cash payments in lieu of fractional
interests in shares of Keystone Common Stock will be made (including the
proceeds of any investments thereof) and any shares of Keystone Common Stock
that are unclaimed by the former stockholders of Republic 180 days after the
Effective Time will be delivered to Keystone. Any former stockholders of
Republic who have not theretofore complied with the exchange procedures in the
Merger Agreement may thereafter look to Keystone for payment of their shares
of Keystone Common Stock, cash in lieu of fractional shares, and any unpaid
dividends and distributions, if any, on shares of Keystone Common Stock,
deliverable in respect of each share of Republic Common Stock such stockholder
holds. Notwithstanding the foregoing, neither Republic, Keystone, the Exchange
Agent nor any other person will be liable to any former holder of shares of
Republic Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
In the event that any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such person of
a bond in such reasonable amount as Keystone may direct as indemnity against
any claim that may be made against Republic or Keystone with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Keystone Common Stock, cash in lieu of
fractional shares, and any unpaid dividends and distributions, if any, on
shares of Keystone Common Stock, as described above.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Keystone and Republic relating to, among other things: (a) the due
incorporation, valid existence and good standing of Republic and Keystone and
similar corporate matters; (b) the authorization, execution, delivery and
enforceability of the Merger Agreement and the Stock Option Agreement; (c) the
capital structure of Republic and Keystone; (d) the absence of conflicts under
charters or bylaws and violations of any instruments, contracts or agreements,
and the obtaining of required consents or approvals; (e) certain documents
filed by each of Republic and Keystone with the Commission and the accuracy of
information contained therein; (f) investigations and litigation; (g) the
absence of certain material changes or material adverse changes; (h) taxes;
(i) contracts; (j) retirement and other employee benefit plans of Republic and
Keystone; (k) brokers' and finders' fees with respect to the Merger; and (l)
environmental matters.
CONDUCT OF BUSINESS PENDING THE MERGER
Republic has agreed (and has agreed to cause its subsidiaries), among other
things, prior to the consummation of the Merger, unless Keystone agrees in
writing or as otherwise required or permitted by the Merger Agreement, (i) to
conduct its operations according to its usual and ordinary course, and (ii) to
use all reasonable efforts to preserve its business organization intact and to
maintain its relations with customers, suppliers and others.
In addition, Republic has agreed that, among other things, prior to the
consummation of the Merger, unless Keystone agrees in writing or as otherwise
required or permitted by the Merger Agreement, it (and its subsidiaries) will
not: (i) amend the Republic Certificate or bylaws; (ii) except in the ordinary
course of business consistent with past practice, enter into or amend any
employment, severance or similar agreements or arrangements with any of their
respective directors or executive officers; (iii) authorize, propose or
announce an intention to authorize or propose, or enter into an agreement with
respect to, any merger, consolidation or business combination (other than the
Merger), any acquisition of assets or securities, any disposition of assets or
securities or any release or relinquishment of any contract rights; (iv) issue
any shares of capital stock or securities, except upon exercise of Republic
Options, or effect any stock split or otherwise change its capitalization; (v)
grant, confer or award any options, appreciation rights, warrants, conversion
rights, restricted stock, stock units, performance shares or other rights, not
existing as of the date of the Merger Agreement, with respect to any shares of
its capital stock or other securities of Republic or its subsidiaries; (vi)
take any actions which would, or would be reasonably likely to, prevent the
Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code; (vii) issue any preferred stock or incur any indebtedness
for borrowed money or guarantee any such indebtedness, except in each case in
the ordinary course of business consistent with past practice; (viii) declare,
set aside or pay any dividend or make any other distribution or payment with
respect to any shares of its capital stock or other ownership interest or
directly or indirectly redeem, purchase or otherwise acquire any shares of its
capital stock or capital stock of any of its subsidiaries, or make any
commitment for any such action; or (ix) agree, in writing or otherwise, to
take any of the foregoing actions or take any action which would make any of
its representations or warranties untrue or incorrect as of the
Effective Time.
Keystone has agreed that prior to the consummation of the Merger it will
conduct its business in the ordinary and usual course and use all reasonable
efforts to preserve its business organization intact and maintain its
relations with its customers, suppliers and others. In addition, Keystone has
agreed that, among other things, prior to the consummation of the Merger,
unless Republic agrees in writing or as otherwise required or permitted by the
Merger Agreement, it (and its subsidiaries) will not: (i) amend the Keystone
Charter or the Keystone Bylaws; (ii) take any actions which would, or would be
reasonably likely to, prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code; (iii) declare, set aside or
pay any dividend, make any other distributions or payment with respect to its
capital stock or repurchase or redeem its capital stock; or (iv) agree, in
writing or otherwise, to take any of the foregoing actions or take any action
which would make any of its representations or warranties untrue or incorrect
as of the Effective Time.
47
<PAGE>
NO SOLICITATION OF TRANSACTIONS
Republic has agreed to cease existing discussions or negotiations, if any,
with any parties conducted prior to the date of the Merger Agreement with
respect to any proposal with respect to a merger, reorganization, share
exchange or similar transaction or any purchase of, or tender offer for, 15%
or more of Republic's (or a subsidiary's) equity securities or assets
("Acquisition Proposal"). Neither Republic nor its subsidiaries may, directly
or indirectly, initiate, solicit, encourage or otherwise facilitate (including
providing any confidential information), any inquiries with respect to, or the
making of, an Acquisition Proposal by a third party. Republic may, however:
(a) furnish information or engage in negotiations with a third party in
response to a bona fide written Acquisition Proposal received after the date
of the Merger Agreement that was not solicited by Republic after that date;
(b) recommend an Acquisition Proposal to the Republic Stockholders if the
Republic Board concludes in good faith, after consultation with its financial
advisor, that the Acquisition Proposal is reasonably capable of being
concluded and if concluded would result in a transaction more favorable to
Republic Stockholders, from a financial point of view, than the Merger; (c)
make any disclosure to Republic's Stockholders if in the good faith judgment
of the Republic Board, failure to disclose would be inconsistent with its
obligations under applicable law; and (d) comply with Rule 14e-2 under the
Securities Exchange Act of 1934, as amended.
CERTAIN COVENANTS
The Merger Agreement contains certain covenants, including covenants
relating to meetings of stockholders, filing a listing application with Nasdaq
covering shares of Keystone Common Stock issuable in the Merger, the Republic
shareholder rights plan, state takeover statutes, public announcements, access
to personnel and data, cooperation regarding certain filings with governmental
and other agencies and organizations and obtaining signed Affiliate
Agreements.
EMPLOYEE BENEFITS
Keystone has agreed to honor, pursuant to their terms, all employee benefit
obligations to current and former Republic employees under existing Republic
employee benefit plans.
INDEMNIFICATION AND INSURANCE
Keystone has agreed that all rights to indemnification for acts or omissions
occurring prior to the Effective Time in favor of the current or former
directors or officers of Republic as provided in the Republic Certificate or
the Bylaws of Republic (the "Republic Bylaws") will survive the Merger and
will continue in full force and effect in accordance with their terms from the
Effective Time until the expiration of the applicable statute of limitations
with respect to any claims against the current of former directors or officers
of Republic arising out of such acts or omissions. For a period of six years
after the Effective Time, Keystone will maintain officers' and directors'
liability insurance for all persons currently covered under Republic's
officers' and directors' liability insurance policies, in their capacities as
officers and directors, on terms at least as favorable as the coverage under
such existing insurance; provided, however, that Keystone will not be required
in order to maintain or procure such coverage to pay an annual premium in
excess of the current annual premium paid by Republic for its existing
coverage.
CONDITIONS
The respective obligations of Republic and Keystone to consummate the Merger
are subject to the fulfillment of each of the following conditions, among
others: (a) the Merger Agreement and the transactions contemplated thereby
shall have been approved by the holders of a majority of the issued and
outstanding shares of both Republic Common Stock and Keystone Common Stock;
(b) the waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall
have expired or been terminated (the HSR Act waiting period expired on April
1, 1998); (c) none of the
48
<PAGE>
parties to the Merger Agreement shall be subject to any order or injunction
which prohibits the consummation of the transactions contemplated by the
Merger Agreement; (d) the registration statement with respect to the shares of
Keystone Common Stock being offered hereunder shall have become effective
under the Securities Act (the "Registration Statement") and no stop order with
respect thereto shall be in effect, and all material approvals under state
securities laws relating to the issuance or trading of the Keystone Common
Stock shall have been received; and (e) the Keystone Common Stock to be issued
to Republic Stockholders in connection with the Merger shall have been
approved for trading on the Nasdaq National Market, subject only to official
notice of issuance.
The obligations of each of Republic and Keystone to effect the Merger are
also subject to the satisfaction of the following conditions, among others:
(a) the other party shall have performed all obligations required to be
performed by it under the Merger Agreement; (b) the representations and
warranties of the other party set forth in the Merger Agreement shall be true
in all material respects as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall have been true and correct as of such date; and the other party
shall provide a certificate of its Chief Executive Officer, dated the
Effective Time, certifying the above to such effect; (c) Republic shall have
received the opinion of its tax counsel that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code; (d) from the date of the Merger Agreement through the
Effective Time, there shall not have occurred a material adverse effect with
respect to the other party; (e) the holders of less than 5% of the outstanding
shares of Keystone Common Stock shall have acted to dissent from the Merger
under the California Code; (f) the approval of either Keystone's or Republic's
lender to the Merger shall have been obtained; and (g) the fairness opinions
from the respective financial advisors shall not have been withdrawn or
materially modified.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time: (a) before or after the approval by the
Republic Stockholders and the Keystone Stockholders, respectively, by the
mutual written consent of Republic and Keystone, pursuant to Board action; (b)
by action of either the Republic Board or the Keystone Board if (i) the Merger
shall not have been consummated by August 31, 1998, provided that the
terminating party shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by August 31,
1998; or (ii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by either the Republic Stockholders or the
Keystone Stockholders shall not have been obtained at a meeting duly convened
therefor or at any adjournment thereof; or (iii) if a United States federal or
state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the Merger Agreement and such order, decree, ruling or other action shall
have become final and non-appealable; (c) by action of the Republic Board, if
(i) the Republic Board approves entering into a written agreement concerning a
transaction with a third party which is more favorable to the Republic
Stockholders from a financial point of view than the Merger ("Superior
Proposal") and Keystone within five business days does not submit a counter-
proposal which is at least as favorable as the third party proposal and prior
to termination Republic pays Keystone the termination fee (discussed below);
or (ii) there has been a breach by Keystone or Merger Sub of any
representation, warranty, covenant or agreement contained in the Merger
Agreement which would result in the failure of a condition to Republic's
obligations under the Merger Agreement and it is not curable or, if curable,
is not cured prior to August 31, 1998; or (d) by action by the Keystone Board,
if (i) the Republic Board shall have withdrawn or modified in a manner
materially adverse to Keystone its approval or recommendation of the Merger
Agreement or the Merger or has failed to reconfirm its recommendation of the
Merger Agreement after receiving a written request from Keystone; (ii) there
has been a breach by Republic of any representation, warranty, covenant or
agreement contained in the Merger Agreement which would result in the failure
of a condition to Keystone's obligations under the Merger Agreement and it is
not curable or, if curable, is not cured
49
<PAGE>
prior to August 31, 1998; or (iii) Republic shall have breached its agreement
with respect to the solicitation or encouraging Acquisition Proposals as
described above under "No Solicitations of Transactions."
TERMINATION FEES
If the Merger Agreement is (a) terminated by (i) the Republic Board or the
Keystone Board as a result of the failure of the Republic Stockholders to
approve the Republic Proposal or (ii) the Keystone Board as a result of the
withdrawal or modification of the Republic Board's approval or recommendation
of the Merger Agreement or the Merger in a manner materially adverse to
Keystone, and (b) prior to such termination, (i) a proposal with respect to an
alternative transaction was made and (ii) within nine months after such
termination, Republic enters into any agreement with the third party making
such proposal with respect to an alternative transaction, or any third party
acquires beneficial ownership of 35% or more of Republic's outstanding shares
of voting stock or assets, then within two business days after the execution
of such an agreement or the consummation of such acquisition (whichever first
occurs), Republic will pay Keystone, by wire transfer of immediately available
funds, a fee of $1.9 million (the "Termination Fee"). If the Merger Agreement
is terminated (a) by Republic as a result of the Republic Board having
received a Superior Proposal not matched or bettered by Keystone, within five
business days, or (b) by Keystone as a result of (x) the Republic Board having
withdrawn or adversely modified its approval or recommendation of the Republic
Proposal or having failed to reconfirm its recommendation after having
received an Acquisition Proposal which has not been repealed or withdrawn, or
(y) Republic having willfully and intentionally breached its covenant not to
solicit or encourage an Acquisition Proposal from a third party, then Republic
will pay Keystone the Termination Fee.
In the event of a termination of the Merger Agreement as a result of a
breach by either party of a representation or warranty (other than solely as a
result of an event or circumstance occurring or arising subsequent to the date
of the Merger Agreement) the breaching party shall pay the non-breaching party
a fee of $250,000.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses, except as otherwise
provided in the Merger Agreement. The Merger Agreement provides that the
following expenses will be shared equally by Keystone and Republic: (a) the
filing fee in connection with filing this Joint Proxy Statement/Prospectus
with the Commission, (b) the expenses incurred in connection with printing and
mailing this Joint Proxy Statement/Prospectus and (c) the filing fee under the
HSR Act.
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by action taken
by their respective boards of directors, at any time before or after approval
of matters presented in connection with the Merger by the Republic
Stockholders and the Keystone Stockholders; but after any such stockholder
approval, no amendment will be made which by law requires the further approval
of the Republic Stockholders or the Keystone Stockholders, or both groups, as
the case may be, without obtaining such further approval. The Merger Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties to the Merger Agreement.
50
<PAGE>
BUSINESS OF KEYSTONE
Keystone is the nation's leading distributor of aftermarket collision
replacement parts produced by independent manufacturers for automobiles and
light trucks. Keystone distributes products primarily to collision repair
shops throughout most of the United States. In addition, Keystone recycles and
produces chrome-plated and plastic bumpers and remanufactures alloy wheels.
Keystone's product lines consist of automotive body parts, bumpers, autoglass
and remanufactured alloy wheels, as well as paint and other materials used in
repairing a damaged vehicle. Keystone currently offers more than 19,000 stock
keeping units to over 24,000 collision repair shop customers, out of an
estimated 48,000 shops nationwide. Founded in Southern California in 1947,
Keystone operates a "hub and spoke" distribution system consisting of 13
regional hubs and 86 service centers located in 39 states primarily in the
West, Midwest, Northeast, Mid-Atlantic and South, as well as in Tijuana,
Mexico. From these service centers, Keystone has approximately 400
professional and highly-trained salespersons who call on an average of over
6,000 collision repair shops per day.
Keystone's principal executive offices are located at 700 East Bonita
Avenue, Pomona, California 91767, and its telephone number is (909) 624-8041.
51
<PAGE>
BUSINESS OF REPUBLIC
Republic is a Delaware corporation founded in 1923 as Republic Gear Company.
The executive offices of Republic are located at 500 Wilson Pike Circle, Suite
115, P.O. Box 2088, Brentwood, Tennessee 37024 (a suburb of Nashville),
telephone number (615) 373-2050.
Republic distributes a complete line of replacement parts primarily relating
to the mechanical systems contained in substantially all mass-produced makes
and models of automobiles manufactured within the last 15 years and most
mechanical replacement parts for mass-produced trucks and vans. Republic also
distributes a number of mechanical replacement parts for heavy duty trucks,
snowmobiles, motorcycles, farm and marine equipment and other similar types of
machinery. These mechanical replacement parts are distributed through
Republic's automotive distribution centers and jobber stores. During the past
year, Republic began divesting certain of its mechanical replacement parts
distribution centers. Upon consummation of the merger, Keystone may continue
this divestiture program, which could ultimately result in the divestiture of
the entire mechanical replacement parts distribution business. In addition,
Republic distributes new replacement parts to repair vehicles damaged in
collisions through 23 body parts and accessories distribution centers serving
14 states primarily in the Southeast and Texas. These centers sell to
automotive collision repair shops and smaller parts distributors.
Republic purchases mechanical replacement parts from over 100 principal
suppliers and distributes them through its automotive parts distribution
centers. These centers sell to Republic's jobber stores as well as to
approximately 3,000 independent jobber stores. These stores in turn sell to
service stations, repair shops, individuals and others, including automobile
and truck dealers, fleet operators, leasing companies and mass merchandisers.
52
<PAGE>
MARKET DATA
Keystone Common Stock is traded on the Nasdaq National Market (symbol
"KEYS") and Republic Common Stock is also traded on the Nasdaq National Market
(symbol "RAUT"). The table below sets forth, for the calendar quarters
indicated, the high and low sales prices per share reported on the Nasdaq
National Market. These prices do not include retail mark-ups, markdowns or
commissions.
<TABLE>
<CAPTION>
KEYSTONE REPUBLIC
COMMON STOCK COMMON STOCK
------------ -------------
HIGH LOW HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
1996:
Second Quarter (beginning June 20, 1996).......... $10.50 $9.25 $14.50 $15.50
Third Quarter..................................... 13.75 10.13 19.00 15.25
Fourth Quarter.................................... 17.25 12.00 18.25 15.00
1997:
First Quarter..................................... 18.13 15.50 17.75 15.50
Second Quarter.................................... 17.88 14.38 17.00 14.00
Third Quarter..................................... 22.13 16.88 18.00 14.00
Fourth Quarter.................................... 25.00 21.00 17.25 14.13
1998:
First Quarter..................................... 24.25 20.25 18.88 12.00
Second Quarter (though May 15, 1998).............. 28.13 23.50 21.50 16.37
</TABLE>
- --------
(1) Keystone's Common Stock began trading publicly on the Nasdaq National
Market on June 20, 1996.
The last reported sales prices per share of Keystone Common Stock and
Republic Common Stock on February 17, 1998, the last trading day preceding
public announcement of the Merger, were $22.50 and $13.53, respectively. Based
on such closing sale price of Keystone Common Stock, the market value of 0.80
of a share of Keystone Common Stock was $18.00. On May 15, 1998, the closing
sale price per share of Keystone Common Stock was $27.25 and the closing sale
price per share of Republic Common Stock was $21.25. Based on such closing
sale price of Keystone Common Stock, the market value of 0.80 of a share of
Keystone Common Stock was $21.80.
Because the Exchange Ratio is fixed and because the market price of Keystone
Common Stock is subject to fluctuation, the market value of the shares of
Keystone Common Stock that holders of Republic Common Stock will receive in
the Merger may increase or decrease prior to and following the Merger.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR KEYSTONE COMMON
STOCK AND REPUBLIC COMMON STOCK.
53
<PAGE>
KEYSTONE SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data presented below for, and as of the
end of, each of the fiscal years in the two-year period ended March 28, 1997
have been derived from the audited consolidated financial statements of
Keystone which are incorporated by reference herein. See "Incorporation of
Certain Documents by Reference." The selected consolidated financial data
presented below for the fiscal year ended March 31, 1995, has been derived
from Keystone's audited statement of income incorporated by reference herein.
The selected financial data presented below as of the end of the fiscal year
ended March 31, 1995 and for, and as of the end of, each of the fiscal years
in the two-year period ended March 25, 1994 has been derived from unaudited
financial statements of Keystone not incorporated by reference herein but
which, in the opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the
financial position and results for the years ended March 26, 1993 and March
25, 1994 and the financial position as of March 31, 1995. The historical
consolidated financial data for all periods presented includes the accounts
and operations of Inteuro Parts Distributors, Inc. ("Inteuro") and Car Body
Concepts, Inc. ("Car Body"), which were acquired by Keystone on January 1,
1998 in transactions accounted for as poolings of interest. The selected
consolidated financial data as of and for the nine-month periods ended
December 27, 1996 and December 26, 1997, presented below, was derived from the
historical unaudited consolidated financial statements of Keystone as of and
for the nine-month periods ended December 27, 1996 and December 26, 1997 and
the unaudited financial statements of Inteuro and Car Body as of and for the
nine month periods ended December 31, 1996 and 1997, after giving effect to
the acquisitions using the "pooling of interest" method of accounting. The
unaudited consolidated financial statements include, in the opinion of
Keystone's management, all adjustments, consisting only of normal recurring
adjustments, which Keystone considers necessary for a fair presentation of the
financial condition and results of operations of Keystone for this period.
Operating data for the nine months ended December 26, 1997 is not necessarily
indicative of the results of operations that may be expected for the full
year. The following selected consolidated financial data should be read in
conjunction with Keystone's historical consolidated financial statements (and
related notes) contained in its annual report on Form 10-K, its supplemental
consolidated financial statements and notes thereto contained in its current
report on Form 8-K (April 8, 1998), incorporated herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- -------------------------
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 28, DECEMBER 27, DECEMBER 26,
1993 1994 1995(1) 1996 1997 1996 1997
----------- ----------- --------- --------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $111,936 $125,781 $149,581 $178,076 $223,806 $162,118 $192,459
Cost of sales........... 66,613 74,186 88,609 107,415 132,085 96,100 111,828
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 45,323 51,595 60,972 70,661 91,721 66,018 80,631
-------- -------- -------- -------- -------- -------- --------
Selling and distribution
expenses............... 33,616 37,176 43,101 50,156 61,063 44,369 54,187
General and
administrative
expenses............... 8,578 10,257 10,831 10,968 13,831 9,427 9,847
Merger costs............ -- -- -- -- 905 435 323
Severance costs......... -- -- -- -- -- -- 705
-------- -------- -------- -------- -------- -------- --------
42,194 47,433 53,932 61,124 75,799 54,231 65,062
-------- -------- -------- -------- -------- -------- --------
Operating income........ 3,129 4,162 7,040 9,537 15,922 11,787 15,569
Interest expense, net... 1,098 892 1,300 1,721 1,477 1,165 114
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 2,031 3,270 5,740 7,816 14,445 10,622 15,455
Income taxes............ 566 1,108 1,543 2,836 4,435 3,310 4,996
Cumulative effect of
accounting change for
income taxes........... -- 134 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 1,465 $ 2,028 $ 4,197 $ 4,980 $ 10,010 $ 7,312 $ 10,459
======== ======== ======== ======== ======== ======== ========
Net income per share--
basic.................. $ 0.14 $ 0.20 $ 0.41 $ 0.49 $ 0.88 $ 0.65 $ 0.76
======== ======== ======== ======== ======== ======== ========
Net income per share--
diluted................ $ 0.14 $ 0.20 $ 0.41 $ 0.49 $ 0.87 $ 0.65 $ 0.76
======== ======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding--
basic.................. 10,313 10,313 10,255 10,250 11,408 11,239 13,674
======== ======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding--
diluted................ 10,313 10,313 10,255 10,250 11,474 11,323 13,851
======== ======== ======== ======== ======== ======== ========
Pro forma information
(unaudited)(2):
Net income, as
previously reported.... $ 1,465 $ 2,028 $ 4,197 $ 4,980 $ 10,010 $ 7,312 $ 10,459
Pro forma tax
adjustment............ (226) (167) (705) (258) (1,288) (978) (1,186)
-------- -------- -------- -------- -------- -------- --------
Pro forma net income... $ 1,239 $ 1,861 $ 3,492 $ 4,722 $ 8,722 $ 6,334 $ 9,273
======== ======== ======== ======== ======== ======== ========
Pro forma net income
per share--basic...... $ 0.12 $ 0.18 $ 0.34 $ 0.46 $ 0.76 $ 0.56 $ 0.68
======== ======== ======== ======== ======== ======== ========
Pro forma net income
per share--diluted.... $ 0.12 $ 0.18 $ 0.34 $ 0.46 $ 0.76 $ 0.56 $ 0.67
======== ======== ======== ======== ======== ======== ========
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
MARCH 26, MARCH 25, MARCH 31, MARCH 29, MARCH 29, DECEMBER 26,
1993 1994 1995(1) 1996 1997 1997
----------- ---------- ---------- --------- --------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED BALANCE
SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital......... $11,767 $12,711 $15,230 $18,134 $30,154 $ 69,003
Total assets............ 43,776 49,324 56,757 71,780 87,183 113,659
Total current
liabilities............ 24,008 28,501 30,252 38,335 38,240 19,412
Long-term debt.......... 3,011 2,235 4,063 7,021 2,087 372
Shareholders' equity.... 15,935 17,890 21,671 26,119 46,453 93,472
</TABLE>
- --------
(1) Fiscal 1995 contained 53 weeks.
(2) Pro forma information gives effect to an income tax adjustment to reflect
taxation of the income of two corporations acquired in January 1998
(accounted for as poolings of interest), as "C" corporations, rather than
"S" corporations, at an estimated statutory rate of approximately 39%.
55
<PAGE>
REPUBLIC SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial statements of Republic,
presented below for, and as of the end of each of the fiscal years in the
five-year period ended December 31, 1997, are based upon the audited
consolidated financial statements of Republic which are incorporated by
reference in this Joint Proxy Statement/Prospectus. The selected consolidated
financial data as of and for the three-month periods ended March 31, 1997 and
1998, presented below, are based upon the unaudited consolidated financial
statements of Republic as of and for the three-month periods ended March 31,
1997 and 1998 which are incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited consolidated financial statements include,
in the opinion of Republic's management, all adjustments, consisting only of
normal recurring adjustments, which Republic considers necessary for a fair
presentation of the financial condition and results of operations of Republic
for the period. Operating data for the three months ended March 31, 1998, is
not necessarily indicative of the results of operations that may be expected
for the full year. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE THREE
YEAR ENDED DECEMBER 31, MONTHS ENDED MARCH 31,
------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Net sales....................... $91,683 $138,295 $154,611 $184,810 $188,953 $ 45,785 $41,140
Operating income................ 4,415 7,462 6,874 10,262 7,614 1,875 1,398
Income before taxes,
extraordinary item and
accounting charges............. 4,604 6,908 3,305 8,641 5,501 1,413 1,105
Net income...................... 1,862 4,248 1,884 5,095 3,258 820 669
Net income per share-basic(1)... 0.60 1.29 0.56 1.50 0.96 0.24 0.20
Net income per share-diluted(1). 0.58 1.22 0.53 1.42 0.91 0.23 0.19
Cash dividends declared per
share.......................... None None None None None None None
CONSOLIDATED BALANCE SHEET DATA:
Total Assets.................... $62,077 $ 78,258 $ 99,788 $105,697 $ 93,576 $107,189 $93,663
Long-term debt.................. 6,945 18,925 30,094 34,884 24,500 31,363 24,500
Stockholders' equity............ 32,869 40,115 42,998 48,093 51,556 48,913 52,365
</TABLE>
- --------
(1) Earnings per share for 1993 include reduction of earnings for the
cumulative effect of changes in accounting principles of $0.30 and $0.28
on a basic and diluted basis, respectively.
56
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based upon Keystone's and Republic's historical consolidated financial
statements incorporated by reference in this Joint Proxy Statement/Prospectus,
and have been prepared to reflect the proposed Merger based on the purchase
method of accounting. For a description of purchase accounting with respect to
the proposed Merger, see "The Merger--Accounting Treatment." The unaudited pro
forma combined condensed statements of income, which have been prepared for
the nine-month period ended December 26, 1997 and for the year ended March 28,
1997, give effect to the Merger as if it had occurred at the beginning of the
earliest period presented. These unaudited pro forma combined condensed
statements of income combine Keystone's fiscal year ended March 28, 1997 with
Republic's year ended December 31, 1996 and Keystone's nine months ended
December 26, 1997 with Republic's nine months ended September 30, 1997. The
unaudited pro forma combined condensed balance sheet has been prepared as of
December 26, 1997, and gives effect to the Merger as if it had occurred at
that date. The unaudited pro forma adjustments described in the accompanying
notes are based upon preliminary estimates and certain assumptions that
management of Keystone and management of Republic believe are reasonable in
such circumstances, based on information currently available.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the actual or future financial position or results
of operations that would have occurred or will occur upon consummation of the
Merger. These statements do not include the effects of any estimated
transition or restructuring costs which may be incurred in connection with
integrating certain of the operations of Republic with Keystone. It is not
feasible at this time to estimate these effects. Additionally, the unaudited
pro forma combined condensed statements of income do not reflect any net cost
savings or economies of scale that management believes would have occurred had
the Merger been consummated as of the beginning of the respective periods.
57
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
KEYSTONE REPUBLIC
DECEMBER 26, DECEMBER 31, PRO FORMA PRO
1997 1997 ADJUSTMENTS FORMA
------------ ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents... $ 13,908 $ 2,283 $ -- $ 16,191
Accounts receivable......... 22,200 14,023 -- 36,223
Inventory................... 50,193 49,028 5,331 (d) 104,552
Other current assets........ 2,114 7,168 -- 9,282
-------- ------- -------- --------
Total current assets.......... 88,415 72,502 5,331 166,248
Net fixed assets.............. 14,301 7,402 -- 21,703
Other assets.................. 2,037 3,222 1,840 (d) 7,099
Goodwill...................... 4,506 9,730 9,121 (d) 23,357
Other intangibles............. 4,400 720 -- 5,120
-------- ------- -------- --------
TOTAL OTHER ASSETS............ 10,943 13,672 10,961 35,576
-------- ------- -------- --------
TOTAL ASSETS.................. $113,659 $93,576 $ 16,292 $223,527
======== ======= ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES
Bankers acceptances......... $ 2,575 $ -- $ -- $ 2,575
Accounts payable............ 10,026 7,761 -- 17,787
Accrued expenses............ 4,040 6,363 1,994 (e) 12,397
Current portion, long term
debt....................... 2,771 784 -- 3,555
-------- ------- -------- --------
TOTAL CURRENT LIABILITIES..... 19,412 14,908 1,994 36,314
Long term debt................ 180 24,500 -- 24,680
Due to related parties........ 192 -- -- 192
Deferred taxes................ 403 1,487 2,797 (d) 4,687
Other......................... -- 1,125 -- 1,125
-------- ------- -------- --------
TOTAL LONG TERM LIABILITIES... 775 27,112 2,797 30,684
SHAREHOLDERS' EQUITY
Common stock................
Keystone common stock, no
par value
Authorized shares--
50,000,000
Issued and outstanding--
12,642,000--historical;
17,549,000--pro forma.... 57,197 -- 63,057 (f) 120,254
Republic common stock, $0.50
par value
Authorized shares--
5,000,000
Issued and outstanding--
3,474,988................ -- 1,737 (1,737)(f) --
Additional paid in capital.. 582 25,111 (25,111)(f) 582
Retained earnings........... 35,693 25,513 (25,513)(f) 35,693
Treasury stock.............. -- (805) 805 (f) --
-------- ------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.... 93,472 51,556 11,501 156,529
-------- ------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY......... $113,659 $93,576 $ 16,292 $223,527
======== ======= ======== ========
</TABLE>
See notes to Unaudited Pro Forma Combined Condensed Financial Statements
58
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
KEYSTONE REPUBLIC
YEAR ENDED YEAR ENDED
MARCH 28, DECEMBER 31, PRO FORMA
1997 1996 ADJUSTMENT PRO FORMA
---------- ------------ ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales............................ $223,806 $184,810 $ -- $408,616
Cost of goods sold............... 132,085 111,349 140 (a) 243,574
-------- -------- ----- --------
Gross profit..................... 91,721 73,461 (140) 165,042
Operating expenses:
Selling, distribution and
administrative................ 74,894 63,199 441 (b) 138,534
Merger costs................... 905 -- -- 905
Total operating expenses......... 75,799 63,199 441 139,439
-------- -------- ----- --------
Operating income................. 15,922 10,262 (581) 25,603
Interest expense................. (1,477) (1,621) -- (3,098)
-------- -------- ----- --------
Income before taxes.............. 14,445 8,641 (581) 22,505
Tax provision.................... 4,435 3,546 (232)(c) 7,749
-------- -------- ----- --------
Net income....................... $ 10,010 $ 5,095 $(349) $ 14,756
======== ======== ===== ========
Net income per share--basic...... $ 0.88 $ 1.50 $ 1.05
======== ======== ========
Net income per share--diluted.... $ 0.87 $ 1.42 $ 1.03
======== ======== ========
(unaudited pro forma information)
Net income....................... $ 10,010 $ 5,095 $(349) $ 14,756
Pro forma tax adjustment......... (1,288) -- -- (1,288)
-------- -------- ----- --------
Pro forma net income............. $ 8,722 $ 5,095 $(349) $ 13,468
======== ======== ===== ========
Pro forma net income per share--
basic........................... $ 0.76 $ 1.50 $ 0.95
======== ======== ========
Pro forma net income per share--
diluted......................... $ 0.76 $ 1.42 $ 0.94
======== ======== ========
Weighted average common shares
outstanding--basic.............. 11,408 3,388 (678) 14,118
Weighted average common shares
outstanding--diluted............ 11,474 3,580 (716) 14,338
</TABLE>
See notes to Unaudited Pro Forma Combined Condensed Financial Statements.
59
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME--(CONTINUED)
<TABLE>
<CAPTION>
KEYSTONE REPUBLIC
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 26, SEPTEMBER 30, PRO FORMA
1997 1997 ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales........................ $192,459 $146,234 -- $338,693
Cost of goods sold........... 111,828 87,629 $(498)(a) 198,959
-------- -------- ----- --------
Gross profit................. 80,631 58,605 498 139,734
Operating expenses:
Selling, distribution and
administrative............ 64,034 51,711 404 (b) 116,149
Merger costs............... 323 -- -- 323
Severance.................. 705 -- -- 705
Total operating expenses..... 65,062 51,711 404 117,177
-------- -------- ----- --------
Operating income............. 15,569 6,894 (94) 22,557
Interest expense............. (114) (1,442) -- (1,556)
-------- -------- ----- --------
Income before taxes.......... 15,455 5,452 (94) 21,001
Tax provision................ 4,996 2,256 (38)(c) 7,290
-------- -------- ----- --------
Net income................... $ 10,459 $ 3,196 $ (56) $ 13,711
======== ======== ===== ========
Net income per share--basic.. $ 0.76 $ 0.94 $ 0.84
======== ======== ========
Net income per share--
diluted..................... $ 0.76 $ 0.89 $ 0.82
======== ======== ========
(unaudited pro forma
information)
Net income................... $ 10,459 $ 3,196 $ 56 $ 13,711
Pro forma tax adjustment..... (1,186) -- -- (1,186)
-------- -------- ----- --------
Pro forma net income......... $ 9,273 $ 3,196 $ 56 $ 12,525
======== ======== ===== ========
Pro forma net income per
share--basic................ $ 0.68 $ 0.94 $ 0.76
======== ======== ========
Pro forma net income per
share--diluted.............. $ 0.67 $ 0.89 $ 0.75
======== ======== ========
Weighted average common
shares outstanding--basic... 13,674 3,396 (679) 16,391
-------- -------- ----- --------
Weighted average common
shares outstanding--diluted. 13,851 3,600 (717) 16,734
-------- -------- ----- --------
</TABLE>
See notes to Unaudited Pro Forma Combined Condensed Financial Statements
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements are based
upon Keystone's and Republic's historical consolidated financial statements,
and have been prepared to reflect the proposed Merger, based on the purchase
method of accounting. The unaudited pro forma combined condensed statements of
income, which have been prepared for the nine-month period ended December 26,
1997, and for the year ended March 28, 1997, give effect to the Merger as if
it had occurred at the beginning of the respective periods. The unaudited pro
forma combined condensed balance sheet has been prepared as of December 26,
1997, gives effect to the Merger as if it had occurred on that date. The
unaudited pro forma adjustments are based upon preliminary estimates and
certain assumptions that management of Keystone and management of Republic
believe are reasonable in such circumstances. Based on information currently
available, management believes that no material adjustments will occur to the
pro forma financial statements.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have occurred or will occur upon consummation of the
Merger. The unaudited pro forma combined condensed financial statements are
based upon and should be read in conjunction with the historical consolidated
financial statements of Keystone and Republic, and the respective notes
thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus.
2. THE MERGER
(A) Purchase Price
As described in the Merger Agreement, each outstanding share of Republic
Common Stock will be converted into the right to receive 0.80 of a share of
Keystone Common Stock. This Exchange Ratio was used in the computation of the
purchase price as follows (in thousands):
<TABLE>
<S> <C>
Exchange of common shares (3.6 million shares of Republic Common
Stock at the conversion ratio of 0.80 of a share of Keystone Common
Stock at an assumed fair value of $21.69 per share)................ $63,057
Liabilities resulting from change of control provisions............. 1,494
Estimated transaction costs......................................... 500
-------
Total purchase price.............................................. $65,051
=======
</TABLE>
(B) Pro Forma Adjustments
The following adjustments are provided to reflect the Merger on a pro forma
basis:
(a) To record increase (decrease) in cost of sales related to fair value
adjustment of LIFO inventory reserves.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(b) To eliminate historical amortization expense and to record the
amortization expense resulting from the purchase price allocation and the
increase in pension expense related to the fair value adjustment to prepaid
pension costs (in thousands):
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Elimination of Republic historical
amounts:
Amortization of cost in excess of net
assets acquired...................... $(728) $(546)
Record amounts resulting from purchase
price allocation:
Amortization of cost in excess of net
assets acquired...................... 943 707
Increase in pension expense............. 226 243
----- -----
$ 441 $ 404
===== =====
</TABLE>
(c) To record the federal income tax effect, using the 39% statutory rate,
related to the net pro forma adjustments.
(d) To adjust the assets and liabilities of Republic to their estimated fair
values (such estimated fair values are subject to possible adjustment based on
future analyses) as follows (in thousands):
<TABLE>
<S> <C>
Net assets of Republic at December 31, 1997....................... $51,556
Estimated fair value adjustments:
LIFO Adjustment................................................. 5,331
Prepaid pension costs........................................... 1,840
Deferred income tax liabilities................................. (2,797)
Cost in excess of net assets acquired........................... 9,121
-------
$65,051
=======
</TABLE>
(e) To record estimated costs of consummating the Merger and liabilities
resulting from change in control provisions.
(f) To eliminate Republic historical equity balances, and to record the
assumed issuance of 2.9 million shares of Keystone Common Stock, at an assumed
fair value of $21.69 per share, to consummate the Merger.
The accompanying unaudited pro forma combined condensed financial statements
do not include the effects of any estimated transition or restructuring costs
which may be incurred in connection with integrating the operations of
Republic into Keystone. It is not feasible at this time to estimate these
costs. Additionally, the unaudited pro forma combined condensed statements of
income do not reflect any net cost savings or economies of scale that
management believes would have occurred had the Merger been consummated at the
beginning of the respective periods.
62
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
At the Effective Time, the Republic Stockholders will become Keystone
Stockholders and their rights will be governed by the California Code, the
Keystone Charter and the Keystone Bylaws. The following is a summary of the
material differences between the rights of Republic Stockholders and Keystone
Stockholders, between the Keystone Charter and the Keystone Bylaws and the
Republic Certificate and Republic Bylaws and between certain provisions of the
California Code and the Delaware Corporate Law affecting stockholders' rights
generally.
The following summary is not intended to be complete and is qualified in its
entirety by reference to the California Code, the Delaware Corporate Law, the
Keystone Charter, the Keystone Bylaws, the Republic Certificate and the
Republic Bylaws, as appropriate. Copies of the Keystone Charter, the Keystone
Bylaws, the Republic Certificate and the Republic Bylaws are incorporated by
reference herein and will be sent to Republic Stockholders and Keystone
Stockholders upon request. The identification of specific differences is not
meant to indicate that other equally or more significant differences may not
exist. See "Incorporation of Certain Documents by Reference" and "Available
Information."
Authorized Capital. The total number of authorized shares of capital stock
of Keystone consists of 50 million shares of Keystone Common Stock and three
million shares of preferred stock (the "Keystone Preferred Stock"). No class
or series of Keystone Preferred Stock is currently outstanding. The total
number of authorized shares of capital stock of Republic consists of five
million shares of Republic Common Stock, par value $.50 per share, 150,000
shares of preferred stock, par value $1.00 per share (the "Senior Preferred
Stock") and 50,000 shares of Junior Participating Cumulative Preferred Stock,
par value $1.00 per share (the "Junior Preferred Stock" and collectively with
the Senior Preferred Stock, the "Republic Preferred Stock"). No shares of
Republic Preferred Stock are outstanding.
Certain Voting Rights. California law 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 articles of incorporation require a higher percentage) of
the outstanding shares of each class of capital stock of the corporation
entitled to vote thereon. The Keystone Charter does not require a higher
percentage.
Under Delaware law, any merger, consolidation or sale of all or
substantially all of the assets of a corporation requires the approval of the
holders of a majority (unless the certificate of incorporation requires a
higher percentage) of the outstanding shares of such corporation entitled to
vote thereon, except in certain circumstances involving an Interested
Stockholder (as defined in Delaware Corporate Law). For a complete description
of those circumstances, see "Certain Business Combinations and
Reorganizations" in this Section.
In general, under California law, no stockholder approval of a
reorganization is required if the corporation, or its stockholders 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 five-sixths of the voting power of such
surviving or acquiring corporation or such parent immediately after such
reorganization. Otherwise stockholder approval is required.
Delaware law provides that (unless required by the certificate of
incorporation) no authorization by stockholders of a surviving or acquiring
corporation is necessary for a merger if (1) the merger does not amend the
certificate of incorporation of the corporation, (2) each share of stock of
the corporation outstanding prior to the merger remains identical after the
merger, and (3) either (x) no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such
shares are to be issued or delivered under the plan of merger or (y) the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the merger plus shares
issuable upon conversion of any other shares, securities or obligations to be
issued or delivered under the merger do not exceed 20% of the shares
63
<PAGE>
of common stock of the surviving corporation outstanding prior to the merger.
The Republic Certificate does not require stockholder authorization for
mergers of the type described in the preceding sentence.
Under California law, a parent corporation may, without stockholder
approval, merge into itself a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock.
Similarly, Delaware law permits a merger of a 90% owned subsidiary
corporation into its parent without stockholder approval so long as the
resolution of the board of directors of the parent providing for the merger
states the terms and conditions of the merger, including the consideration to
be given by the parent in exchange for the subsidiary shares not owned by the
parent, if any.
Dividends. Generally, a California corporation may pay dividends out of
retained earnings or if, after giving effect thereto: (1) the sum of the
assets (excluding goodwill and certain other assets) of the corporation is at
least equal to 1 1/4 times its liabilities (excluding certain deferred
credits) and (2) the current assets of such corporation are at least equal to
(A) its current liabilities or (B) 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 1/4 times its current liabilities. In addition, the
ability of a California corporation to pay dividends is restricted by certain
limitations for the benefit of certain preference shares.
Under Delaware law, a corporation may pay dividends out of surplus or, in
the event that no surplus exists, out of its net profits for the fiscal year
in which the dividend is declared or its net profits for the preceding fiscal
year, subject to certain limitations for the benefit of certain preference
shares.
Election of Directors; Board of Directors. Under California law generally,
any stockholder of a corporation is entitled to cumulate his or her votes for
the election of directors provided that at least one stockholder has given
notice at the meeting prior to the voting of such stockholder's intention to
cumulate his or her votes. Cumulative votes may only be cast for candidates
who have been nominated before the voting. However, because of the terms of
Keystone's Charter and because the Keystone Common Stock currently is included
in the Nasdaq National Market System and Keystone had more than 800 holders of
its equity securities at the record date for its last annual stockholders
meeting, stockholders do not have cumulative voting rights. In addition,
Keystone is required to divide its Board of Directors into three classes of
directors at its next annual meeting of stockholders. However, the Keystone
Board is proposing to amend the Keystone Charter to eliminate this
requirement. See "Amendment to Keystone's Amended and Restated Articles of
Incorporation."
The Republic Certificate does not provide for cumulative voting.
While under Delaware law Republic is permitted to provide in its certificate
of incorporation, in an initial bylaw or by a bylaw adopted by a vote of
stockholders, for classification of its Board of Directors into up to three
classes, it currently does not have a classified Board.
Removal of Directors; Filling Vacancies on the Board of Directors. Under
California law the holders of at least 10% of the number of outstanding shares
of any class of stock may initiate a court action to remove any director for
cause.
For stockholders to remove a Keystone director without cause requires the
affirmative vote of at least two-thirds of the outstanding Keystone Common
Stock; while for cause, stockholders may remove a director by vote of a
majority of the outstanding shares. The Keystone Board may remove a director
for cause by the affirmative vote of at least two-thirds of the directors
(excluding the director to be removed).
Under Delaware law, any or all directors of a corporation may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors.
64
<PAGE>
Under the Keystone Bylaws, vacancies on the Keystone Board may be filled by
the affirmative vote of two-thirds of the remaining directors. In addition,
any vacancy not filled by the directors may be filled by the vote of the
majority of shares entitled to vote. Under Delaware law (unless otherwise
provided in the articles of incorporation or bylaws), vacancies and newly-
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors in office.
Special Meetings of Stockholders; Stockholder Action by Written
Consent. Under California law, a special meeting of stockholders may be called
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 or such additional persons as may be provided in the articles of
incorporation or bylaws. Neither the Keystone Charter nor the Keystone Bylaws
permit any additional person to call a special meeting.
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or such other persons as may be authorized by the
certificate of incorporation or bylaws. The Republic Bylaws provide that a
special meeting of stockholders also may be called by the Chairman of the
Republic Board or the President.
Under the Keystone Charter, any action which may be taken at a meeting of
stockholders may also be taken by the written consent of the holders of at
least two-thirds of the outstanding shares of Common Stock.
Under Delaware law (unless otherwise provided in the certificate of
incorporation), any action which is required to be taken or may be taken at a
meeting of stockholders, may be taken by a written consent signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The Republic
Certificate provides that such action may be taken by the written consent of
the holders of not less than a majority of the stock entitled to vote upon
such action if a meeting were held.
Amendment of Bylaws. Under California law, bylaws may generally 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. However,
under the Keystone Bylaws, the following amendments may only be adopted by
approval of the affirmative vote of two-thirds of the outstanding shares
entitled to vote: (i) the calling of or setting of the time and notice of a
special stockholders meeting, (ii) stockholder actions without a meeting,
(iii) director nominations and stockholder proposals, (iv) the number of
directors, (v) election and terms of office of directors, and (vi) the
provisions governing amendments to the Keystone Bylaws.
Under Delaware law, the power to adopt, amend or repeal bylaws is vested in
the stockholders entitled to vote unless the certificate of incorporation
confers the power to adopt, amend or repeal bylaws upon the directors as well.
The Republic Certificate provides that the Republic Bylaws may be made,
altered, amended or repealed by the Republic Board.
Amendment of Charter. Under California and Delaware law, amendments to the
charter of a corporation generally require 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 a provision of the charter. However, the Keystone Charter
requires the affirmative vote of two-thirds of the outstanding shares to amend
the Keystone Charter if the amendment relates to (i) cumulative voting or the
classification of the Board, (ii) the voting requirements to amend the
Keystone Charter or amending a Keystone Bylaw which requires stockholder
approval or the requirement for two-thirds director vote to fill Board
vacancies (iii) changing the stockholder voting requirement for stockholder
actions by written consent, or (iv) director liability for monetary damages.
Dissenters' Rights. Under California law, in the event of a merger of a
corporation for which the approval of outstanding shares is required, under
certain circumstances dissenting stockholders of such corporation who follow
prescribed statutory procedures are entitled to receive payment of the fair
market value of their shares.
65
<PAGE>
For a more complete description of such rights with respect to the Merger, see
"The Merger--DISSENTERS' RIGHTS."
Under Delaware law, no appraisal rights in a merger or consolidation are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (1) listed
on a national securities exchange or designated as a national market system
security, or (2) held of record by more than 2,000 stockholders. Further, no
appraisal rights are available to stockholders of the surviving corporation if
their vote is not required in connection with the merger. Notwithstanding the
foregoing provisos, appraisal rights are available if stockholders receive in
the merger or consolidation consideration other than: (1) shares of stock of
the corporation surviving or resulting from such merger or consolidation; (2)
shares of stock of any other corporation which at the effective date of the
merger or consolidation is either (a) listed on a national securities exchange
or designated as a national market system security, or (b) held of record by
more than 2,000 stockholders; (3) cash in lieu of fractional shares; or (4)
any combination of the foregoing.
Certain Business Combinations and Reorganizations. Under California law, if
a tender offer or written proposal to acquire a corporation by a
reorganization or certain sales of assets is made to a corporation's
stockholders by an Interested Party (as hereinafter defined) (each an
"Interested Party Proposal"), (1) an affirmative opinion in writing as to the
fairness of the consideration to the stockholders of such corporation must be
delivered to stockholders of such corporation (or, in the event that no
stockholder approval is required for the consummation of the transaction, to
the corporation's board of directors) and (2) such stockholders must be
(a) informed of certain later tender offers or written proposals for a
reorganization or sale of assets made by other persons and (b) afforded a
reasonable opportunity to withdraw any vote, consent or proxy previously given
or shares previously tendered in connection with the Interested Party
Proposal. For the purposes of this paragraph, "Interested Party" shall mean a
person who is a party to the transaction and (x) directly or indirectly
controls the corporation that is the subject of the tender offer or proposal;
(y) is, or is directly or indirectly controlled by, an officer or director of
the subject corporation; or (z) is an entity in which a material financial
interest (as defined in Section 310 of the California Code) is held by any
director or executive officer of the subject corporation.
In addition, in connection with any merger transaction, California law
generally requires that, unless all stockholders of a class or series consent
(and except with respect to fractional shares), each share of such class or
series must be treated equally with respect to any distribution of cash,
property, rights or securities. California law also provides generally that if
a corporation that is party to a merger, or its parent, owns more than 50% but
less than 90% of the voting power of the other corporation that is party to
such merger, the nonredeemable shares of common stock of the controlled
corporation may be converted only into nonredeemable shares of the surviving
corporation or a parent party unless all of the stockholders of the class
consent.
Generally, Delaware law prevents an Interested Stockholder (as defined in
the Delaware Corporation Law) from engaging in a Business Combination (as
defined in Section 203 of the Delaware Corporation Law) with a corporation for
three years following the time such person became an Interested Stockholder
unless: (1) before the time such person became an Interested Stockholder, the
board of directors of the corporation approved either the business combination
or the transaction in which the Interested Stockholder became an Interested
Stockholder; (2) upon consummation of the transaction which resulted in the
Interested Stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of such corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and employee stock ownership plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer), or (3) at or subsequent to such time, the Business
Combination is (x) approved by the board of directors of such corporation and
(y) authorized at a meeting of stockholders by the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder.
The Republic Certificate contains a provision that prevents an Interested
Stockholder (defined generally as that term is defined in Delaware Corporate
Law) from engaging in a Business Combination (defined generally as
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that term is defined in Delaware Corporate Law) unless there is an affirmative
vote of at least 80% of the voting power of the then outstanding shares of
capital stock of Republic entitled to vote generally in the election of
directors, voting together as a single class. However, in the following two
circumstances, such a transaction shall only require the affirmative vote as
required by law or any other provision of the Republic Certificate: (1) the
Business Combination is approved by a majority of Disinterested Directors
(defined as any member of the Republic Board who (a) is not a full-time or
substantially full-time employee of Republic and has not been such an employee
for at least two years, (b) is unaffiliated with the Interested Stockholder
and (c) was a member of the Republic Board prior to the time the Interested
Stockholder became an Interested Stockholder, and includes any successor to a
Disinterested Stockholder who meets all of the above-mentioned criteria except
(c) and was recommended by a majority of the Disinterested Directors then on
the Republic Board), or (2) a certain fair value is offered as consideration,
the consideration is received in cash or in the same form as the Interested
Stockholder has paid for shares, after the Interested Stockholder has become
such but prior to the Business Combination certain actions are not taken with
respect to dividends, the Interested Stockholder after becoming such does not
receive certain credit or tax benefits from Republic and a proxy statement is
mailed to Republic Stockholders at least 30 days before the Business
Combination.
AMENDMENTS TO KEYSTONE'S CHARTER AND BYLAWS
The Board of Directors has unanimously approved, declared advisable and
recommends that the stockholders consider and approve amendments (the
"Amendments") to Article Four of Keystone's Charter and Article III, Section
3.4 of Keystone's Bylaws, pursuant to which Keystone would be required to
elect a classified Board of Directors at its next annual meeting of
Stockholders.
Purpose and Effects of the Amendment. At the present time, Article Four of
the Keystone Charter and Article III, Section 3.4 of Keystone's Bylaws,
mandate that at the next annual meeting of stockholders, anticipated to be in
August 1998, Keystone must classify its Board by dividing the directors into
three classes. The classes would be elected to serve for one, two and three
years, respectively. Thereafter, when the initial term of membership expires,
each class would be elected to serve for a three-year term. Under the
California Code, Keystone would be required to have at least nine members of
the Board, whereas currently the Board consists of five members. To implement
the current Keystone Charter requirements, Keystone would have to expand its
Board by four new members.
While the Keystone Board may eventually be expended beyond its present five
members, the Keystone Board does not believe that it would be in the best
interests of Keystone to be required to add four new directors at the next
annual stockholders meeting. Consequently, the Keystone Board has proposed
that the Keystone Charter and Bylaws be amended. If the proposed amendment is
approved to stockholders, directors will continue to be elected for a one year
term.
Resolution. The following resolution will be submitted to shareholders for
their approval:
RESOLVED, that ARTICLE FOUR of the Amended and Restated Articles of
Incorporation of Keystone be amended in its entirety to read as follows:
"FOUR: A. This Article FOUR shall become effective only when this
corporation becomes a listed corporation within the meaning of Section 301.5
of the California General Corporations Law, which section provides that a
listed corporation means a corporation with outstanding shares listed on the
New York Stock Exchange or the American Stock Exchange, or a corporation with
outstanding securities designated as qualified for trading as a national
market system security on the National Association of Securities Dealers
Automatic Quotation System (or any successor national market system) if the
corporation has at least 800 holders of its equity securities as of the record
date of the corporation's most recent annual meeting of shareholders.
B. Upon the effectiveness of this Article FOUR, the election of directors by
the shareholders shall not be by cumulative voting. At each election of
directors, each shareholder entitled to vote may vote all the shares
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held by that shareholder for each of several nominees for director up to the
number of directors to be elected. The shareholder may not cast more votes for
any single nominee than the number of shares held by the shareholder."
FURTHER RESOLVED, that Article III, Section 3.4 of Keystone's Bylaws be
amended in its entirety to read as follows:
"Section 3.4 ELECTION AND TERM OF OFFICE.
(a) Except as expressly set forth in this Section 3.4, (i) the directors
shall be elected at each annual meeting of shareholders but, if any such
annual meeting is not held or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose and (ii) each director, including a director elected to fill a
vacancy, shall hold office until the next annual meeting of the shareholders
and until his successor is elected and qualified.
(b) Upon the effectiveness of Article FOUR of the Restated Articles of
Incorporation, the election of directors by the shareholders shall not be by
cumulative voting. At each election of directors, each shareholder entitled to
vote may vote all the shares held by that shareholder for each of several
nominees for director up to the number of directors to be elected. The
shareholder may not cast more votes for any single nominee than the number of
shares held by that shareholder.
(c) Any action by the shareholders with respect to any amendment to or the
elimination of all or any part of this Article III, Section 3.4, shall require
approval by the holders of at least two-thirds of the outstanding shares of
the corporation."
Vote Required: Recommendation of the Board of Directors. In accordance with
the requirements of the Keystone Charter and Bylaws, the affirmative vote of
the holders of two-thirds of the outstanding shares of Common Stock is
required to approve the Amendments. Accordingly, abstentions and broker non-
votes applicable to shares present at the meeting will have the same effect as
votes cast against approval of the Amendments. If the Amendments are approved,
the Company intends to file the Amendment to Keystone's Charter with the
Secretary of State of California as soon as practicable thereafter. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
KEYSTONE CHARTER AND BYLAW PROPOSAL.
LEGAL MATTERS
The validity of Keystone Common Stock to be issued in connection with the
Merger will be passed upon by Manatt, Phelps & Phillips LLP, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Keystone at March 28, 1997 and
March 29, 1996 and for each of the three years in the period ended March 26,
1997, incorporated by reference in this Joint Proxy Statement/Prospectus,
which are referred to herein and made part of the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
also incorporated herein by reference. Such consolidated financial statements
of Keystone are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Republic at December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997, incorporated by
reference in this Joint Proxy Statement/Prospectus, have been audited by Price
Waterhouse LLP, independent auditors, as stated in their report, which is also
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
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It is expected that representatives of Ernst & Young LLP will be present at
the Keystone Stockholders Meeting to respond to appropriate questions and to
make a statement if they desire.
AVAILABLE INFORMATION
Keystone and Republic are each subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed
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 following Regional Offices
of the Commission: 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. The Commission also maintains a
website at http://www.sec.gov which contains reports, proxy statements and
other information regarding registrants (including Keystone and Republic) that
file electronically with the Commission. In addition, such reports, proxy
statements and other information with respect to Keystone and Republic may be
inspected at the offices of NASD, 1735 K Street, N.W., Washington, D.C. 20006-
1506.
This Joint Proxy Statement/Prospectus does not include all of the
information set forth in the Registration Statement filed by Keystone with the
Commission under the Exchange Act, as permitted by the rules and regulations
of the Commission. The Registration Statement, including any amendments,
schedules and exhibits filed or incorporated by reference as a part thereof,
is available for inspection and copying as set forth above. Statements
contained in this Joint Proxy 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, and
each statement shall be deemed qualified in its entirety by such reference.
No person has been authorized to give any information or make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the securities covered by this Joint Proxy
Statement/Prospectus or a solicitation of a proxy in any jurisdiction where,
or to or from any person to whom, it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of Keystone or
Republic since the date hereof or that the information contained or
incorporated by reference herein is correct as of any time subsequent to its
date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Keystone with the Commission
under the Exchange Act are incorporated herein by reference (File No. 0-
28568):
. Keystone's Annual Report on Form 10-K for the fiscal year ended March
28, 1997 (the "Keystone Form 10-K");
. Keystone's Quarterly Reports on Form 10-Q for the quarters ended June
27, 1997, September 26, 1997 and December 26, 1997 and the Form 10-Q/A
amended Quarterly Report for the quarter ended December 26, 1997 (the
"Keystone Form 10-Qs"); and
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. Keystone's Current Reports on Form 8-K dated April 10, 1997, June 6,
1997, January 9, 1998, February 19, 1998, March 10, 1998 and April 8,
1998 (collectively, with the Keystone Form 10-K and the Keystone 10-Qs,
the "Keystone Reports").
The following documents previously filed by Republic with the Commission
under the Exchange Act are incorporated herein by reference (File No. 0-6215).
. Republic's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "Republic Form 10-K");
. Republic's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (the "Republic Form 10-Q"); and
. Republic's Current Report on Form 8-K dated February 23, 1998 (the
"Republic Form 8-K," and, collectively with the Republic Form 10-K and
the Republic Form 10-Q, the "Republic Reports").
All documents filed by Keystone or Republic pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Special Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement /Prospectus and to
be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Keystone has been supplied by Keystone and
all such information relating to Republic has been supplied by Republic.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN
OR ORAL REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO KEYSTONE, FROM JAMES
C. LOCKWOOD, VICE PRESIDENT--GENERAL COUNSEL AND SECRETARY, KEYSTONE
AUTOMOTIVE INDUSTRIES, INC., 700 EAST BONITA AVENUE, POMONA, CALIFORNIA 91767
[TELEPHONE: (909) 624-8041] AND IN THE CASE OF DOCUMENTS RELATING TO REPUBLIC
FROM DONALD B. HAUK, REPUBLIC AUTOMOTIVE PARTS, INC., 500 WILSON PIKE CIRCLE,
SUITE 115, P.O. BOX 2088, BRENTWOOD, TENNESSEE 37024 [TELEPHONE: (615) 373-
2050 EXTENSION 117]. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
SUCH REQUEST SHOULD BE MADE BY JUNE 18, 1998.
FORWARD-LOOKING STATEMENTS--SAFE HARBOR PROVISIONS
This Joint Proxy Statement/Prospectus contains or incorporates by reference
statements which, to the extent that they are not recitations of historical
fact, constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. The words
"estimate," "anticipate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. All forward-
looking statements involve risks and uncertainties, including, without
limitation, statements and assumptions with respect to future revenues,
program performance and cash flows, the outcome of contingencies including
litigation and environmental remediation and anticipated costs of capital
investments and planned dispositions. The forward-looking statements contained
in or incorporated by reference into this document are
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intended to be subject to the safe harbor protection provided by Section 27A
of the Securities Act and 21E of the Exchange Act.
For a discussion identifying some important factors that could cause results
to vary materially from those anticipated in the forward-looking statements
made by Keystone, see "Risk Factors," "Business of Keystone-- Keystone Risk
Factors" and the Keystone Reports, including but not limited to the Cautionary
Statements set forth on page 7 of the Keystone 10-K.
Important factors that could cause actual results to vary materially from
those anticipated in the forward-looking statements made by Republic are
described under "Risk Factors," "Business of Republic--Republic Risk Factors"
and in the Republic Reports, including but not limited to the Cautionary
Statements set forth on page 6 of the Republic 10-K.
FUTURE STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the next annual
meeting of Keystone Stockholders expected to be held in August 1998 must be
received by the secretary of Keystone at its principal executive offices
within a reasonable period of time before materials are mailed to
stockholders, if such a proposal is to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.
If the Merger is not consummated, Republic will hold a 1998 annual meeting
of stockholders. If such a meeting is held, stockholder proposals intended to
be presented at such meeting must be received by Republic a reasonable time
before the solicitation of proxies for such meeting is made in order for
inclusion in the proxy materials for such meeting.
The rules of the Commission set forth standards as to what stockholder
proposals are required to be included in a proxy statement for an annual
meeting.
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APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
REPUBLIC AUTOMOTIVE PARTS, INC.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
AND
KAI MERGER, INC.
DATED AS OF FEBRUARY 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
Recitals.................................................................. 7
ARTICLE I
The Merger; Closing; Effective Time....................................... 7
1.1The Merger........................................................... 7
1.2Closing.............................................................. 7
1.3Effective Time....................................................... 7
ARTICLE II
Certificate of Incorporation and By-Laws of the Surviving Corporation..... 8
2.1The Certificate of Incorporation..................................... 8
2.2The By-Laws.......................................................... 8
ARTICLE III
Officers, Directors and Management........................................ 8
3.1Directors of Surviving Corporation................................... 8
3.2Officers of Surviving Corporation.................................... 8
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates........... 8
4.1Effect on Capital Stock.............................................. 8
(a)Merger Consideration.............................................. 8
(b)Cancellation of Shares............................................ 8
(c)Merger Sub........................................................ 8
4.2Exchange of Certificates for Shares.................................. 9
(a)Exchange Procedures............................................... 9
(b)Voting............................................................ 9
(c)Transfers......................................................... 9
(d)Fractional Shares................................................. 9
(e)Termination of Exchange Period; Unclaimed Stock................... 10
(f)Lost, Stolen or Destroyed Certificates............................ 10
(g)Affiliates........................................................ 10
4.3Adjustments to Prevent Dilution...................................... 10
ARTICLE V
Representations and Warranties............................................ 11
5.1Representations and Warranties of the Company, Keystone and Merger
Sub.................................................................... 11
(a)Organization, Good Standing and Qualification..................... 11
(b)Governmental Filings; No Violations............................... 11
(c)Reports; Financial Statements..................................... 12
(d)Absence of Certain Changes........................................ 12
(e)Litigation and Liabilities........................................ 12
(f)Accounting and Tax Matters........................................ 13
(g)Taxes............................................................. 13
(h)Compliance with Laws.............................................. 13
5.2Representations and Warranties of the Company........................ 14
(a)Capital Structure................................................. 14
(b)Corporate Authority; Approval and Fairness........................ 14
(c)Employee Benefits................................................. 15
(d)Takeover Statutes................................................. 16
(e)Environmental Matters............................................. 16
</TABLE>
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<TABLE>
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(f)Labor Matters...................................................... 17
(g)Brokers and Finders................................................ 17
(h)Intellectual Property.............................................. 17
(i)Rights Agreement................................................... 17
5.3Representations and Warranties of Keystone and Merger Sub............. 17
(a)Capital Structure.................................................. 17
(b)Corporate Authority; Approval and Fairness......................... 18
(c)Employee Benefits.................................................. 18
(d)Environmental Matters.............................................. 19
(e)Labor Matters...................................................... 19
(f)Intellectual Property.............................................. 19
(g)Brokers and Finders................................................ 20
ARTICLE VI
Covenants.................................................................. 20
6.1Interim Operations.................................................... 20
6.2Acquisition Proposals................................................. 21
6.3Information Supplied.................................................. 22
6.4Shareholders Meeting.................................................. 22
6.5Filings; Other Actions; Notification.................................. 22
6.6Access; Consultation.................................................. 23
6.7Affiliates............................................................ 24
6.8National Market Listing and De-listing................................ 24
6.9Publicity............................................................. 24
6.10Benefits............................................................. 25
(a)Stock Options...................................................... 25
(b)Employee Benefits.................................................. 25
6.11Expenses............................................................. 25
6.12Indemnification; Directors, and Officers, Insurance.................. 25
6.13Takeover Statute..................................................... 26
6.14Confidentiality...................................................... 26
6.15Transfer Taxes....................................................... 26
6.16Tax Status........................................................... 26
ARTICLE VII
Conditions................................................................. 27
7.1Conditions to Each Party's Obligation to Effect the Merger............ 27
(a)Shareholder Approval............................................... 27
(b)National Market Listing............................................ 27
(c)Governmental Consents.............................................. 27
(d)Laws and orders.................................................... 27
(e)S-4................................................................ 27
7.2Conditions to Obligations of Keystone and Merger Sub.................. 27
(a)Representations and Warranties..................................... 27
(b)Performance of Obligations Company................................. 27
(c)Dissenting Keystone Shares......................................... 27
(d)Consent of Lender.................................................. 27
(e)Fairness Opinion................................................... 28
(f)Legal Opinion...................................................... 28
</TABLE>
I-3
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TABLE OF CONTENTS--(CONTINUED)
<TABLE>
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7.3 Conditions to Obligation of the Company............................. 28
(a) Representations and Warranties.................................. 28
(b) Performance of Obligations of Keystone and Merger Sub........... 28
(c) Dissenting Keystone Shares...................................... 28
(d) Fairness Opinion................................................ 28
(e) Legal Opinion................................................... 28
ARTICLE VIII
Termination................................................................ 29
8.1 Termination by Mutual Consent....................................... 29
8.2 Termination by Either Keystone or the Company....................... 29
8.3 Termination by the Company.......................................... 29
8.4 Termination by Keystone............................................. 29
8.5 Effect of Termination and Abandonment............................... 30
ARTICLE IX
Miscellaneous and General.................................................. 31
9.1 Survival............................................................ 31
9.2 Modification or Amendment........................................... 31
9.3 Waiver of Conditions................................................ 31
9.4 Counterparts........................................................ 31
9.5 Governing Law and Venue; Waiver of Jury Trial....................... 31
9.6 Notices............................................................. 32
9.7 Entire Agreement.................................................... 33
9.8 No Third Party Beneficiaries........................................ 33
9.9 Obligations of Keystone and of the Company.......................... 33
9.10 Severability........................................................ 33
9.11 Interpretation...................................................... 33
9.12 Assignment.......................................................... 33
EXHIBITS
A Stock Option Agreement................................................. A-1
B Form of Company Affiliate's Letter..................................... B-1
C Form of Keystone Affiliate's Letter.................................... C-1
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -----------------
<S> <C>
Acquisition Proposal......................................... 6.2(a), 8.5(b)(i)
Affiliate.................................................... 6.7
Agreement.................................................... preamble
Audit Date................................................... 5.1(c)
Bankruptcy and Equity Exception.............................. 5.2(b)
By-Laws...................................................... 2.2
Certificate.................................................. 4.1(a)
Certificate of Merger........................................ 1.3
Charter...................................................... 2.1
Closing...................................................... 1.2
Closing Date................................................. 1.2
Code......................................................... recitals
Company...................................................... preamble
Company Affiliate's Letter................................... 6.7(a)
Company Disclosure Letter.................................... 5.1
Company Option............................................... 6.10(a)(i)
Company Required Consents.................................... 5.1(b)(i)
Company Requisite Vote....................................... 5.2(b)
Company Share................................................ 4.1(a)
Company Shares............................................... 4.1(a)
Compensation and Benefit Plans............................... 5.2(c)(i)
Confidentiality Agreement.................................... 6.6(a)
Contracts.................................................... 5.1(b)(ii)(B)
Costs........................................................ 6.12(a)
Current Premium.............................................. 6.12(c)
D&O Insurance................................................ 6.12(c)
DGCL......................................................... 1.1
Disclosure Letter............................................ 5.1
Effective Time............................................... 1.3
Environmental Law............................................ 5.2(e)
ERISA........................................................ 5.2(c)(ii)
ERISA Affiliate.............................................. 5.2(c)(iii)
ERISA Affiliate Plan......................................... 5.2(c)(iii)
Escrow Account............................................... 4.4
Escrow Agent................................................. 4.4
Escrow Agreement............................................. 4.4
Exchange Act................................................. 5.1(b)(i)(B)
Exchange Agent............................................... 4.2(a)
Exchange Ratio............................................... 4.1(a)
Excluded Company Shares...................................... 4.1(a)
GAAP......................................................... 5.1(c)
Governmental Entity.......................................... 5.1(b)(i)(C)
Hazardous Substance.......................................... 5.2(e)
HSR Act...................................................... 5.1(b)(i)(B)
Indemnified Parties.......................................... 6.12(a)
Initial 15 Day Period........................................ 8.4
IRS.......................................................... 5.2(c)(ii)
Keystone..................................................... preamble
Keystone Affiliate's Letter.................................. 6.7(a)
</TABLE>
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INDEX OF DEFINED TERMS--(CONTINUED)
<TABLE>
<CAPTION>
TERM SECTION
---- -------------
<S> <C>
Keystone Common Stock............................................. 4.1(a)
Keystone Disclosure Letter........................................ 5.1
Keystone Preferred Shares......................................... 5.3(a)(i)
Keystone Required Consents........................................ 5.1(b)(i)
Keystone Requisite Vote........................................... 5.3(b)
Laws.............................................................. 5.1(h)
Litigation........................................................ 5.1(e)(i)
Material Adverse Effect........................................... 5.1(a)(ii)
Merger............................................................ recitals
Merger Consideration.............................................. 4.1(a)
Merger Sub........................................................ preamble
Named Executive Officers.......................................... 5.1(e)
Order............................................................. 7.1(d)
Pension Plan...................................................... 5.2(c)(ii)
Person............................................................ 4.2(a)
Permits........................................................... 5.1(h)
Prospectus/Proxy Statement........................................ 6.3(i)
Registered Keystone Shares........................................ 4.2(a)(ii)(A)
Reports........................................................... 5.1(c)
Representatives................................................... 6.6(a)
S-4 Registration Statement........................................ 6.3(i)
SEC............................................................... 5.1(c)
Securities Act.................................................... 5.1(b)(i)(B)
Shareholders Meetings............................................. 6.4
Significant Subsidiaries.......................................... 5.1(b)(ii)(A)
Stock Option Agreement............................................ recitals
Stock Plans....................................................... 5.2(a)(ii)
Subsidiary........................................................ 5.1(a)(i)
Substitute Option................................................. 6.10(a)(i)
Superior Proposal................................................. 6.2(a)
Surviving Corporation............................................. 1.1
Takeover Statute.................................................. 5.2(d)
Tax............................................................... 5.1(g)(x)
Taxes............................................................. 5.1(g)(x)
Taxable........................................................... 5.1(g)(x)
Tax Return........................................................ 5.1(g)(y)
Termination Date.................................................. 8.2(i)
Termination Fee................................................... 8.5(b)
The Other Party................................................... 5.1(a)(iii)
Transfer Taxes.................................................... 6.15
</TABLE>
I-6
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as
of February 17, 1998, among Republic Automotive Parts, Inc., a Delaware
corporation (the "Company"), Keystone Automotive Industries, Inc, a California
corporation ("Keystone"), and KAI Merger, Inc., a Delaware corporation and a
wholly-owned subsidiary of Keystone ("Merger Sub").
RECITALS
WHEREAS, the respective boards of directors of each of Keystone, Merger Sub
and the Company have approved the merger of Merger Sub with and into the
Company (the "Merger") and adopted this Agreement;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a "tax-free" reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code");
WHEREAS, as an inducement to the willingness of Keystone to enter into this
Agreement, the board of directors of the Company has approved the grant to
Keystone of an option to purchase shares of common stock of the Company
pursuant to a stock option agreement, substantially in the form of Exhibit A
(the "Stock Option Agreement"), and each of the Company and Keystone have duly
authorized, executed and delivered the Stock Option Agreement; and
WHEREAS, the Company, Keystone and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the Merger shall have the effects provided in the Delaware
General Corporation Law ( the "DGCL").
1.2 Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Manatt, Phelps & Phillips, LLP, 11355 West Olympic
Boulevard, Los Angeles, California 090064-1614 at 9:00 a.m. local time on the
second business day after the date on which the last to be fulfilled or waived
of the conditions set forth in Article VII (other than those conditions that
by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Keystone may agree in writing (the "Closing
Date").
1.3 Effective Time. As soon as practicable following the Closing, the
Company and Keystone will cause a certificate of merger (the "Certificate of
Merger") to be signed, acknowledged and delivered for filing with the
Secretary of State of the State of Delaware as provided in Sections 251(c) and
103 of the DGCL. The Merger shall become effective at the time when the
Certificate of Merger shall have become effective in accordance with the DGCL
(the "Effective Time").
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ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
2.1 The Certificate of Incorporation. The certificate of incorporation of
the Company as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"),
until duly amended as provided therein or by applicable law, except that
Article Fourth of the Charter shall be amended to read in its entirety as
follows: "The authorized capital stock of the Corporation shall consist of one
thousand shares of common stock having a par value of one dollar per share."
2.2 The By-Laws. The by-laws of the Company in effect at the Effective Time
shall be the by-laws of the Surviving Corporation (the "By-Laws"), until duly
amended as provided therein or by applicable law.
ARTICLE III
OFFICERS, DIRECTORS AND MANAGEMENT
3.1 Directors of Surviving Corporation. The directors of Merger Sub at the
Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Corporation until their successors shall have been duly elected
or appointed and shall have qualified or until their earlier death,
resignation or removal in accordance with the Charter and the By-Laws.
3.2 Officers of Surviving Corporation. The officers of the Company at the
Effective Time (other than the Chairman of the Board of the Company) shall,
from and after the Effective Time, be the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed
and shall have qualified or until their earlier death, resignation or removal
in accordance with the Charter and the By-Laws.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1 Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock
of the Company:
(a) Merger Consideration. Each share of the common stock, having a par
value of $0.50 per share (each a "Company Share" and together the "Company
Shares"), of the Company issued; and outstanding immediately prior to the
Effective Time (other than (i) Company Shares that are owned by Keystone or
Merger Sub; or (ii) Company Shares that are held in the treasury of the
Company (collectively, "Excluded Company Shares")) shall be converted into
0.80 of a share (the "Exchange Ratio") of common stock, no par value, of
Keystone ("Keystone Common Stock"), subject to adjustment as provided in
Section 4.4 (the "Merger Consideration"). At the Effective Time, all
Company Shares shall no longer be outstanding, shall be canceled and
retired and shall cease to exist, and each certificate (a "Certificate")
formerly representing any Company Shares (other than Excluded Company
Shares) shall thereafter represent only the right to the Merger
Consideration and the right, if any, to receive, pursuant to Section
4.2(d), cash in lieu of fractional shares into which such Company Shares
have been converted pursuant to this Section 4.1(a).
(b) Cancellation of Shares. Each Company Share issued and outstanding
immediately prior to the Effective Time and owned directly by Keystone,
Merger Sub or the Company shall, by virtue of the Merger and without any
action on the part of the holder thereof, no longer be outstanding, shall
be canceled and retired without payment of any consideration therefor and
shall cease to exist.
(c) Merger Sub. At the Effective Time, each share of common stock, par
value $0.10 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one
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share of common stock of the Surviving Corporation, and the Surviving
Corporation shall be a wholly-owned subsidiary of Keystone.
4.2 Exchange of Certificates for Shares.
(a) Exchange Procedures. As soon as practicable after the Effective Time,
the Surviving Corporation shall cause an exchange agent (the "Exchange
Agent"), selected by Keystone with the Company's prior approval, which shall
not be unreasonably withheld, to mail to each holder of record of Company
Shares (other than holders of record of Excluded Company Shares) (i) a letter
of transmittal specifying that delivery shall be effected, and that risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent,
such letter of transmittal to be in such form and have such other provisions
as Keystone and the Company may reasonably agree, and (ii) instructions for
surrendering the Certificates in exchange for (A) uncertificated shares of
Keystone Common Stock registered on the stock transfer books of Keystone in
the name of such holder ("Registered Keystone Shares") or, at the election of
such holder, certificates representing shares of Keystone Common Stock and (B)
cash in lieu of fractional shares. Subject to Section 4.2(g), upon surrender
of a Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) Registered Keystone Shares or, at
the election of such holder, a certificate, representing that number of whole
shares of Keystone Common Stock that such holder is entitled to receive
pursuant to this Article IV, (y) a check in the amount (after giving effect to
any required tax withholdings) of any cash in lieu of fractional shares, and
the Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on any amount payable upon due surrender of the
Certificates. In the event of a transfer of ownership of Company Shares that
is not registered in the transfer records of the Company, the Registered
Keystone Shares or certificate, as the case may be, representing the proper
number of shares of Keystone Common Stock, together with a check for any cash
to be paid upon due surrender of the Certificate, may be issued and/or paid to
such a transferee if the Certificate formerly representing such Company Shares
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. If any Registered Keystone Shares or
certificate for shares of Keystone Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Person (as
defined below) requesting such exchange shall pay any transfer or other taxes
required by reason of the issuance of Registered Keystone Shares or
certificates for shares of Keystone Common Stock in a name other than that of
the registered holder of the Certificate surrendered, or shall establish to
the satisfaction of Keystone or the Exchange Agent that such tax has been paid
or is not applicable.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(b))
or other entity of any kind or nature.
(b) Voting. Holders of unsurrendered Certificates shall not be entitled to
vote after the Effective Time at any meeting of Keystone stockholders with a
record date at or after the Effective Time.
(c) Transfers. After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the Company Shares that were
outstanding immediately prior to the Effective Time.
(d) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Keystone Common Stock will be issued and
any holder of record of Company Shares entitled to receive a fractional share
of Keystone Common Stock, but for this Section 4.2(d), shall be entitled to
receive an amount in cash (without interest) determined by multiplying such
fraction (rounded to the nearest one-hundredth of a share) by the closing
price of a share of Keystone Common Stock, on the NASDAQ National Market, as
reported in The Wall Street Journal, West Coast edition, for the last trading
day prior to the Effective Time. Keystone shall make available to the Exchange
Agent cash in an amount sufficient to make the payments in lieu of fractional
shares of Keystone Common Stock.
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(e) Termination of Exchange Period; Unclaimed Stock. Any shares of Keystone
Common Stock and any portion of the cash payable with respect to the Keystone
Common Stock pursuant to Section 4.1 and Section 4.2(d) (including the
proceeds of any investments thereof) that remains unclaimed by the former
shareholders of the Company 180 days after the Effective Time shall be paid to
Keystone. Any former shareholders of the Company who have not theretofore
complied with this Article IV shall look only to Keystone for payment of their
shares of Keystone Common Stock and any cash issuable and/or payable pursuant
to Section 4.1 and Section 4.2(d) upon due surrender of their Certificates (or
affidavits of loss in lieu thereof), in each case, without any interest
thereon. Notwithstanding the foregoing, none of Keystone, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Company Shares for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and the posting by such Person of a bond in the form customarily
required by Keystone as indemnity against any claim that may be made against
it with respect to such Certificate, Keystone will issue the shares of
Keystone Common Stock, and the Exchange Agent will issue any cash payment in
lieu of a fractional share in respect thereof, issuable and/or payable in
exchange for such lost, stolen or destroyed Certificate pursuant to this
Article IV upon due surrender of and deliverable in respect of the Company
Shares represented by such Certificate pursuant to this Agreement, in each
case, without interest.
(g) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in Section
6.7(a)) of the Company shall not be exchanged until Keystone has received a
written agreement from such Person as provided in Section 6.7 hereof.
4.3 Adjustments to Prevent Dilution. In the event that prior to the
Effective Time there is a change in the number of Company Shares or shares of
Keystone Common Stock or securities convertible or exchangeable into or
exercisable for Company Shares or shares of Keystone Common Stock issued and
outstanding as a result of a distribution, reclassification, stock split
(including a reverse split), stock dividend or distribution, merger (except as
contemplated by this Agreement) or other similar transaction, the Exchange
Ratio shall be equitably adjusted to eliminate the effects of such event.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Company, Keystone and Merger
Sub. Except as set forth in the disclosure letter, dated the date hereof,
delivered by the Company to Keystone or by Keystone to the Company (each a
"Disclosure Letter", and the "Company Disclosure Letter" and the "Keystone
Disclosure Letter", respectively), as the case may be, the Company (except for
references in subparagraphs (a), (b)(ii) and (c) below to documents made
available or disclosed by Keystone to the Company) hereby represents and
warrants to Keystone and Merger Sub, and Keystone (except for references in
subparagraphs (a), (b)(ii) and (c) below to documents made available or
disclosed by the Company to Keystone), on behalf of itself and Merger Sub,
hereby represents and warrants to the Company, that:
(a) Organization, Good Standing and Qualification. Each of it and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation
of its properties or conduct of its business requires such qualification,
except where the failure to be so qualified or in good standing is not,
when taken together with all other such failures, reasonably likely to have
a Material Adverse Effect (as defined below) on it. It has made available
to Keystone, in the case of the Company, and to the Company, in the case of
Keystone, a complete and correct copy of its certificate of incorporation
and by-laws, each as amended to date. Such certificates of incorporation
and by-laws as so made available are in full force and effect.
As used in this Agreement, (i) the term "Subsidiary" means, with respect
to the Company, Keystone, or Merger Sub, as the case may be, any entity,
whether incorporated or unincorporated, of which at least fifty percent of
the securities or ownership interests having by their terms ordinary voting
power to elect at least fifty percent of the board of directors or other
Persons performing similar functions is directly or indirectly owned by
such party or by one or more of its respective Subsidiaries or by such
party and any one or more of its respective Subsidiaries, (ii) the term
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the total enterprise value of such Person and its
Subsidiaries, taken as a whole, other than effects or changes resulting
from the execution of this Agreement or the announcement thereof, and (iii)
reference to "the other party" means, with respect to the Company, Keystone
and means, with respect to Keystone, the Company.
(b) Governmental Filings; No Violations. (i) Other than (A) the filings
pursuant to Section 1.3 and Section 6.8, (B) the notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the Securities Act of 1933, as amended (the "Securities Act"), (C) the
filings and/or notice to comply with state securities or "blue-sky" laws
(such filings and/or notices of the Company being the "Company Required
Consents" and of Keystone being the "Keystone Required Consents"), no
notices, reports or other filings are required to be made by it to or with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by it from, any governmental or regulatory
authority, court, agency, commission, body or other governmental entity
("Governmental Entity"), in connection with the execution and delivery of
this Agreement and the Stock Option Agreement by it and the consummation by
it of the Merger and the other transactions contemplated hereby and
thereby, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or to prevent, or materially impair its ability to
effect, the consummation by it of the transactions contemplated by this
Agreement or the Stock Option Agreement.
(ii) The execution, delivery and performance of this Agreement and the
Stock Option Agreement by it do not, and the consummation by it of the
Merger and the other transactions contemplated hereby and thereby will not,
constitute or result in (A) a breach or violation of, or a default under,
its certificate of incorporation or by-laws or the comparable governing
instruments of any of its "Significant Subsidiaries",
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as such term is defined in Rule 1.02(w) of Regulation S-X promulgated under
the Exchange Act, (B) a material breach or material violation of, a
material default under, the acceleration of any obligations or the creation
of a lien, pledge, security interest or other encumbrance on its assets or
the assets of any of its Subsidiaries (with or without notice, lapse of
time or both) pursuant to, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation ("Contracts") binding upon it or
any of its Subsidiaries or any Law (as defined in Section 5.1(h)) or (C)
any change in the rights or obligations of any party under any of its
Contracts, except for any breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect on it or to prevent, or
materially impair its ability to effect, the consummation by it of the
transactions contemplated by this Agreement or the Stock Option Agreement.
The Company Disclosure Letter, with respect to the Company, and the
Keystone Disclosure Letter, with respect to Keystone, sets forth a correct
and complete list of all Contracts of it and its Subsidiaries required to
be filed as material contract exhibits under the Exchange Act and pursuant
to which consents or waivers are or may be required prior to consummation
of the transactions contemplated by this Agreement or the Stock Option
Agreement.
(c) Reports; Financial Statements. It has made available to the other
party each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1996 as to the Company and
since March 28, 1997 as to Keystone (the "Audit Date"), including its
Annual Report on Form 10-K for the year ended December 31, 1996 for the
Company and for the year ended March 28, 1997 for Keystone in the form
(including exhibits, annexes and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively, including any
such reports filed subsequent to the date hereof, its "Reports"). As of
their respective dates, its Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of
the circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into
its Reports (including the related notes and schedules) fairly presents the
consolidated financial position of it and its Subsidiaries as of its date
and each of the consolidated statements of income and of cash flows
included in or incorporated by reference into its Reports (including any
related notes and schedules) fairly presents the consolidated results of
operations and cash flows of it and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to notes and
year-end audit adjustments that will not be material in amount or effect),
in each case in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except as may be
noted therein.
(d) Absence of Certain Changes. Except as disclosed in its Reports filed
prior to the date hereof, as set forth in the Disclosure Letters or as
expressly contemplated by this Agreement, since the Audit Date it and its
Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses, and there has not been (i)
any change in the financial condition, business or results of operations of
it and its Subsidiaries, except those changes that are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on
it; (ii) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any of its
Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss is reasonably likely, individually or in the aggregate,
after taking into account any insurance coverage, to have a Material
Adverse Effect on it; (iii) any declaration, setting aside or payment of
any dividend or other distribution in respect of its capital stock; or (iv)
any change by it in accounting principles, practices or methods except as
required by GAAP.
(e) Litigation and Liabilities. Except as disclosed in its Reports filed
prior to the date hereof and in the Disclosure Letters, there are no (i)
civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings ("Litigation") pending or, to the actual
knowledge of its named executive officers as set forth in the Proxy
Statement for its last Annual Meeting of Stockholders (the "Named Executive
Officers"), threatened against it or any of its affiliates (as defined in
Rule 12b-2 under the Exchange Act) or (ii) obligations or liabilities,
whether or not accrued, contingent or otherwise, including those relating
to matters involving any Environmental Law (as defined in Section 5.2(e)),
pending or, to the actual knowledge of its named executive officers,
threatened against it or any of its Affiliates that in either case are
reasonably likely to result in any claims against or obligations or
liabilities of it or any of its
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Affiliates, except for those that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or to
prevent, or materially impair its ability to effect, the consummation by it
of the transactions contemplated by this Agreement or the Stock Option
Agreement; provided, that for purposes of this paragraph (e) no Litigation
arising after the date hereof shall be deemed to have a Material Adverse
Effect if and to the extent such Litigation (or any relevant part thereof)
is based on this Agreement or the transactions contemplated hereby.
(f) Accounting and Tax Matters. As of the date hereof, neither it nor any
of its Affiliates has taken or agreed to take any action, nor do its Named
Executive Officers have any actual knowledge of any fact or circumstance,
that would prevent Keystone from accounting for the business combination to
be effected by the Merger as a "pooling-of-interests" or prevent the Merger
from qualifying as a "reorganization" within the meaning of Section 368(a)
of the Code.
(g) Taxes. It and each of its Subsidiaries have prepared in good faith
and duly and timely filed (taking into account any extension of time within
which to file) all material Tax Returns (as defined below) required to be
filed by any of them and all such filed Tax Returns are complete and
accurate in all material respects and: (i) it and each of its Subsidiaries
have paid all Taxes (as defined below) that are shown as due on such filed
Tax Returns or that it or any of its Subsidiaries is obligated to withhold
from amounts owing to any employee, creditor or third party, except with
respect to matters contested in good faith or for such amounts that, alone
or in the aggregate, are not reasonably likely to have a Material Adverse
Effect on it; (ii) as of the date hereof, there are not pending against it
or its Subsidiaries or, to the actual knowledge of its Named Executive
Officers, threatened against it or its Subsidiaries, in writing, any
audits, examinations, investigations or other proceedings in respect of
Taxes or Tax matters, except with respect to matters contested in good
faith or for such amounts that, alone or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it; and (iii) there
are not, to the actual knowledge of its Named Executive Officers, any
unresolved questions or claims concerning its or any of its Subsidiaries'
Tax liability that are reasonably likely to have a Material Adverse Effect
on it. Neither it nor any of its Subsidiaries has any liability with
respect to income, franchise or similar Taxes in excess of the amounts
accrued in respect thereof that are reflected in the financial statements
included in its Reports, except such excess liabilities as have been
incurred in the ordinary course of business since the date of such Reports
and such excess liabilities as are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on it.
As used in this Agreement, (x) the term "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") includes all
federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, transfer, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and
any interest in respect of such penalties and additions, and (y) the term
"Tax Return" includes all returns, amended returns and reports (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to a Tax authority relating to Taxes.
(h) Compliance with Laws. Except as set forth in its Reports filed prior
to the date hereof and in the Disclosure Letters, the businesses of each of
it and its Subsidiaries have not been, and are not being, conducted in
violation of any law, statute, ordinance, regulation, judgment, order,
decree, injunction, arbitration award, license, authorization, opinion,
agency requirement or permit of any Governmental Entity or common law
(collectively, "Laws"), except for violations that are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on it
or to prevent, or materially impair its ability to effect, the consummation
by it of the transactions contemplated by this Agreement or the Stock
Option Agreement. Except as set forth in its Reports filed prior to the
date hereof and in the Disclosure Letters, as of the date hereof no
investigation or review by any Governmental Entity with respect to it or
any of its Subsidiaries is, to the actual knowledge of its Named Executive
Officers, pending or threatened, nor has any Governmental Entity indicated
to it or any of its Subsidiaries an intention to conduct the same, except
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for those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on it or to prevent, or
materially impair its ability to effect, the consummation by it of the
transactions contemplated by this Agreement or the Stock Option Agreement.
To the actual knowledge of its Named Executive Officers, as of the date
hereof no material change is required in its or any of its Subsidiaries'
processes, properties or procedures in connection with any such Laws, and
it has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date
hereof, except for such changes and noncompliance that are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or to prevent, or materially impair its ability to
effect, the consummation by it of the transactions contemplated by this
Agreement or the Stock Option Agreement. Each of it and its Subsidiaries
has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals (collectively,
"Permits") necessary to conduct their business as presently conducted,
except for those the absence of which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it.
5.2 Representations and Warranties of the Company. Except as set forth in
the Company Disclosure Letter, the Company hereby represents and warrants to
Keystone and Merger Sub that:
(a) Capital Structure. The authorized capital stock of the Company
consists of (i) 5,000,000 Company Shares, of which 3,401,818 Company Shares
were issued and outstanding and 73,165 Company Shares were held in
treasury, (ii) 150,000 shares of Preferred Stock, $1.00 par value, of which
no shares were issued and outstanding and (iii) 50,000 shares of Junior
Participating Cumulative Preferred Stock, $1.00 par value, of which no
shares were issued and outstanding, as of the close of business on January
31, 1998. All of the outstanding Company Shares have been duly authorized
and are validly issued, fully paid and nonassessable. Other than Company
Shares reserved for issuance pursuant to the Stock Option Agreement and
Company Shares reserved for issuance as set forth below or which may be
issued in accordance with Section 6.1(a), the Company has no Company Shares
reserved for issuance. As of January 31, 1998, there were not more than (i)
750,000 Company Shares reserved for issuance pursuant to the Company's
Stock Compensation Plan and (ii) 60,000 Company Shares reserved for
issuance under the 1997 Stock Option Plan for Non-Employee Directors
(collectively, the "Stock Plans"). Each of the outstanding shares of
capital stock or other securities of each of the Company's Significant
Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned by the Company or a direct or indirect wholly-owned
Subsidiary of the Company, free and clear of any lien, pledge, security
interest, claim or other encumbrance. Except as set forth above and except
for Company Shares and options to purchase Company Shares which may be
issued in accordance with Section 6.1(a), neither the Company nor any of
its Subsidiaries has any obligation with respect to any preemptive or other
outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any of its Significant Subsidiaries or
any securities or obligations convertible or exchangeable into or
exercisable for, or giving any Person a right to subscribe for or acquire,
any securities of the Company or any of its Significant Subsidiaries, and
no securities or obligations evidencing such rights are authorized, issued
or outstanding. The Company Shares issuable pursuant to the Stock Option
Agreement have been duly reserved for issuance by the Company, and upon any
issuance of such Company Shares in accordance with the terms of the Stock
Option Agreement, such Company Shares will be duly and validly issued and
fully paid and nonassessable. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the shareholders of the Company on any matter.
(b) Corporate Authority; Approval and Fairness. The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under
this Agreement and the Stock Option Agreement and to consummate, subject
only to approval of this Agreement by the holders of a majority of the
outstanding Company Shares (the "Company Requisite Vote") and the Company
Required Consents, the Merger. Each of this Agreement and the Stock Option
Agreement has been duly executed and delivered by the Company and, assuming
the due
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authorization, execution and delivery of this Agreement by Keystone and
Merger Sub and the due authorization, execution and delivery of the Stock
Option Agreement by Keystone, is a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception"). The board of directors of the Company
(A) has adopted this Agreement and approved the Merger and the other
transactions contemplated hereby, (B) has approved the execution and
delivery of the Stock Option Agreement and (C) has received the opinion of
its financial advisors in a customary form and to the effect that, as of
the date of this Agreement, the Exchange Ratio is fair, from a financial
point of view, to the holders of the Company Shares (other than Keystone or
any of its affiliates) and said opinion has not been withdrawn. The 80%
vote requirement set forth in Article Fifteenth of the Company's
Certificate of Incorporation, as amended, is not applicable to the Merger
approval, the conditions of Article Fifteenth, Section 3(a) having been
duly met.
(c) Employee Benefits.
(i) A copy of each executive bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option, employment,
termination, severance, compensation, medical, health or other material
plan, agreement, policy or arrangement that covers employees, directors,
former employees or former directors of it and its Subsidiaries (its
"Compensation and Benefit Plans") and any trust agreements or insurance
contracts forming a part of such Compensation and Benefit Plans has been
made available by the Company to Keystone prior to the date hereof and each
such Compensation and Benefit Plan is listed in Section 5.2(c) of the
Company Disclosure Letter.
(ii) All of its Compensation and Benefit Plans are in substantial
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with the
exception of any instances of non-compliance that are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on
the Company. Each of its Compensation and Benefit Plans that is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
(a "Pension Plan") and that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service (the "IRS"), and it is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. As of the date hereof, there is no pending or, to the
knowledge of its Named Executive Officers, threatened in writing material
litigation relating to its Compensation and Benefit Plans which is
reasonably likely to have a Material Adverse Effect on it. Neither it nor
any Subsidiary has engaged in a transaction with respect to any of its
Compensation and Benefit Plans that, assuming the taxable period of such
transaction expired as of the date hereof, would subject it or any of its
Subsidiaries to a material tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA and that is reasonably likely to have a
Material Adverse Effect on the Company.
(iii) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA (other than the payment of prospective premium amounts to the
Pension Benefit Guaranty Corporation in the normal course) has been or is
expected to be incurred by it or any Subsidiary with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of
them, or the single-employer plan of any entity which is considered one
employer with it under Section 4001 of ERISA or Section 414 of the Code
(its "ERISA Affiliate") (each such single-employer plan, its "ERISA
Affiliate Plan"). No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any of its Pension Plans or
any of its ERISA Affiliate Plans within the 12-month period ending on the
date hereof or will be required to be filed in connection with the
transactions contemplated by this Agreement.
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(iv) Neither any of its Pension Plans nor any of its ERISA Affiliate
Plans has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither it nor its Subsidiaries has provided, or is required to provide,
security to any of its Pension Plans or to any of its ERISA Affiliate Plans
pursuant to Section 401(a)(29) of the Code.
(v) The consummation of the Merger (or its approval by its shareholders)
and the other transactions contemplated by this Agreement and the Stock
Option Agreement will not (x) entitle any of its employees or directors or
any employees of its Subsidiaries to severance pay, directly or indirectly,
upon termination of employment, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under, increase
the amount payable or trigger any other material obligation pursuant to,
any of its Compensation and Benefit Plans or (z) result in any breach or
violation of, or a default under, any of its Compensation and Benefit
Plans.
(vi) Since the Audit Date, except as provided for herein, in the Company
Disclosure Letter or as disclosed in the Company's Reports filed prior to
the date hereof, there has not been any increase in the compensation
payable or that could become payable by it or any of its Subsidiaries to
officers or key employees or any amendment of any of its Compensation and
Benefit Plans other than increases or amendments in the ordinary course.
(d) Takeover Statutes. The Board of Directors of the Company, including a
majority of the non-employee directors of the Company, has duly adopted
resolutions approving the Merger, the Stock Option Agreement and the
transactions contemplated hereby and thereby and specifically naming
Keystone and its existing and future affiliates or associates. Such
resolutions satisfy the requirements of Section 203 of the DGCL, are by
their terms irrevocable, and have not been amended or modified in any
manner. The provisions of Section 203 of the DGCL do not and will not apply
to the Merger or the other transactions contemplated by this Agreement or
the Stock Option Agreement. No other "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation
(each a "Takeover Statute") as in effect on the date hereof or any anti-
takeover provision in the Company's certificate of incorporation and by-
laws is applicable to the Company, the Company Shares, the Merger or the
other transactions contemplated by this Agreement or the Stock Option
Agreement.
(e) Environmental Matters. Except as disclosed in its Reports filed prior
to the date hereof and except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
it: (i) each of it and its Subsidiaries has complied in all material
respects with all applicable Environmental Laws (as defined below); (ii)
the properties currently owned or operated by it or any of its Subsidiaries
(including soils, any groundwater underlying such properties, surface
water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined below) at levels that require
investigation or cleanup under applicable Environmental Laws; (iii) the
properties formerly owned or operated by it or any of its Subsidiaries were
not contaminated with Hazardous Substances during the period of ownership
or operation by it or any of its Subsidiaries; (iv) neither it nor any of
its Subsidiaries has received written notice that it is subject to
liability for any Hazardous Substance disposal or contamination on any
third party property; (v) neither it nor any Subsidiary has been
responsible for any release or threat of release of any Hazardous
Substance; (vi) as of the date hereof neither it nor any Subsidiary has
received any written notice, demand, letter, claim or request for
information alleging that it or any of its Subsidiaries may be in violation
of or liable under any Environmental Law; and (vii) neither it nor any of
its Subsidiaries is subject to any binding orders, decrees, injunctions or
other arrangements with any Governmental Entity or is subject to any
indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances.
As used herein, the term "Environmental Law" means any Law relating to:
(A) the protection, investigation or restoration of the environment,
health, safety, or natural resources, (B) the handling, use, presence,
disposal, release or threatened release of any Hazardous Substance or (C)
noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property in connection with any Hazardous Substance.
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<PAGE>
As used herein, the term "Hazardous Substance" means any substance that
is: listed, classified or regulated pursuant to any Environmental Law,
including any petroleum product or by-product, friable asbestos-containing
material, lead-containing paint, polychlorinated biphenyls, radioactive
materials or radon.
(f) Labor Matters. As of the date hereof, neither it nor any of its
Subsidiaries is the subject of any material proceeding asserting that it or
any of its Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization
nor is there pending or, to the actual knowledge of its Named Executive
Officers, threatened, nor has there been for the past five years, any labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving it
or any of its Subsidiaries, except in each case as is not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on
it.
(g) Brokers and Finders. Neither it nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
Merger or the other transactions contemplated in this Agreement and the
Stock Option Agreement.
(h) Intellectual Property. (i) The Company and/or each of its
Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use, all material patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, technology, know-
how, computer software programs or applications, and tangible or intangible
proprietary information or materials that are used in its or any of its
Subsidiaries' businesses as currently conducted, and to the actual
knowledge of its Named Executive Officers all patents, trademarks, trade
names, service marks and copyrights held by it and/or its Subsidiaries are
valid and subsisting, except for any failures to so own, be licensed or
possess or to be valid and subsisting, as the case may be, that,
individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on it.
(i) Rights Agreement. The Company has amended the Rights Agreement
relating to its Junior Participating Cumulative Preferred Stock Purchase
Rights, issued to stockholders in June 1992, to provide that neither
Keystone nor Merger Sub shall be deemed to be an Acquiring Person (as
defined in the Rights Agreement) and the Distribution Date (as defined
therein) shall not be deemed to occur and that the Rights will not become
separable, distributable, unredeemable or exercisable as a result of
entering into this Agreement, the Stock Option Agreement, the Affiliate
Agreement or consummating the Merger and/or the other transactions
contemplated hereby and thereby.
5.3 Representations and Warranties of Keystone and Merger Sub. Except as set
forth in the Keystone Disclosure Letter, Keystone, on behalf of itself and
Merger Sub, hereby represents and warrants to the Company that:
(a) Capital Structure. (i) The authorized capital stock of Keystone
consists of 50,000,000 shares of Keystone Common Stock, of which 14,642,000
shares were issued and outstanding as of the close of business on January
31, 1998; and 3,000,000 shares of Preferred Stock, no par value (the
"Keystone Preferred Shares"), of which no shares were outstanding as of the
close of business on January 31, 1998. All of the outstanding shares of
Keystone Common Stock have been duly authorized and are validly issued,
fully paid and nonassessable. Keystone has no shares of Keystone Common
Stock or Keystone Preferred Shares reserved for issuance except as
described below. Each of the outstanding shares of capital stock of each of
Keystone's Significant Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and owned by Keystone or a direct or indirect
wholly-owned Subsidiary of Keystone, free and clear of any lien, pledge,
security interest, claim or other encumbrance. Except pursuant to
Keystone's 1996 Employee Stock Incentive Plan, neither Keystone nor any of
its Subsidiaries has any obligation with respect to any preemptive or other
outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or to sell any shares of capital stock
or other securities of Keystone or any of its Significant Subsidiaries or
any securities or obligations convertible or exchangeable into or
exercisable for, or giving any Person a right to subscribe for or acquire,
any securities of the Company or any of its Significant Subsidiaries, and
no securities or
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<PAGE>
obligation evidencing such rights are authorized, issued or outstanding.
Keystone does not have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
stockholders of Keystone on any matter.
(ii) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.10 per share, all of which are validly issued
and outstanding. All of the issued and outstanding capital stock of Merger
Sub is, and at the Effective Time will be, owned by Keystone, and there are
(i) no other shares of capital stock or other voting securities of Merger
Sub, (ii) no securities of Merger Sub convertible into or exchangeable for
shares of capital stock or other voting securities of Merger Sub and (iii)
no options or other rights to acquire from Merger Sub, and no obligations
of Merger Sub to issue, any capital stock, other voting securities or
securities convertible into or exchangeable for capital stock or other
voting securities of Merger Sub. Merger Sub has not conducted any business
prior to the date hereof and has no, and prior to the Effective Time will
have no, assets, liabilities or obligations of any nature other than those
incident to its formation and pursuant to this Agreement and the Merger and
the other transactions contemplated by this Agreement.
(b) Corporate Authority; Approval and Fairness. Keystone and Merger Sub
each has all requisite corporate power and authority and each has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate, subject only to approval of this Agreement by the holders of a
majority of the outstanding Keystone Shares (the "Keystone Requisite Vote")
and the Keystone Required Consents, the Merger. Each of this Agreement and
the Stock Option Agreement has been duly executed and delivered by Keystone
and Merger Sub and, assuming the due authorization, execution and delivery
of this Agreement and the Stock Option Agreement by the Company, is a valid
and binding agreement of Keystone and Merger Sub, enforceable against each
of Keystone and Merger Sub in accordance with its terms, subject to the
Bankruptcy and Equity Exception. Keystone has received the opinion of its
financial advisors, A.G. Edwards & Sons, Inc., in a customary form and to
the effect that the Merger Consideration to be paid by Keystone in the
Merger is fair to Keystone from a financial point of view and said opinion
has not been withdrawn. The shares of Keystone Common Stock, when issued
pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and no stockholder of Keystone will have any
preemptive right of subscription or purchase in respect thereof.
(c) Employee Benefits.
(i) A complete list of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option, employment,
termination, severance, compensation, medical, health or other material
plan, agreement, policy or arrangement that covers employees, directors,
former employees or former directors of Keystone or any of its Subsidiaries
("Keystone Compensation and Benefit Plans") is set forth in the Keystone
Disclosure Letter.
(ii) All of the Keystone Compensation and Benefit Plans are in
substantial compliance with all applicable law, including the Code and
ERISA, with the exception of any instances of non-compliance that are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on Keystone or any Subsidiary. Each of the Keystone
Compensation and Benefit Plans that is a Pension Plan and that is intended
to be qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS, and neither Keystone nor any Subsidiary
is aware of any circumstances likely to result in revocation of any such
favorable determination letter. As of the date hereof, there is no pending
or, to the knowledge of the Named Executive Officers of Keystone,
threatened in writing material litigation relating to Keystone Compensation
and Benefit Plans which is reasonably likely to have a Material Adverse
Effect on it. Neither Keystone nor any Subsidiary has engaged in a
transaction with respect to any of the Keystone Compensation and Benefit
Plans that, assuming the taxable period of such transaction expired as of
the date hereof, would subject it to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA and that is
reasonably likely to have a Material Adverse Effect on Keystone or any
Subsidiary.
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<PAGE>
(iii) As of the date hereof, no material liability under Subtitle C or D
of Title IV of ERISA (other than the payment of prospective premium amounts
to the Pension Benefit Guaranty Corporation in the normal course) has been
or is expected to be incurred by Keystone or any Subsidiary with respect to
any ongoing, frozen or terminated "single-employer plan", within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained
by any of them, or any ERISA Affiliate Plan. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any of its Pension Plans or any of its ERISA Affiliate Plans within the
12-month period ending on the date hereof or will be required to be filed
in connection with the transactions contemplated by this Agreement.
(iv) Neither any of its Pension Plans nor any of its ERISA Affiliate
Plans have a material "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA. Neither Keystone nor its Subsidiaries have provided, or are required
to provide, security to any of its Pension Plans or to any of its ERISA
Affiliate Plans pursuant to Section 401(a)(29) of the Code.
(v) The consummation of the Merger (or its approval by its shareholders)
and the other transactions contemplated by this Agreement, the Stock Option
Agreement and the Affiliate Agreement will not (x) entitle any of
Keystone's or its Subsidiaries' employees or directors to severance pay,
directly or indirectly, upon termination of employment, (y) accelerate the
time of payment or vesting or trigger any payment of compensation or
benefits under, increase the amount payable or trigger any other material
obligation pursuant to, any of the Keystone Compensation and Benefit Plans
or (z) result in any breach or violation of, or a default under, any of the
Keystone Compensation and Benefit Plans.
(d) Environmental Matters. Except as disclosed in its Reports filed prior
to the date hereof and except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
it: (i) each Keystone and its Subsidiaries have complied in all material
respects with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Keystone or any of its Subsidiaries
(including soils, any groundwater underlying such properties, surface
water, buildings or other structures) are not contaminated with any
Hazardous Substances at levels that require investigation or cleanup under
applicable Environmental Laws; (iii) the properties formerly owned or
operated by Keystone or any of its Subsidiaries were not contaminated with
Hazardous Substances during the period of ownership or operation by
Keystone or any of its Subsidiaries; (iv) neither it nor any of its
Subsidiaries has received written notice that it is subject to liability
for any Hazardous Substance disposal or contamination on any third party
property; (v) neither it nor any Subsidiary has been responsible for any
release or threat of release of any Hazardous Substance; (vi) as of the
date hereof neither Keystone nor any Subsidiary has received any written
notice, demand, letter, claim or request for information alleging that it
or any of its Subsidiaries may be in violation of or liable under any
Environmental Law; and (vii) neither Keystone nor any Subsidiary is subject
to any binding orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with
any third party relating to liability under any Environmental Law or
relating to Hazardous Substances.
(e) Labor Matters. As of the date hereof, neither Keystone nor any
Subsidiary is the subject of any material proceeding asserting that it or
any of its Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization
affecting a substantial number of its employees nor is there pending or, to
the actual knowledge of its Named Executive Officers, threatened, nor has
there been for the past five years, any labor strike, dispute, walkout,
work stoppage, slow-down or lockout involving it or any of its
Subsidiaries, except in each case as is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or any
of its Subsidiaries.
(f) Intellectual Property. Keystone and/or each Subsidiary owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
material patents, trademarks, trade names, service marks, copyrights, and
any applications therefor, technology, know-how, computer software programs
or applications, and tangible or intangible proprietary information or
materials that are used in its or any of its Subsidiaries' businesses as
currently conducted, and to the actual knowledge of Keystone's Named
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Executive Officers all patents, trademarks, trade names, service marks and
copyrights held by it and/or its Subsidiaries are valid and subsisting,
except for any failures to so own, be licensed or possess or to be valid
and subsisting, as the case may be, that, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect on it.
(g) Brokers and Finders. Neither it nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
Merger or the other transactions contemplated in this Agreement and the
Stock Option Agreement.
ARTICLE VI
COVENANTS
6.1 Interim Operations. (a) The Company covenants and agrees as to itself
and its Subsidiaries that, after the date hereof and prior to the Effective
Time (unless Keystone shall otherwise approve in writing, which approval shall
not be unreasonably withheld or delayed, and except as otherwise expressly
contemplated by this Agreement, the Stock Option Agreement, the Company
Disclosure Letter or as required by applicable Law):
(i) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use all reasonable efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and
business associates;
(ii) it shall not (A) amend its certificate of incorporation or by-laws;
(B) split, combine, subdivide or reclassify its outstanding shares of
capital stock; (C) declare, set aside or pay any dividend payable in cash,
stock or property in respect of any capital stock; or (D) repurchase,
redeem or otherwise acquire, or permit any of its Subsidiaries to purchase
or otherwise acquire, any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its
capital stock;
(iii) neither it nor any of its Subsidiaries shall knowingly take any
action that would prevent the merger from qualifying as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code or that
would cause any of its representations and warranties herein to become
untrue in any material respect;
(iv) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans or Stock Plans or increase the
salary, wage, bonus or other compensation of any directors, officers or
employees or take any action which would result in an acceleration of
benefits or vesting under the Stock Plans as a result of the consummation
of the Merger which would not otherwise occur pursuant to the terms and
conditions of such benefits or Stock Plan grants, awards or options as in
effect on the date hereof;
(v) neither it nor any of its Subsidiaries shall issue any preferred
stock or incur any indebtedness for borrowed money (other than indebtedness
in the ordinary course of business consistent with past practice,
indebtedness incurred solely for the purpose of funding the Escrow Account
or the replacement or refinancing of existing short-term indebtedness); or
guarantee any such indebtedness;
(vi) neither it nor any of its Subsidiaries shall make any capital
expenditures in an aggregate amount in excess of the aggregate amount
reflected in the Company's capital expenditure budget heretofore delivered
to Keystone;
(vii) except as contemplated by Section 6.1(a)(iv), neither the Company
nor any of its Subsidiaries shall issue, deliver, sell, or encumber shares
of any class of its common stock or any securities convertible into, or any
rights, warrants or options to acquire, any such shares except the option
granted under the Stock Option Agreement, options and performance share
programs outstanding on the date hereof under the Stock Plans, and shares
issuable pursuant to such options and performance share programs;
(viii) neither it nor any of its Subsidiaries shall acquire any business,
whether by merger, consolidation, purchase of property or assets or
otherwise;
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(ix) neither it nor any of its Subsidiaries shall agree prior to the
Effective Time to do any of the foregoing after the Effective Time.
(b) Keystone covenants and agrees as to itself and its Subsidiaries that,
after the date hereof and prior to the Effective Time (unless the Company
shall otherwise approve in writing, which approval shall not be unreasonably
withheld or delayed, and except as otherwise expressly contemplated by this
Agreement or in the Keystone Disclosure Letter or as required by applicable
Law):
(i) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use all reasonable efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and
business associates;
(ii) it shall not (A) amend its certificate of incorporation or by-laws
in any manner that would prohibit or hinder, impede or delay in any
material respect the Merger or the consummation of the transactions
contemplated hereby; (B) declare, set aside or pay any dividend or other
distribution payable in cash or property in respect of any capital stock;
or (C) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase or otherwise acquire, except in open market
transactions or in connection with the Keystone Stock Plans, any shares of
its capital stock or any securities convertible into or exchangeable for
any shares of its capital stock;
(iii) neither it nor any of its Subsidiaries shall knowingly take any
action that would prevent the Merger from qualifying as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code or that
would cause any of its representations and warranties herein to become
untrue in any material respect, provided, however, that nothing contained
herein shall limit the ability of Keystone to exercise its rights under the
Stock Option Agreement; and
(iv) neither it nor any of its Subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
(c) Keystone and the Company agree that any written approval obtained under
this Section 6.1 may be relied upon by the other party if signed by the Chief
Executive Officer or the Chief Financial Officer of the other party.
6.2. Acquisition Proposals. (a) The Company agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall and that it shall direct and use its best efforts to cause
its and its Subsidiaries' Representatives (as defined below) not to, directly
or indirectly, initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to a merger,
reorganization, share exchange, consolidation or similar transaction involving
it, or any purchase of, or tender offer for, 15% or more of the equity
securities of it or any of its Subsidiaries or 15% or more of its and its
Subsidiaries' assets (based on the fair market value thereof) taken as a whole
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"). The Company further agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its
Representatives not to, directly or indirectly, have any discussions with or
provide any confidential information or data to any Person relating to an
Acquisition Proposal or engage in any negotiations concerning an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement
an Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent the Company or its board of directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; (B) making any disclosure to the Company's shareholders
if, in the good faith judgment of the board of directors of the Company,
failure so to disclose would be inconsistent with its obligations under
applicable law; (C) engaging in any discussions or negotiations with or
providing any information to, any Person in response to a bona fide written
Acquisition Proposal by any such Person received after the date hereof that
was not solicited by the Company after the date hereof; or (D) recommending
such an Acquisition Proposal to the shareholders of the Company if and only to
the extent that, in such case referred to in clause (C) or (D), the board of
directors of the Company concludes in good faith (after consultation with its
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financial advisor) that such Acquisition Proposal is reasonably capable of
being completed, taking into account all legal, financial, regulatory and
other aspects of the proposal and the Person making the proposal, and would,
if consummated, result in a transaction more favorable to the Company's
shareholders from a financial point of view than the transaction contemplated
by this Agreement (any such more favorable Acquisition Proposal being referred
to in this Agreement as a "Superior Proposal"). The Company agrees that it
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal. The Company also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement
in connection with its consideration of any Acquisition Proposal to return all
confidential information heretofore furnished to such Person by or on behalf
of it or any of its Subsidiaries.
(b) The Company agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 6.2. The Company agrees that it
will notify Keystone promptly if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions
or negotiations are sought to be initiated or continued with, any of the
Company's Representatives indicating, in connection with such notice, the name
of such Person and the material terms and conditions of any proposals or
offers and thereafter shall keep Keystone informed, on a current basis, of the
status and material terms of any such proposals or offers and the status of
any such discussions or negotiations.
6.3 Information Supplied. The Company and Keystone each agrees, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied
by it or its Subsidiaries for inclusion or incorporation by reference in (i)
the Registration Statement on Form S-4 to be filed with the SEC by Keystone in
connection with the issuance of shares of Keystone Common Stock in the Merger
(including the proxy statement and prospectus (the "Prospectus/Proxy
Statement") constituting a part thereof) (the "S-4 Registration Statement")
will, at the time the S-4 Registration Statement becomes effective under the
Securities Act, and (ii) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to shareholders and at the
time of the Shareholders Meeting, in any such case, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If at
any time prior to the Effective Time any information relating to Keystone or
the Company, or any of their respective affiliates, officers or directors,
should be discovered by Keystone or the Company which should be set forth in
an amendment or supplement to any of the S-4 Registration Statement or the
Prospectus/Proxy Statement, so that any of such documents would not include
any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be promptly filed
with the SEC and, to the extent required by law, disseminated to the
shareholders of the Company and Keystone.
6.4 Shareholders Meeting. The Company and Keystone will take, in accordance
with applicable law and each of their certificates of incorporation and by-
laws, all action necessary to convene meetings of their respective holders of
Company Shares stockholders (the "Shareholders Meetings") as promptly as
practicable after the S-4 Registration Statement is declared effective to
consider and vote upon the approval of this Agreement and the Merger. Unless
the board of directors of the Company determines in good faith after
consultation with outside legal counsel that to do so would result in a
failure to comply with its fiduciary duties under applicable law, the
Company's board of directors shall recommend approval of this Agreement and
the Merger and shall take all lawful action to solicit such approval.
6.5 Filings; Other Actions; Notification. (a) Keystone and the Company shall
promptly prepare and file with the SEC the Prospectus/Proxy Statement, and
Keystone shall prepare and file with the SEC the S-4 Registration Statement as
promptly as practicable. Keystone and the Company each shall use all
reasonable efforts to have the S-4 Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing, and
promptly thereafter mail the Prospectus/Proxy Statement to the shareholders of
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Keystone and the Company. Keystone shall also use all reasonable efforts to
obtain prior to the effective date of the S-4 Registration Statement all
necessary state securities law or "blue sky" permits and approvals required in
connection with the Merger and to consummate the other transactions
contemplated by this Agreement.
(b) The Company and Keystone each shall use all reasonable efforts to cause
to be delivered to the other party and its directors (i) letters of its
independent auditors, dated (A) the date on which the S-4 Registration
Statement shall become effective and (B) the Closing Date, and addressed to
the other party and its directors, in form and substance customary for
"comfort" letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement, and
(ii) if elected by Keystone, a letter from its independent auditors addressed
to Keystone and the Company, dated as of the Closing Date, stating their
opinion that the Merger will qualify for pooling-of-interests accounting
treatment.
(c) The Company and Keystone shall cooperate with the other and use (and
shall cause their respective Subsidiaries to use) their respective best
efforts to take or cause to be taken all actions, and do or cause to be done
all things, necessary, proper or advisable to be done on its part under this
Agreement and the Stock Option Agreement and applicable Laws to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation required to
be filed by it to effect all necessary applications, notices, petitions,
filings and other documents applicable to it and to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order for it to consummate the Merger or any of the
other transactions contemplated by this Agreement or the Stock Option
Agreement, including, but not limited to, the HSR Act.
(d) Subject to applicable laws relating to the exchange of information, the
Company and Keystone each shall, upon request by the other, furnish the other
with all information concerning itself, its Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Prospectus/Proxy Statement, the S-4
Registration Statement or any other statement, filing, notice or application
made by or on behalf of Keystone, the Company or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement or the
Stock Option Agreement.
(e) The Company and Keystone each shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or
other communications received by Keystone or the Company, as the case may be,
or any of its Subsidiaries, from any third party and/or the SEC with respect
to the Merger and the other transactions contemplated by this Agreement or the
Stock Option Agreement. Each of the Company and Keystone shall give prompt
notice to the other of any change that is reasonably likely to result in a
material Adverse Effect on it or of any failure of any of the conditions to
the other party's obligations to effect the Merger set forth in Article VII.
6.6 Access; Consultation. (a) Upon reasonable notice, and except as may
otherwise be required by applicable law, the Company and Keystone each shall
(and shall cause its Subsidiaries to) afford the other's and the other's
Subsidiaries, employees, agents and representatives (including any investment
banker, attorney or accountant retained by the other or any of the other's
Subsidiaries) (such officers, directors, employees, agents and representatives
being referred to in this Agreement, with respect to the Company or Keystone,
as the context requires, as such party's "Representatives") reasonable access,
during normal business hours throughout the period prior to the Effective
Time, to its properties, books, contracts and records and, during such period,
each shall (and shall cause its Subsidiaries to) furnish promptly to the other
all information concerning its business, properties and personnel as may
reasonably be requested, provided that no investigation pursuant to this
Section shall affect or be deemed to modify any representation or warranty
made by the Company, Keystone or Merger Sub hereunder, and provided, further,
that the foregoing shall not require the Company or Keystone to permit any
inspection, or to disclose any information, that in the reasonable judgment of
the Company or Keystone, as the case may be, would violate applicable law or
any of its obligations with respect to
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confidentiality or would result in the disclosure of any trade secrets of
third parties if the Company or Keystone, as the case may be, shall have used
all reasonable efforts to obtain the consent of such third party to such
inspection or disclosure. All requests for information made pursuant to this
Section shall be directed to an executive officer of the Company or Keystone,
as the case may be, or such Person as may be designated by any such executive
officer, as the case may be. All information provided pursuant to this Section
6.6 shall be governed by the terms of the Confidentiality Agreement between
the Company and Keystone dated January 22, 1998 (the "Confidentiality
Agreement").
(b) Subject to the Confidentiality Agreement, from the date hereof to the
Effective Time, Keystone and the Company agree to consult with each other on a
regular basis on a schedule to be agreed with regard to their respective
operations.
6.7 Affiliates. (a) Each of the Company and Keystone shall deliver to the
other a letter identifying all Persons whom such party believes to be, at the
date of the Shareholders Meeting, "affiliates" of such party for purposes of
applicable interpretations regarding use of the pooling-of-interests
accounting method and, in the case of "affiliates" of the Company, for
purposes of Rule 145 under the 1933 Act. Each of the Company and Keystone
shall use all reasonable efforts to cause each Person who is identified as an
"affiliate" in the letter from such party referred to above to deliver to
Keystone prior to the date of the Shareholders Meeting a written agreement, in
the form attached hereto as Exhibit B, in the case of affiliates of the
Company (the "Company Affiliate's Letter"), and Exhibit C, in the case of
affiliates of Keystone (the "Keystone Affiliate's Letter"). Prior to the
Effective Time, each of the Company and Keystone shall use all reasonable
efforts to cause each additional Person who is identified by such party as an
"affiliate" to execute the applicable written agreement as set forth in this
Section 6.7 (each Person identified by a party pursuant to the provisions of
this Section 6.7(a), an "Affiliate").
(b) If the Merger would otherwise qualify for pooling-of-interests
accounting treatment, shares of Keystone Common Stock issued to such
Affiliates of the Company in exchange for Company Shares shall not be
transferable until such time as financial results covering at least 30 days of
combined operations of Keystone and the Company shall have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such Affiliate has provided the
written agreement referred to in this Section, except to the extent permitted
by, and in accordance with, SEC Accounting Series Release 135 and SEC Staff
Accounting Bulletins 65 and 76. Keystone agrees to use its best efforts to
publish said financial results on Form 8-K within 60 days after the Effective
Time. If the Merger would otherwise qualify for pooling-of-interests
accounting treatment, any Company Shares held by any such Affiliate shall not
be transferable, regardless of whether such Affiliate has provided the
applicable written agreement referred to in this Section, if such transfer,
either alone or in the aggregate with other transfers by Affiliates, would
preclude Keystone's ability to account for the business combination to be
effected by the Merger as a pooling of interests. The Company shall not
register the transfer of any Certificate, unless such transfer is made in
compliance with the foregoing. The provisions of this Section 6.7(b) regarding
the filing of a Form 8-K are intended to be for the benefit of and shall be
enforceable by, each of the Affiliates of the Company, their heirs and
representatives.
6.8 National Market Listing and De-listing. Keystone shall use its best
efforts to cause the shares of Keystone Common Stock to be issued in the
Merger to be approved for listing on the NASDAQ National Market, prior to the
Closing Date. The Surviving Corporation shall use its best efforts to cause
the Company Shares to be de-listed from the NASDAQ National Market and de-
registered under the Exchange Act as soon as practicable following the
Effective Time.
6.9 Publicity. The initial press release with respect to the Merger shall be
a joint press release, and thereafter the Company and Keystone each shall
consult with each other prior to issuing any press releases or otherwise
making public announcements with respect to the Merger and the other
transactions contemplated by this Agreement and the Stock Option Agreement and
prior to making any filings with any third party and/or any Governmental
Entity (including NASDAQ) with respect thereto, except as may be required by
law or by obligations pursuant to any listing agreement with or rules of
NASDAQ.
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6.10 Benefits.
(a) Stock Options.
(i) At the Effective Time, each outstanding option to purchase Company
Shares (a "Company Option") under the Stock Plans, whether vested or unvested,
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Company Option, the same number of
shares of Keystone Common Stock as the holder of such Company Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such Company Option in full immediately prior to the Effective Time (rounded
down to the nearest whole number) (a "Substitute Option"), at an exercise
price per share (rounded up to, the nearest whole cent) equal to (y) the
aggregate exercise price for the Company Shares otherwise purchasable pursuant
to such Company Option divided by (z) the number of full shares of Keystone
Common Stock deemed purchasable pursuant to such Company Option in accordance
with the foregoing. At or prior to the Effective Time, the Company shall make
all necessary arrangements with respect to the Stock Plans, including any
necessary amendments thereto, to permit the assumption of the unexercised
Company Options by Keystone pursuant to this Section and no later than the
Effective Time Keystone shall register under the Securities Act of 1933 on
Form S-8 or other appropriate form (and use its best efforts to maintain the
effectiveness thereof) shares of Keystone Common Stock issuable pursuant to
all Substitute Options. As promptly as practicable after the Effective Time,
the Company shall deliver to the participants in the Stock Plans appropriate
notices setting forth such participants' rights pursuant to such assumed
Company Options.
(ii) Effective at the Effective Time, Keystone shall assume each Company
Option in accordance with the terms of the Stock Plan under which it was
issued and the stock option agreement by which it is evidenced.
(b) Employee Benefits. Keystone shall, and shall cause the Surviving
Corporation to, honor, pursuant to their terms, all employee benefit
obligations to current and former employees under the Compensation and Benefit
Plans.
6.11 Expenses. Except as otherwise provided in Section 8.5, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the Merger and the other transactions contemplated by this
Agreement shall be paid by the party incurring such cost or expense, except
that expenses incurred in connection with the filing fee for the S-4
Registration Statement and printing and mailing the Prospectus/Proxy Statement
and the S-4 Registration Statement and the filing fee under the HSR Act shall
be shared equally by Keystone and the Company.
6.12 Indemnification; Directors, and Officers, Insurance. (a) From and after
the Effective Time, Keystone agrees that it will indemnify and hold harmless
each present and former director and officer of the Company (when acting in
such capacity) determined immediately prior to the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have
been permitted under Delaware law and its certificate of incorporation or by-
laws in effect on the date hereof to indemnify such Person (and Keystone shall
also advance expenses as incurred to the fullest extent permitted under
applicable law, provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.12, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Keystone thereof, but the
failure to so notify shall not relieve Keystone of any liability it may have
to such Indemnified Party if such failure does not materially prejudice
Keystone. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i)
Keystone or the Surviving Corporation shall have the right to assume the
defense thereof and Keystone shall not be liable to such Indemnified Parties
for any
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legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that
if Keystone or the Surviving Corporation elects not to assume such defense or
counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between Keystone or the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory
to them, and Keystone or the Surviving Corporation shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that Keystone shall be
obligated pursuant to this paragraph (b) to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties
will cooperate in the defense of any such matter, and (iii) Keystone shall not
be liable for any settlement effected without its prior written consent.
(c) Keystone or the Surviving Corporation shall maintain a policy of
officers, and directors, liability insurance for acts and omissions occurring
prior to the Effective Time ("D&O Insurance") with coverage in amount and
scope at least as favorable as the Company's existing directors' and officers'
liability insurance coverage for a period of six years after the Effective
Time; provided, however, if the existing D&O Insurance expires, is terminated
or canceled, or if the annual premium therefor is increased to an amount in
excess of $60,000 (the "Current Premium"), in each case during such six year
period, Keystone or the Surviving Corporation will use its best efforts to
obtain D&O Insurance in an amount and scope as great as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of the Current Premium.
(d) If Keystone or the Surviving Corporation or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) shall transfer all or substantially all
of its properties and assets to any individual, corporation or other entity,
then and in each such case, proper provisions shall be made so that the
successors and assigns of Keystone or the Surviving Corporation, as the case
may be, shall assume all of the obligations set forth in this Section.
(e) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
6.13 Takeover Statute. If any Takeover Statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement or the
Stock Option Agreement, each party hereto and its board of directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement or the Stock Option Agreement or by the Merger
and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
6.14 Confidentiality. The Company and Keystone each acknowledges and
confirms that it has entered into the Confidentiality Agreement and that the
Confidentiality Agreement shall remain in full force and effect in accordance
with its terms, whether or not the Merger is consummated.
6.15 Transfer Taxes. All state, local, foreign use, real property transfer,
stock transfer or similar Taxes (including any interest or penalties with
respect thereto) attributable to the Merger (collectively, the "Transfer
Taxes") shall be timely paid by the Company.
6.16 Tax Status. From and after the Effective Time and for a period of
twenty-four months thereafter Keystone agrees that it shall not, and it shall
not permit any of its Subsidiaries to, take any action (other than lifting any
transfer restrictions on the Keystone Shares issued in the Merger pursuant to
the provisions of the Company Affiliate Agreement) that would prevent the
Merger from qualifying as a tax-free reorganization within the meaning of
Section 368(a) of the Code and the Treasury regulations. In the event of a
breach of the provisions of this Section 6.16, Keystone shall indemnify and
hold harmless the Persons who were stockholders of the Company immediately
prior to the Effective Time in respect of any and all damages (including, but
not limited to, reasonable attorneys' fees and costs) which arise from or are
related to any breach by Keystone of this Section 6.16. The provisions of this
Section 6.16 are intended for the benefit of, and shall be enforceable by,
each Person who was a stockholder of the Company immediately prior to the
Effective Time.
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ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been duly approved by
holders of Company Shares and Keystone Shares constituting the Company
Requisite Vote and the Keystone Requisite Vote;
(b) National Market Listing. The shares of Keystone Common Stock issuable
to the Company shareholders pursuant to this Agreement shall have been
approved for listing on the NASDAQ National Market, upon official notice of
issuance.
(c) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) Laws and orders. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by this Agreement or that is, individually
or in the aggregate with all other such Laws, reasonably likely to have a
Material Adverse Effect on Keystone or the Company (collectively, an
"Order"), and none of the Department of Justice or the Federal Trade
Commission shall have instituted any proceeding or threatened in writing or
publicly announced its intention to institute any proceeding seeking any
such Order.
(e) S-4. The S-4 Registration Statement shall have become effective under
the Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened by the SEC.
7.2 Conditions to Obligations of Keystone and Merger Sub. The obligations of
Keystone and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Keystone at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement (i) to the extent qualified by
Material Adverse Effect shall be true and correct and (ii) to the extent
not qualified by Material Adverse Effect shall be true and correct, except
that this clause (ii) shall be deemed satisfied so long as any failures of
such representations and warranties to be true and correct, taken together,
do not have a Material Adverse Effect on the Company, in each case (i) and
(ii), as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and Keystone
shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer of the Company to such effect.
(b) Performance of Obligations Company. The Company shall have performed
all material obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Keystone shall have received
a certificate signed on behalf of the Company by the Chief Executive
Officer of the Company to such effect.
(c) Dissenting Keystone Shares. Holders of less than 5% of the issued and
outstanding Keystone Shares shall have dissented from the Merger under
California law.
(d) Consent of Lender. Either (i) Keystone shall have received the
consent of Mellon Bank, N.A. under its Credit Agreement with Mellon Bank,
N.A., dated March 25, 1997, to the consummation of the transactions
contemplated hereby or (ii) the Company shall have received the consent of
Comerica Bank under its Revolving Credit Agreement with Comerica Bank,
dated March 31, 1997, not to accelerate the outstanding indebtedness
thereunder as a result of the consummation of the transactions contemplated
hereby.
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(e) Fairness Opinion. The fairness opinion referenced in Section 5.3(b)
of this Agreement shall remain in full force and effect and shall not have
been withdrawn or modified (in any way which is materially adverse to
Keystone) by A.G. Edwards & Sons, Inc.
(f) Legal Opinion. The Company shall have received the legal opinion from
its counsel referred to in Section 7.3(e).
7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Keystone and Merger Sub set forth in this Agreement (i) to the extent
qualified by Material Adverse Effect shall be true and correct, and (ii) to
the extent not qualified by material Adverse Effect shall be true and
correct, except that this clause (ii) shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct,
taken together, do not have a Material Adverse Effect on Keystone, in each
case (i) and (ii), as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, and the
Company shall have received a certificate signed on behalf of Keystone by
the Chief Executive Officer of Keystone to such effect.
(b) Performance of Obligations of Keystone and Merger Sub. Each of
Keystone and Merger Sub shall have performed all material obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Keystone and Merger Sub by the Chief Executive Officer of
Keystone to such effect.
(c) Dissenting Keystone Shares. Holders of less than 5% of the issued and
outstanding Keystone Shares shall have dissented from the Merger under
California law.
(d) Fairness Opinion. The fairness opinion referred to in Section 5.2(b)
of this Agreement shall remain in full force and effect and shall not have
been withdrawn or modified (in any way which is materially adverse to the
Company) by the Company's financial advisor.
(e) Legal Opinion. The Company shall have received a legal opinion from
its counsel, in form and substance reasonably satisfactory to the Company,
to the effect that the Merger qualifies as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
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ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company or Keystone, by
mutual written consent of the Company and Keystone, by action of their
respective boards of directors.
8.2 Termination by Either Keystone or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either Keystone or the Company if
(i) the Merger shall not have been consummated by August 31, 1998, whether
such date is before or after the date of approval by the shareholders of the
Company or Keystone, (the "Termination Date"); (ii) the approval of the
Company's or Keystone's shareholders required hereunder shall not have been
obtained at a meeting duly convened therefor or at any adjournment or
postponement thereof or (iii) any Order permanently restraining, enjoining or
otherwise prohibiting consummation of the Merger shall become final and non-
appealable (whether before or after the approval by the shareholders of
Keystone or the Company); provided that the right to terminate this Agreement
pursuant to clause (i) above shall not be available to any party that has
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure of the Merger to
be consummated.
8.3 Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company referred to
herein, by action of the board of directors of the Company:
(a) If (i) the Company shall not have willfully breached any of the terms
of this Agreement in a manner resulting in failure of a condition set forth
in Section 7.2(a) or 7.2(b), (ii) the board of directors of the Company
approves entering into a binding written agreement concerning a transaction
that constitutes a Superior Proposal and the Company notifies Keystone in
writing that the Company wishes to enter into such agreement, (iii)
Keystone does not make, within five business days of receipt of the
Company's written notification of its desire to enter into a binding
agreement for a Superior Proposal, an offer that the board of directors of
the Company believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
shareholders of the Company as the Superior Proposal, and that contains
terms and conditions (other than with respect to type or amount of
consideration) that do not differ materially from the terms and conditions
of the proposed agreement for such Superior Proposal and (iv) the Company
prior to such termination pays to Keystone in immediately available funds
any fees required to be paid pursuant to Section 8.5. The Company agrees to
notify Keystone promptly if its desire to enter into a written agreement
referred to in its notification shall change at any time after giving such
notification.
(b) If there has been a breach by Keystone or Merger Sub of any
representation, warranty, covenant or agreement contained in this Agreement
which (i) would result in a failure of a condition set forth in Section
7.3(a) or 7.3(b) and (ii) it cannot be cured prior to the Termination Date.
8.4 Termination by Keystone. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by action of the
board of directors of Keystone if (i) the board of directors of the Company
shall have withdrawn or adversely modified its approval or recommendation of
this Agreement or failed to reconfirm its recommendation of this Agreement
within ten business days after a written request by Keystone to do so,
provided that such a request is made after the board of directors of the
Company has taken any of the actions specified in clause (C) or (D) of the
proviso of Section 6.2 with respect to an Acquisition Proposal and such
Acquisition Proposal has not been rejected by such board of directors or
withdrawn, (ii) there has been a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement which (A) would
result in a failure of a condition set forth in Section 7.2(a) or 7.2(b) and
(B) cannot be cured prior to the Termination Date or (iii) if the Company or
any of its Representatives shall take any of the
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actions that would be proscribed by Section 6.2 but for the exception therein
allowing certain actions to be taken pursuant to clause (C) or (D) of the
proviso thereof (other than any such actions taken pursuant to such clause (C)
with respect to any bona fide written Acquisition Proposal (received after the
date hereof that was not solicited by the Company after the date hereof) taken
during the ten calendar day period following receipt of such Acquisition
Proposal by the Company if, and only if, the Company receives such Acquisition
Proposal during the Initial 15 Day Period). For purposes of this Agreement,
the "Initial 15 Day Period" shall mean the 15 calendar day period commencing
with the first calendar day after which this Agreement shall have been filed
by Keystone or the Company with the SEC as an exhibit to a Current Report on
Form 8-K under the Exchange Act.
8.5 Effect of Termination and Abandonment. (a) In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become
void and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal or financial advisors
or other representatives); provided, however, that except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any intentional breach of any covenant of
such party set forth in this Agreement (in any such case in which Keystone is
not the breaching party, to the extent any such liability or damages exceed
any Termination Fee which may have been paid to Keystone pursuant to Section
8.5(b)); and, provided, further, that if such termination arises pursuant to
Section 8.3(b) or clause (ii) of Section 8.4 as a result of a breach of a
representation and warranty made by the other party (other than a breach
caused solely as a result of an event or circumstance occurring or arising
subsequent to the date of the execution and delivery of this Agreement), such
other party shall pay to the non-breaching party promptly, but in no event
later than two days after the date of such termination, a fee equal to two
hundred fifty thousand dollars ($250,000).
(b) In the event that (i) after the date hereof a bona fide Acquisition
Proposal with respect to the Company or any Subsidiary of the Company that was
not solicited by the Company after the date hereof shall have been made to the
Company or any of its Subsidiaries by any Person and made known to
shareholders generally or has been made directly to shareholders generally or
any Person shall have publicly announced an intention (whether or not
conditional) to make a bona fide Acquisition Proposal with respect to the
Company or any Subsidiary of the Company and such Acquisition Proposal or
announced intention shall not have been withdrawn prior to the Shareholders
Meeting and thereafter this Agreement is terminated by either Keystone or the
Company pursuant to Section 8.2(ii) as a result of the failure of the
Company's shareholders to approve the Merger at the meeting referred to herein
and within nine months after such termination the Company shall have entered
into an agreement to consummate a transaction with such Person that would
constitute an Acquisition Proposal if it were the subject of a proposal, or
(ii) this Agreement is terminated (x) by the Company pursuant to Section
8.3(a) or (y) by Keystone pursuant to Section 8.4(i), (ii) (solely with
respect to a willful and intentional breach of Section 6.2) or (iii), then the
Company shall promptly, but in no event later than two days after the date of
such termination (except as otherwise provided in Section 8.3(a)) or, in the
case of a termination pursuant to Section 8.2(ii), two days after the relevant
agreement is entered into, pay Keystone a fee equal to $1.9 million (the
"Termination Fee"), payable by wire transfer of same day funds. The Company
acknowledges that the agreements contained in this Section 8.5(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Keystone and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment,
Keystone or Merger Sub commences a suit which results in a judgment against
the Company for the fee set forth in this paragraph (b), the Company shall pay
to Keystone or Merger Sub its costs and expenses (including attorneys, fees)
in connection with such suit, together with interest on the amount of the fee
at the prime rate of Mellon Bank, N.A. in effect on the date such payment was
required to be made. Solely for purposes of Section 8.5(b)(i), the term
"Acquisition Proposal" shall have the meaning assigned to such term in Section
6.2(a) except that references to "15%" in the definition of "Acquisition
Proposal" in Section 6.2(a) shall be deemed to be references to 35%.
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ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1 Survival. This Article IX (other than Sections 9.2 and 9.4) and the
agreements of the Company, Keystone and Merger Sub contained in Sections
6.7(b) (Affiliates), 6.10 (Benefits), 6.11 (Expenses), 6.12 (Indemnification;
Directors' and Officers' Insurance) and 6.16 (Tax Status) shall survive the
consummation of the Merger. This Article IX (other than Section 9.2, Section
9.3, and Section 9.14) and the agreements of the Company, Keystone and Merger
Sub contained in Section 6.11 (Expenses), Section 6.15 (Confidentiality) and
Section 8.5 (Effect of Termination and Abandonment) shall survive the
termination of this Agreement. All other representations, warranties,
covenants and agreements in this Agreement shall not survive the consummation
of the Merger or the termination of this Agreement.
9.2 Modification or Amendment. Subject to the provisions of applicable law,
at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3 Waiver of Conditions. (a) Any provision of this Agreement may be waived
prior to the Effective Time if, and only if, such waiver is in writing and
signed by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Except as otherwise herein
provided, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT SHALL
BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED
AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, AND THE MERGER SHALL
BE GOVERNED BY AND IN ACCORDANCE WITH THE DGCL, TO THE EXTENT APPLICABLE. The
parties hereby irrevocably submit to the jurisdiction of the Federal courts of
the United States of America or the Court of Chancery located in the State of
Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby and thereby,
and hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a court. The parties hereby consent to
and grant any such court jurisdiction over the Person of such parties and over
the subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 9.6 or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
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THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
9.6 Notices. Notices, requests, instructions or other documents to be given
under this Agreement shall be in writing and shall be deemed given, (i) three
business days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile, provided that the fax is
promptly confirmed by telephone confirmation thereof, (iii) when delivered, if
delivered personally to the intended recipient, and (iv) one business day
later, if sent by overnight delivery via a national courier service, and in
each case, addressed to a party at the following address for such party:
If to Keystone or Merger Sub:
Keystone Automotive Industries, Inc.
700 East Bonita Avenue
Pomona, California 91767
Attn: James C. Lockwood, Esq.
Fax: (909) 624-9136
with copies to:
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Boulevard
Los Angeles, California 90064
Attn: Paul Irving, Esq.
Fax: (310) 312-4224
If to the Company:
Republic Automotive Parts, Inc.
500 Wilson Pike Circle
Suite 115
P.O. Box 2088
Brentwood, Tennessee 37024
Attn: Keith M. Thompson
Fax: (615) 373-1629
with copies to:
Patterson, Belknap, Webb & Tyler, LLP
1133 Avenue of the Americas
New York, NY 10036-6701
Attn: Jeffrey E. LaGueux, Esq.
Fax: (212) 336-2222
and
Berner & Berner, P.C.
515 Madison Avenue
20th Floor
New York, New York 10022
Attn: Richard O. Berner, Esq.
Fax: (212) 735-0638
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
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9.7 Entire Agreement. This Agreement (including any exhibits hereto), the
Stock Option Agreement, the Confidentiality Agreement, the Company Disclosure
Letter and the Keystone Disclosure Letter constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties with respect to the
subject matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT AND THE STOCK
OPTION AGREEMENT, NEITHER KEYSTONE AND MERGER SUB NOR THE COMPANY MAKES ANY
OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR
OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.8 No Third Party Beneficiaries. Except as provided in Sections 6.7(b)
(Affiliates), 6.12 (Indemnification; Directors, and Officers, Insurance) and
6.16 (Tax Status), this Agreement is not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
9.9 Obligations of Keystone and of the Company. Whenever this Agreement
requires a Subsidiary of Keystone to take any action, such requirement shall
be deemed to include an undertaking on the part of Keystone to cause such
Subsidiary to take such action. whenever this Agreement requires a Subsidiary
of the Company to take any action, such requirement shall be deemed to include
an undertaking on the part of the Company to cause such Subsidiary to take
such action and, after the Effective Time, on the part of the Surviving
Corporation to cause such Subsidiary to take such action.
9.10 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
9.11 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
9.12 Assignment. This Agreement shall not be assignable by operation of law
or otherwise.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
/s/ Charles J. Hogarty
By: _________________________________
Name: Charles J. Hogarty
Title: Chief Executive Officer
KAI MERGER, INC.
/s/ Charles J. Hogarty
By: _________________________________
Name: Charles J. Hogarty
Title: Chief Executive Officer
REPUBLIC AUTOMOTIVE PARTS, INC.
/s/ Donald B. Hauk
By: _________________________________
Name: Donald B. Hauk
Title: Executive Vice President
and Chief
Financial Officer
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<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the day of February, 1998 (this
"Agreement"), between Republic Automotive Parts, Inc., a Delaware corporation
("Issuer"), and Keystone Automotive Industries, Inc., a California corporation
("Grantee").
RECITALS
(a) The Merger Agreement. Prior to the entry into this Agreement and prior
to the grant of the Option (as defined in Section 1(a)), Grantee, KAI Merger,
Inc., a wholly-owned subsidiary of Grantee ("Merger Sub"), and Issuer have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which Grantee and Issuer intend to effect a
merger of Merger Sub with and into Issuer (the "Merger").
(b) The Option Agreement. As an inducement and condition to Grantee's and
Merger Sub's willingness to enter into the Merger Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement; provided, that such grant
was expressly conditioned upon, and made of no effect until after, execution
and delivery by Issuer, Grantee and Merger Sub of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties
hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 676,961 fully paid and nonassessable shares of common stock, having a par
value of $0.50 per share ("Common Stock"), of Issuer at a price per share in
cash equal to $17.00 (the "Option Price"); provided, however, that in no event
shall the number of shares for which the Option is exercisable exceed 19.9% of
the shares of Common Stock issued and outstanding at the time of exercise
(without giving effect to the shares of Common Stock issued or issuable under
the Option) (the "Maximum Applicable Percentage"). The number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price are
subject to adjustment as set forth herein.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement and prior to the
exercise in full of the Option (other than pursuant to this Agreement), the
aggregate number of shares of Common Stock purchasable upon exercise of the
Option (inclusive of shares, if any, previously purchased upon exercise of the
Option) shall automatically be increased (without any further action on the
part of Issuer or Grantee being necessary) so that, after such issuance, it
equals the Maximum Applicable Percentage. Any such increase shall not affect
the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise; Termination. Grantee or
any other person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person being referred
to herein as the "Holder") may exercise the Option, in whole or in part, by
delivering a written notice thereof as provided in Section 2(d) within 90 days
of the occurrence of a Triggering Event (as defined in Section 2(b)), unless
prior to such Triggering Event, the Effective Time (as defined in the Merger
Agreement) shall have occurred. The Option shall terminate upon either (i) the
occurrence of the Effective Time, or (ii) the close of business Nashville,
Tennessee time on the earlier of (x) the day 90 days after the date that
Grantee becomes entitled to receive the Termination Fee (as defined in the
Merger Agreement); and (y) the date that Grantee is no longer potentially
entitled to receive the Termination Fee, in each case under Section 8.5(b) of
the Merger Agreement (each an "Exercise Termination Event").
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(b) Triggering Event. A "Triggering Event" shall have occurred if the Merger
Agreement is terminated and Grantee then or thereafter becomes entitled to
receive the Termination Fee pursuant to Section 8.5(b) of the Merger
Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify Grantee promptly
in writing of the occurrence of any Triggering Event, it being understood that
the giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to herein as the "Notice Date") specifying (i) the
total number of shares that the Holder will purchase pursuant to such
exercise, and (ii) a date (a "Closing Date") not earlier than three business
days, nor later than 60 business days from the Notice Date for the closing of
such purchase (a "Closing"); provided, that if a filing is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Holder or Issuer, as required, promptly after the giving and
receipt of such notice shall file the required notice and shall request early
termination of the required waiting period, and the period of time following
the Notice Date referred to in clause (ii) shall commence on the date on which
the Holder furnishes to Issuer a supplemental written notice setting forth the
Closing Date, which notice shall be furnished as promptly as practicable after
all required waiting periods shall have expired or been terminated. Each of
the Holder and the Issuer agrees to use all reasonable efforts to cooperate
with and provide information to Issuer or Holder, as the case may be, for the
purpose of any required notice. The Closing shall take place at the principal
business office of the Issuer.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a
wire transfer to a bank account designated by Issuer; provided, that failure
or refusal of Issuer to designate such a bank account shall not preclude the
Holder from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option shall be exercised in
part only, a new Option evidencing the rights of the Holder to purchase the
balance (as adjusted pursuant to Section 1(b)) of the shares then purchasable
hereunder.
(g) Restrictive Legend. Certificates for Common Stock delivered at a Closing
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The shares represented by the certificate have not been registered under
the Securities Act of 1933, as amended, and may not be sold or transferred
unless they are subsequently registered or an exemption from such
registration requirement is available. The transfer of the shares
represented by this certificate is subject to certain provisions of an
agreement between the registered holder hereof and Issuer, a copy of which
agreement is on file at the principal office of Issuer. A copy of the
aforementioned agreement will be mailed to the holder hereof without charge
promptly after receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the Securities and Exchange Commission, or a written opinion of
counsel, in form and substance reasonably satisfactory to Issuer, in each case
to the effect that such legend is not required for purposes of the Securities
Act; (ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) both are
satisfied. In addition, such certificates shall bear any other legend as may
be required by applicable law.
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(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the giving
by the Holder to Issuer of a written notice of exercise referred to in Section
2(d) and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not have been delivered to the
Holder. Issuer shall pay all expenses, and any and all United States federal,
state and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this Section 2
in the name of the Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common
Stock so that the Option may be fully exercised without additional
authorization after giving effect to all other options, warrants,
convertible securities and other rights of third parties to purchase shares
of Common Stock from Issuer, or to issue the appropriate number of shares
of Common Stock pursuant to the terms of this Agreement;
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed hereunder by Issuer; and
(c) Further Assurances. Promptly after the date hereof to take all
actions as may from time to time be required (including (i) complying with
all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that prior approval of
or notice to any other regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating in good faith with the Holder in preparing and processing the
required applications or notices) in order to permit each Holder to
exercise the Option and purchase shares of Common Stock pursuant to such
exercise and to take all action necessary to protect the rights of the
Holder against dilution.
4. Representations and Warranties of Issuer. Issuer hereby makes each of the
representations and warranties contained in Sections 5.1(b)(ii), 5.2(a) and
5.2(b) of the Merger Agreement as they relate to this Agreement as if such
representations and warranties were set forth herein. Issuer hereby further
represents and warrants to Grantee that all shares of Common Stock, upon
issuance pursuant to the Option, will be delivered free and clear of all
claims, liens, encumbrances, and security interests (other than those created
by this Agreement and the Securities Act) and not subject to any preemptive
rights.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that Grantee has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by Grantee and constitutes a valid and binding
agreement of Grantee enforceable against Grantee in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles.
6. Exchange; Replacement. This Agreement and the Option granted hereby are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable at such time hereunder, subject to corresponding
adjustments in the number of shares of Common Stock purchasable upon exercise
so that the aggregate number of such shares under all Stock Option Agreements
issued in respect of this Agreement shall not exceed the Maximum Applicable
Percentage. Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used herein include any Stock Option Agreements and related
Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of evidence
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reasonably satisfactory to it of the loss, theft, destruction, or mutilation
of this Agreement, (ii) receipt by Issuer of reasonably satisfactory
indemnification from the Holder in the case of loss, theft or destruction and
(iii) surrender and cancellation of this Agreement in the case of mutilation,
Issuer will execute and deliver a new Agreement of like tenor and date. Any
such new Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be enforceable by any
person other than the holder of the new Agreement.
7. Adjustments. In addition to the adjustment to the total number of shares
of Common Stock purchasable upon exercise of the Option pursuant to Section
1(b), the total number of shares of Common Stock purchasable upon the exercise
hereof and the Option Price shall be subject to adjustment from time to time
as follows:
(a) In the event of any change in the outstanding shares of Common Stock
by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or the like,
the type and number of shares of Common Stock purchasable upon exercise of
the Option shall be appropriately adjusted, and proper provision shall be
made in the agreements governing any such transaction, so that (i) any
Holder shall receive upon exercise of the Option the number and class of
shares, other securities, property or cash that such Holder would have
received in respect of the shares of Common Stock purchasable upon exercise
of the Option if the Option had been exercised and such shares of Common
Stock had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable; and (ii) in the event any additional
shares of Common Stock are to be issued or otherwise become outstanding as
a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock purchasable upon exercise of
the Option shall be increased so that, after such issuance and together
with shares of Common Stock previously issued pursuant to the exercise of
the Option (as adjusted on account of any of the foregoing changes in the
Common Stock), the number of shares so purchasable equals the Maximum
Applicable Percentage of the number of shares of Common Stock issued and
outstanding immediately after the consummation of such change; and
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 7, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which is equal to the number of shares of Common Stock
purchasable upon exercise hereof immediately prior to the adjustment and
the denominator of which is equal to the number of shares of Common Stock
purchasable upon exercise hereof immediately after the adjustment.
8. Registration. (a) Upon the occurrence of a Triggering Event prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee delivered
in the written notice of exercise of the Option provided for in Section 2(d),
as promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to
permit the sale or other disposition of any shares of Common Stock issued upon
total or partial exercise of the Option ("Option Shares") in accordance with
any plan of disposition requested by Grantee; provided, however, that Issuer
may postpone filing a registration statement relating to a registration
request by Grantee under this Section 8 for a period of time (not in excess of
30 days) if in its judgment such filing would require the disclosure of
material information that Issuer has a bona fide business purpose for
preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for 270 days from the day such registration statement first becomes effective
or until such earlier date as all shares registered shall have been sold by
Grantee. In connection with any such registration, Issuer and Grantee shall
provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registrations. If
requested by Grantee in connection with such registration, Issuer shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating Issuer in respect of representations,
warranties, indemnities, contribution and other agreements customarily made by
issuers in such underwriting agreements.
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(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option.
9. Repurchase of Option and/or Shares. (a) Repurchase; Repurchase
Price. Upon the occurrence of a Triggering Event prior to an Exercise
Termination Event, (i) at the request of a Holder, delivered in writing within
180 days of such occurrence (or such later period as provided in Section 2(d)
with respect to any required notice or application or in Section 10), but in
any event prior to the termination of the Option held by the Holder pursuant
to Section 2(a), Issuer shall repurchase the Option from the Holder, in whole
or in part, at a price (the "Option Repurchase Price") equal to the number of
shares of Common Stock then purchasable upon exercise of the Option (or such
lesser number of shares as may be designated in the Repurchase Notice (as
defined below)) multiplied by the amount by which the market/offer price (as
defined below) exceeds the Option Price and (ii) at the request of a Holder or
any person who has been a Holder (for purposes of this Section only, each such
person being referred to as a "Holder"), delivered in writing within 180 days
of such occurrence (or such later period as provided in Section 2(d) with
respect to any required notice or application or in Section 10), but in any
event prior to the termination of the Option held by the Holder pursuant to
Section 2(a), Issuer shall repurchase such number of Option Shares from such
Holder as such Holder shall designate in the Repurchase Notice at a price (the
"Option Shares Repurchase Price") equal to the number of shares designated
multiplied by the market/offer price. The term "market/offer price" shall mean
the highest of (x) the price per share of Common Stock at which a tender or
exchange offer for Common Stock has been made, (y) the price per share of
Common Stock to be paid by any third party pursuant to an agreement with
Issuer and (z) the highest closing price for shares of Common Stock on the
NASDAQ National Market (or, if the Common Stock is not then listed on the
National Market, any national securities exchange or automated quotation
system on which the Common Stock is then listed or quoted) in each case within
the six-month period immediately preceding the delivery of the Repurchase
Notice. In the event that a tender or exchange offer is made for the Common
Stock or an agreement is entered into for a merger, share exchange,
consolidation or reorganization involving consideration other than cash, the
value of the securities or other property issuable or deliverable in exchange
for the Common Stock shall be determined in good faith by a nationally
recognized investment banking firm selected by Issuer.
(b) Method of Repurchase. A Holder may exercise its right to require Issuer
to repurchase the Option, in whole or in part, and/or any Option Shares then
owned by such Holder pursuant to this Section 9 by surrendering for such
purpose to Issuer, at its principal office, this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices
stating that the Holder elects to require Issuer to repurchase the Option
and/or such Option Shares in accordance with the provisions of this Section 9
(each such notice, a "Repurchase Notice"). Within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of the Repurchase Notice relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the applicable Option Repurchase Price
and/or the Option Share Repurchase Price or, in either case, the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock purchasable pursuant
to the Option at the time of delivery of the Repurchase Notice minus the
number of shares of Common Stock represented by that portion of the Option
then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law from repurchasing the Option (or portion
thereof) and/or any Option Shares subject to such Repurchase Notice, Issuer
shall immediately so notify the Holder in writing and thereafter deliver or
cause to be delivered, from time to time, to the Holder the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer is
no longer prohibited from delivering, within five business days after the date
on which it is no longer so prohibited; provided, however, that upon
notification by Issuer in writing of such prohibition, the Holder may, within
five days of receipt of such notification from Issuer, revoke in writing its
Repurchase Notice, whether in whole or to the extent, of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
that portion of the Option
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Repurchase Price and/or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver to the Holder, as appropriate,
(A) with respect to the Option, a new Stock Option Agreement evidencing the
right of the Holder to purchase that number of shares of Common Stock for
which the surrendered Stock Option Agreement was exercisable at the time of
delivery of the Repurchase Notice less the number of shares as to which the
Option Repurchase Price has theretofore been delivered to the Holder, and/or
(B) with respect to Option Shares, a certificate for the Option Shares as to
which the Option Share Repurchase Price has not theretofore been delivered to
the Holder. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, the time limitations on the exercise of the
Option, the Holder may exercise the Option for 90 days after a notice of
revocation has been issued pursuant to this Section 9(c).
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Issuer hereby agrees that, in the event that a Holder delivers a
Repurchase Notice, it shall not enter or agree to enter into any Acquisition
Transaction unless the other party or parties thereto agree to assume in
writing Issuer's obligations under Section 9(a) and, notwithstanding any
notice of revocation delivered pursuant to the proviso to Section 9(c), a
Holder may require such other party or parties to perform Issuer's obligations
under Section 9(a) unless such party or parties are prohibited by law or
regulation from such performance, in which case such party or parties shall be
subject to the obligations of the Issuer under Section 9(c).
10. Extension of Exercise Periods. The 180-day period for exercise of
certain rights under Section 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Exchange Act by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party except that, in the event that a
Triggering Event shall have occurred, Grantee may assign the Option, in whole
or in part. Any attempted assignment in contravention of the preceding
sentence shall be null and void.
12. Filings; Other Actions. Each of Grantee and Issuer will use its
reasonable best efforts, subject to the provisions of applicable law, to make
all filings with, and to take all other action necessary for the consummation
of the transactions contemplated by this Agreement.
13. Specific Performance. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for any
reason such court determines that the Holder is not permitted to acquire, or
Issuer is not permitted to repurchase pursuant to Section 9, the full number
of shares of Common Stock provided in Section 1(a) hereof (as adjusted
pursuant to Sections 1(b) and 7 hereof), it is the express intention of Issuer
to allow the Holder to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
15. Notices. All notices, requests, instructions, or other documents to be
given hereunder shall be in writing and shall be deemed given (i) three
business days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile, provided that the fax is
promptly confirmed by telephone confirmation thereof, (iii) when delivered, if
delivered personally to the intended recipient, and (iv) one business day
later, if sent by overnight delivery via a national courier service, in each
case at the respective addresses of the parties set forth in the Merger
Agreement.
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16. Governing Law. This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in accordance
with the law of the State of Delaware, without regard to the conflict of law
principles thereof.
17. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated by this Agreement shall be paid by the party
incurring such expense, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
18. Entire Agreement, Etc. This Agreement and the Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter hereof. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
19. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter
defined) plus any Termination Fee paid to Grantee pursuant to Section 8.5(b)
of the Merger Agreement exceed in the aggregate $3.0 million and, if it
otherwise would exceed such amount, the Grantee, at its sole election, shall
either (i) reduce the number of shares of Common Stock subject to this Option,
(ii) deliver to the Issuer for cancellation Option Shares previously purchased
by Grantee, (iii) pay cash to the Issuer, or (iv) any combination thereof, so
that Grantee's realized Total Profit, when aggregated with such Termination
Fee so paid to Grantee shall not exceed $3.0 million after taking into account
the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, if the Option is
assigned in no event shall the Total Profit realized by all Holders exceed in
the aggregate $1.1 million and, if it otherwise would exceed such amount, the
affected Holder or Holders, at its or their sole discretion, shall either (i)
reduce the number of shares of Common Stock subject to this Option, (ii)
deliver to the Issuer for cancellation Option Shares previously purchased by
such Holder or Holders, (iii) pay cash to the Issuer, or (iv) any combination
thereof so that the Total Profit realized by all Holders shall not exceed $1.1
million after taking into account the foregoing actions.
(c) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) which, together with any
Termination Fee theretofore paid to Grantee would exceed $3.0 million;
provided, however, that if the Option is assigned the maximum Notional Total
Profit shall be $1.1 million. Nothing in the preceding sentence shall restrict
any exercise of the Option permitted hereby on any subsequent date.
(d) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) (x) the amounts received by Grantee (of
all Holders if the Option is assigned) pursuant to Issuer's repurchase of the
Option (or any portion thereof) or any Option Shares pursuant to Section 9,
less, in the case of any repurchase of Option Shares, (y) the Grantee's
purchase price for such Option Shares, as the case may be, (ii) (x) the
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, and (iii) the amounts received by Grantee on the transfer of the
Option (or any portion thereof) to any unaffiliated party.
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(e) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee (of any other Holder if the Option is
assigned) may propose to exercise this Option shall be the Total Profit
determined as of the date of such proposal assuming that this Option were
exercised on such date for such number of shares and assuming that such
shares, together with all other Option Shares held by all Holders as of such
date, were sold for cash at the closing market price for the Common Stock as
of the close of business on the preceding trading day (less customary
brokerage commissions).
20. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
written above.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By:
----------------------------------
Name:
Title:
REPUBLIC AUTOMOTIVE PARTS, INC.
By:
----------------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT is made and effective as of February , 1998, by
and among KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California corporation
("Keystone"), REPUBLIC AUTOMOTIVE PARTS, INC., a Delaware corporation
("Republic"), and William F. Ballhaus, Edgar R. Berner, Richard O. Berner,
Nicholas A. Fedoruk, Oliver R. Grace, Jr., Donald B. Hauk, Leroy M. Parker,
Douglas R. Stern, Keith M. Thompson, Douglas G. Goetsch, Thomas J. Rutkowski
and Anthony R. Dainora, (collectively, the "Shareholders" and individually, a
"Shareholder").
A. Republic and the Shareholders desire that Keystone, KAI Merger, Inc., a
wholly owned subsidiary of Keystone (the "Subsidiary"), and Republic 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 Republic (the "Merger") and
(ii) all shares of the capital stock of Republic issued and outstanding
immediately prior to the Merger will be converted into the right to receive
shares of the Common Stock of Keystone.
B. Republic 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 provide Keystone with a
reasonable basis for its belief, as it relates to Republic, that the merger
transaction may be accounted for as a pooling-of-interests.
C. The Shareholders are affiliates of Republic as that term is defined in
Rule 405 promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
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 Republic set
forth below such Shareholder's name on the signature page hereof. Except
for such shares, and any stock options and performance shares held by the
Shareholder pursuant to Stock Plans (as that term is defined in the
Merger Agreement), the Shareholder has no right, title or interest of any
kind whatsoever in any shares of the capital stock or other securities of
Republic. Since January 31, 1996, the Shareholder has 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 Republic
in contemplation of the Merger Agreement or the transactions contemplated
thereby.
(b) All shares of the capital stock of Republic 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 or under the
Securities Act of 1933, as amended (the "Securities Act").
(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.
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(d) Neither the execution and delivery of this Agreement nor the
consummation by the Shareholder of the transactions contemplated hereby (i)
will, to the knowledge of the Shareholder, 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, to the knowledge of the
Shareholder, result in the creation or imposition of any lien, claim,
charge, security interest, encumbrance or restriction on any shares of the
capital stock of Republic. If the Shareholder is married and any shares of
the capital stock of Republic 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.
2. Voting of Republic Shares. Each Shareholder hereby covenants and agrees
as follows:
(a) At any meeting of shareholders of Republic 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 Republic 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 Republic 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 Republic, or at any adjournment
thereof, or in any other circumstances in which the vote, consent or other
approval of shareholders of Republic is sought, the Shareholder shall vote
(or cause to be voted) all shares of the capital stock of Republic 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 Republic or (ii) any
amendment of Republic's Articles of Incorporation or Bylaws or (iii) any
other proposal or transaction involving Republic, 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 Republic, 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 Republic
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 Republic 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
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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.
3. Recommendations to Shareholders. Unless the board of directors of
Republic determines in good faith after consultation with outside legal
counsel that to do so would result in a failure to comply with its fiduciary
duties under applicable law, each Shareholder, in his capacity as a director
of Republic, (i) shall recommend to the shareholders of Republic that they
approve the Merger Agreement, the Merger and the transactions contemplated by
the Merger Agreement at the Republic Meeting or at any other meeting of the
shareholders of Republic, or in any other circumstances in which the vote,
consent or approval of shareholders of Republic is sought with respect
thereto, and (ii) shall advise the shareholders of Republic to reject any
Competing Transaction. The obligations of the Shareholder under this Section 3
shall cease at such time as Republic or Keystone shall have terminated the
Merger Agreement pursuant to Sections 8.2 or 8.3 thereof.
4. Accounting Treatment. Notwithstanding any other provision of this
Agreement to the contrary, a Shareholder shall not knowingly take any action
which, either alone or together with any action by any other person, could
reasonably be expected by such Shareholder to 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 Republic 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 Republic prior
to the Merger or of Keystone received by such Shareholder in the Merger;
provided, however, that the foregoing restrictions on the shares of Keystone
received in the Merger shall terminate upon the earlier of (i) the date of
Keystone's publication of financial results covering a period of at least
thirty (30) days of combined operations of Keystone and Republic following the
Effective Time (as defined in the Merger Agreement) and (ii) the date that the
merger fails to qualify for pooling of interest accounting treatment for any
reason other than a material breach of this Section 4 by such Shareholder.
5. Competing Transactions. Each Shareholder shall refrain, and shall use its
reasonable best efforts to cause any investment banker, attorney or other
adviser or representative of the Shareholder or Republic 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, except to the extent that the Shareholder
undertakes such activities in his capacity as an officer or director of
Republic in accordance with the provisions of Section 6.2 of the Merger
Agreement.
6. Exchange of Stock. Upon the satisfaction or waiver of the conditions to
the obligation of Republic to consummate the Merger, which conditions are set
forth in Article VII of the Merger Agreement, each Shareholder shall exchange
all shares of the capital stock of Republic held by him for the consideration
provided in the Merger Agreement.
7. 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, (ii) prior to the Merger such Shareholder may be deemed to be
an "affiliate" of Republic within the meaning of Rule 145 and (iii) 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 in accordance with the provisions of Rule 145.
(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
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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 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 pursuant to the provisions of Rule 145 or
another applicable exemption; 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 7.
8. 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 Republic 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 FEBRUARY ,
1998, 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 Republic 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.
Such Rule 145 legend shall be removed upon receipt of a legal opinion from
counsel to the Shareholder, reasonably acceptable in form and substance to
Keystone, to the effect that such Rule 145 legend is no longer required.
9. Stop Transfer Orders.
(a) Republic shall not register the transfer of any certificate representing
any shares of the capital stock or other securities of Republic 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.
10. 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 Article VIII thereof.
11. 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 affected by such assignment. 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 Republic 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 by operation of law including, but not limited to, the
Shareholder's permitted heirs, representatives or successors. In the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of Republic, or the acquisition of any
interest in additional shares of the capital stock of Republic 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
Republic issued to or acquired by such Shareholder.
I-46
<PAGE>
12. Indemnification.
(a) Each of the Shareholders, solely with respect to himself, with respect
to Keystone on the one hand, and Keystone with respect to each of the
Shareholders, on the other hand, shall indemnify the other 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 material breach by such indemnifying party or
material failure by such indemnifying party to perform any of its
representations, warranties, commitments, obligations, covenants or conditions
hereunder; provided, however, that no party shall be entitled to seek
indemnification from any other party pursuant to this Section 12 unless the
party from whom indemnification is sought is given written notice of the
existence of a claim for indemnification within six months of the Effective
Time of the Merger. 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 or delayed); 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
adequately pursue such defense 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.
13. 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.
14. 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.
15. 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.
I-47
<PAGE>
16. Governing Law. The validity, construction and interpretation of this
Agreement shall be governed in all respects by the laws of the State of
Delaware applicable to contracts made and to be performed wholly within that
State.
17. 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.
18. 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.
19. Injunctive Relief. Republic 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.
20. 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.
21. 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.
22. Jurisdiction.
(a) Each party hereto irrevocably submits to the non-exclusive jurisdiction
of any court of the State of Delaware 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 State of Delaware (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 15. 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.
23. Defined Terms. Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
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<PAGE>
24. 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
Executive Officer
700 East Bonita Avenue
Pomona, California 91767
REPUBLIC: REPUBLIC AUTOMOTIVE PARTS, INC.
By:
----------------------------------
Keith M. Thompson, President
500 Wilson Pike Circle, Suite 115
Brentwood, Tennessee 37024
SHAREHOLDERS:
----------------------------------
William F. Ballhaus
Number of shares:
----------------------------------
Edgar R. Berner
Number of shares:
----------------------------------
Richard O. Berner
Number of shares:
----------------------------------
Nicholas A. Fedoruk
Number of shares:
----------------------------------
Oliver R. Grace, Jr.
Number of shares:
I-49
<PAGE>
----------------------------------
Donald B. Hauk
Number of shares:
----------------------------------
Leroy M. Parker
Number of shares:
----------------------------------
Douglas R. Stern
Number of shares:
----------------------------------
Keith M. Thompson
Number of shares:
----------------------------------
Douglas G. Goetsch
Number of shares:
----------------------------------
Thomas J. Rutkowski
Number of shares:
----------------------------------
Anthony R. Dainora
Number of shares:
I-50
<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)
I-51
<PAGE>
EXHIBIT C
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT is made and effective as of February , 1998, by
and among KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a California corporation
("Keystone"), REPUBLIC AUTOMOTIVE PARTS, INC., a Delaware corporation
("Republic"), and Ronald G. Brown, Charles J. Hogarty, Al A. Ronco, Kim D.
Wood, John M. Palumbo, Christopher Northup, James C. Lockwood, Timothy C.
McQuay, George E. Seebart and Leon Schigiel (collectively, the "Shareholders"
and individually, a "Shareholder").
A. Keystone and the Shareholders desire that Keystone, KAI Merger, Inc., a
wholly owned subsidiary of Keystone (the "Subsidiary"), and Republic 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 Republic (the "Merger"), (ii)
all shares of the capital stock of Republic issued and outstanding immediately
prior to the Merger will be converted into the right to receive shares of the
Common Stock of Keystone.
B. Keystone and the Shareholders are entering into this Agreement as a
material inducement to Republic to enter into the Merger Agreement.
C. The Shareholders are affiliates of Keystone as that term is defined in
Rule 405 promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
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 Republic 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 below such Shareholder's name on the signature page hereof. Except
for such shares, and any stock options held by the Shareholder pursuant to
Keystone's 1996 Employee Stock Incentive Plan, as amended, the Shareholder
has no right, title or interest of any kind whatsoever in any shares of the
capital stock or other securities of Keystone.
(b) All shares of the capital stock of Keystone 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 arising hereunder or under the Securities Act of
1933, as amended (the "Securities Act").
(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, to the knowledge of the Shareholder, 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, to the knowledge of the
Shareholder, result in the creation or imposition of any lien,
I-52
<PAGE>
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.
(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 Republic is
entering into the Merger Agreement in reliance upon the Shareholder's
execution and delivery of this Agreement.
2. Voting of Republic 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 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 (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 Keystone or (ii) any
amendment of Keystone's Articles of Incorporation or Bylaws or (iii) any
other proposal or transaction involving Keystone, 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.
(c) The Shareholder shall retain at all times the right to vote any
shares of the capital stock of Keystone owned of record by the Shareholder,
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
Republic 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. The
provisions of this subsection shall not be applicable to Leon Schigiel with
respect to 50% of his holdings of Keystone Common Stock.
3. Recommendations to Shareholders. Unless (i) the board of directors of
Keystone determines in good faith after consultation with outside legal
counsel that to do so would result in a failure to comply with it's fiduciary
duties under applicable law, or (ii) the opinion of A. G. Edwards & Sons, Inc.
referred to in Section 5.3(b) of the Merger Agreement shall have been
withdrawn by that firm, each Shareholder, in his
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<PAGE>
capacity as a director of Keystone, (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.
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.
5. 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 Article VIII thereof.
6. 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 affected by such assignment. 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 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 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.
7. Indemnification.
(a) Each of the Shareholders, solely with respect to himself with respect to
Republic, on the one hand, and Republic with respect to each of the
Shareholders, on the other hand, shall indemnify the other 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 material breach by such indemnifying party or
material failure by such indemnifying party to perform any of its
representations, warranties, commitments, obligations, covenants or conditions
hereunder; provided, however, that no party shall be entitled to seek
indemnification from any other party pursuant to this Section 7 unless the
party from whom indemnification is sought is given written notice of the
existence of a claim for indemnification written six months of the Effective
Time of the Merger. 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 or delayed); 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
adequately pursue such defense 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
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<PAGE>
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.
8. 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.
9. 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.
10. 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.
11. Governing Law. The validity, construction and interpretation of this
Agreement shall be governed in all respects by the laws of the State of
Delaware applicable to contracts made and to be performed wholly within that
State.
12. 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.
13. 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.
14. Injunctive Relief. Keystone and the Shareholders each hereby acknowledge
and agree that the obligations of the Shareholders hereunder are unique and
Republic 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, Republic 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 Republic to any other relief or to claim
and recover damages.
15. 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.
16. 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.
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<PAGE>
17. Jurisdiction.
(a) Each party hereto irrevocably submits to the non-exclusive jurisdiction
of any court of the State of Delaware 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 State of Delaware (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 15. 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.
18. Defined Terms. Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
19. 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.
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<PAGE>
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 Executive Officer
700 East Bonita Avenue
Pomona, California 91767
REPUBLIC: REPUBLIC AUTOMOTIVE PARTS, INC.
___________________________________
By
Keith M. Thompson, President
500 Wilson Pike Circle,
Suite 115
Brentwood, Tennessee 37024
SHAREHOLDERS:
_____________________________________
Ronald G. Brown
Number of shares:
_____________________________________
Charles J. Hogarty
Number of shares:
_____________________________________
Al A. Ronco
Number of shares:
_____________________________________
Kim D. Wood
Number of shares:
_____________________________________
John M. Palumbo
Number of shares:
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<PAGE>
_____________________________________
Christopher Northup
Number of shares:
_____________________________________
James C. Lockwood
Number of shares:
_____________________________________
Timothy C. McQuay
Number of shares:
_____________________________________
George E. Seebart
Number of shares:
_____________________________________
Leon Schigiel
Number of shares:
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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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APPENDIX II
A.G.EDWARDS&SONS,INC.
One North Jefferson
St. Louis, Missouri
63103
------------------------------------------------
(314) 955-3000
May 22, 1998
Board of Directors
Keystone Automotive Industries, Inc.
700 East Bonita Ave
Pomona, CA 91767
Members of the Board:
You have requested the opinion of A.G. Edwards & Sons, Inc. ("Edwards") as
to the fairness, from a financial point of view, to the holders of the
outstanding shares of common stock of Keystone Automotive Industries, Inc.
("Keystone") (the "Keystone Stockholders"), of the Merger Consideration (as
hereinafter defined) to be paid for the proposed merger (the "Merger") of KAI
Merger, Inc., a recently organized wholly owned subsidiary of Keystone, (the
"Merger Sub") with and into Republic Automotive Parts, Inc. ("Republic")
pursuant to the Agreement and Plan of Merger and Exhibits attached thereto
(the "Agreement"), dated February 17, 1998.
Pursuant to the Agreement, each share of the common stock of Republic issued
and outstanding immediately prior to the time when the Certificate of Merger
shall have become effective (the "Effective Time"), shall be converted into
0.80 of a share of Keystone common stock (the "Merger Consideration"), or cash
in lieu of each fractional share into which such shares could be converted.
Edwards, as part of its investment banking business, is regularly engaged
in, among other things, the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distribution of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
are familiar with Keystone through our engagement to the Board of Directors
with respect to the Merger, and our historical relationship with Keystone
which includes having served as a managing underwriter for Keystone's most
recent offering of common stock. As part of our engagement for this
transaction, Edwards will receive a fee for rendering its fairness opinion. We
are not aware of any present or contemplated relationship between Edwards,
Keystone, Keystone's Board of Directors and officers or its shareholders, or
Republic, which in our opinion would affect our ability to render a fair and
independent opinion in this matter. Timothy C. McQuay, a Vice President of
A.G. Edwards, is a member of the Board of Directors of Keystone.
In connection with its opinion, Edwards' activities included, among other
things:
(i) a review of the Agreement and Plan of Merger and related documents;
(ii) conversations with management of Keystone and Republic,
respectively, regarding the nature and extent of the terms of the Merger;
(iii) a review of publicly available information regarding Keystone and
Republic, respectively, which Edwards deemed relevant, including Keystone's
and Republic's annual and quarterly reports, proxy statements and other
relevant filings with the SEC through the fiscal periods ended December 26,
1997 and December 31, 1997, respectively, and research reports and analyst
opinions;
(iv) a review of financial projections for Keystone for fiscal years 1998
through 2003, as provided by Keystone's management, and Republic for fiscal
year 1998, as provided by Republic's management;
<PAGE>
(v) an investigation of certain other internal operating and financial
information regarding Keystone and Republic, respectively, supplied to
Edwards by the management of Keystone and Republic, respectively,
concerning the business, operations and financial prospects of Keystone and
Republic, respectively, and as combined entities;
(vi) a review of the industries in which Keystone and Republic operate;
(vii) a review of the reported price and trading activity for the common
stock of Keystone and Republic, respectively;
(viii) a review of publicly available information concerning certain
other companies that Edwards believed to be relevant in evaluating Keystone
and Republic, respectively, and the trading of such companies' securities;
(ix) a review of information relating to the nature and financial terms
of certain other mergers or acquisitions that Edwards considered relevant
in evaluating the Keystone Merger; and
(x) an assessment of other information that Edwards considered relevant
to its analyses.
In rendering its opinion, Edwards has relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other information, publicly available or furnished to, or otherwise discussed
with, Edwards for the purposes of this opinion as described above. With
respect to financial forecasts and/or other information provided to or
otherwise discussed with Edwards, Edwards assumed, and has been advised by the
senior management of Keystone and Republic, respectively, that such forecasts
and other information were reasonably prepared on a basis that reflects the
best currently available estimates and business judgments of the senior
management of Keystone and Republic, respectively. The Board of Directors has
not specifically engaged Edwards to, and therefore Edwards has not, verified
the accuracy or completeness of any such information nor has Edwards made any
evaluation or appraisal of any assets or liabilities of Keystone, or Republic.
Edwards did not express an opinion as to what the value of the Keystone common
stock will be when issued to the holders of Republic common stock pursuant to
the Merger, or the price at which Keystone common stock will trade subsequent
to the Merger. Edwards' opinion is necessarily based upon financial and other
conditions and circumstances existing and disclosed to it as of May 22, 1998.
Edwards was not asked to, nor did it, participate in the negotiation of the
Merger Consideration with Republic.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
Our opinion as expressed herein, is limited to the fairness, from a financial
point of view, to the Keystone Stockholders, of the Merger Consideration to be
paid pursuant to the Agreement and does not constitute a recommendation to any
Keystone Stockholder as to how such stockholder should vote at the meeting of
Keystone Stockholder held in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be paid, pursuant to the Agreement is
fair, from a financial point of view, to the Keystone Stockholders.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: _________________________________
Gregory J. Porto
Managing Director--Investment
Banking
<PAGE>
[LOGO OF SOCIETE GENERALE]
APPENDIX III
May 18, 1998
Board of Directors
Republic Automotive Parts, Inc.
500 Wilson Pike Circle, Suite 115
Brentwood, TN 37024-2088
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Republic Automotive Parts, Inc., a Delaware
corporation (the "Company"), other than Keystone Automotive Industries, Inc.,
a California corporation ("Keystone"), or any of its affiliates, of the
Exchange Ratio (as defined below) provided for pursuant to that certain
Agreement and Plan of Merger, dated as of February 17, 1998, by and among the
Company, Keystone, and KAI Merger, Inc., a Delaware corporation and a wholly
owned subsidiary of Keystone ("Merger Sub") (together with all exhibits
thereto, the "Merger Agreement"). The Merger Agreement provides, among other
things, for the merger of Merger Sub with and into the Company (the "Merger").
In the Merger, each share of common stock, $.50 par value per share, of the
Company (the "Company Common Stock") outstanding at the Effective Time (as
defined in the Merger Agreement), other than shares of the Company Common
Stock held by Keystone or any of its affiliates, shall be converted into the
right to receive 0.800 (the "Exchange Ratio") of a share of common stock, no
par value, of Keystone (the "Keystone Common Stock"). The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.
Societe Generale Securities Corporation, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates actively trade
securities and may, from time to time, trade the securities of the Company and
Keystone for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
We will receive a fee from the Company for rendering this opinion pursuant to
the terms of our engagement letter with the Company, dated as of April 14,
1998 (the "Engagement Letter").
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things: (i) the Merger Agreement; (ii) certain publicly available information
for the Company and Keystone, including each of the annual reports of the
Company and Keystone filed on Form 10-K for the years ended December 31, 1996
and December 31, 1997 in the case of the Company, and for the year ended March
28, 1997 in the case of Keystone, and the quarterly report of Keystone filed
on Form 10-Q for the quarter ended December 26, 1997; (iii) certain internal
financial analyses, financial forecasts, reports and other information
concerning the Company and Keystone furnished to us by the respective
managements of the Company and Keystone; (iv) discussions we have had with
certain members of the managements of each of the Company and Keystone
concerning the historical and current business operations, financial
conditions and prospects of the Company and Keystone and such other matters we
deemed relevant; (v) the reported price and trading histories of the shares of
the Company Common Stock and Keystone Common Stock as compared to the reported
price and trading histories of certain publicly traded companies we deemed
relevant; (vi) the respective financial conditions of the Company and Keystone
as compared to the financial conditions of certain other companies we deemed
relevant; (vii) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations we deemed relevant;
and (viii) such other information, financial studies, analyses and
investigations and such other factors that we deemed relevant for the purposes
of this opinion.
SOCIETE GENERALE
1221 Avenue of the Americas
New York, NY 10020
<PAGE>
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to
us by the Company and Keystone, respectively, or publicly available, and we
have not undertaken any responsibility for the accuracy, completeness or
reasonableness of, or independently to verify, such information. We have, with
your consent, assumed that the financial forecasts which we examined were
reasonably prepared by the respective managements of the Company and Keystone
on bases reflecting the best currently available estimates and good faith
judgments of such managements as to the competitive, operating and regulatory
environments and the related financial performance of the Company and
Keystone, as the case may be, for the relevant periods. You have informed us,
and we have assumed, that the Merger will qualify as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended. We have also assumed that the Merger will be consummated on the terms
and conditions set forth in the Merger Agreement, without waiver or amendment
of any of such terms or conditions. We have not made or obtained any
independent evaluations, valuations or appraisals of the assets or liabilities
of the Company or Keystone, nor have we been furnished with such materials.
Our services to the Company in connection with the Merger have been comprised
solely of financial advisory services, as described in the Engagement Letter.
Our opinion is necessarily based upon economic and market conditions and other
circumstances as they exist and can be evaluated by us on the date hereof.
Additionally, we note that we have been engaged solely for purposes of
rendering an opinion as to the fairness, from a financial point of view, of
the Exchange Ratio to the stockholders of the Company (other than Keystone or
any of its affiliates) and we have not been authorized or requested to, and
did not, solicit alternative offers for the Company or its assets, nor have we
investigated any alternative transactions that may be available to the
Company.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may
not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent; provided, however, that this letter may be included in its
entirety and referred to in any filing with the Securities and Exchange
Commission of the Joint Proxy Statement of the Company and Keystone relating
to the Merger. Our opinion does not address the underlying decision by the
Company to engage in the Merger and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger. Furthermore, we express no view as to the price or trading range for
Keystone Common Stock following the consummation of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
stockholders of the Company (other than Keystone or any of its affiliates).
Very truly yours,
SOCIETE GENERALE SECURITIES
CORPORATION
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APPENDIX IV
CHAPTER 13
DISSENTERS' RIGHTS
RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING SHAREHOLDER"
DEFINED. (S)1300.
DEMAND FOR PURCHASE. (S)1301.
ENDORSEMENT OF SHARES. (S)1302.
AGREED PRICE--TIME FOR PAYMENT. (S)1303.
DISSENTER'S ACTION TO ENFORCE PAYMENT. (S)1304.
APPRAISERS' REPORT--PAYMENT--COSTS. (S)1305.
DISSENTING SHAREHOLDER'S STATUS AS CREDITOR. (S)1306.
DIVIDENDS PAID AS CREDIT AGAINST PAYMENT. (S)1307.
CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS. (S)1308.
TERMINATION OF DISSENTING SHAREHOLDER STATUS. (S)1309.
SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION. (S)1310.
EXEMPT SHARES. (S)1311.
ATTACKING VALIDITY OF REORGANIZATION OR MERGER. (S)1312.
(S)1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(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.
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(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. Leg.H. 1975 ch. 682,
1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective February 17,
1982, 1990 ch. 1018, 1993 ch. 543.
1993 NOTES: Nothing in this action shall be construed to modify or alter the
prohibition contained in Sections 15503 and 15616 of the Corporations Code or
Section 1648 of the Insurance Code, or modify or alter any similar prohibition
relating to the operation of a business in limited partnership form. Stats.
1993 ch. 543 (S)24.
Nothing in this act shall be construed to modify or impair any rights of
limited partners under the Thompson-Killea Limited Partners Protection Act f
1992 (Chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 (S)25.
(S)1301. DEMAND FOR PURCHASE.
(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 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. Leg.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs.
501, 1155.
(S)1302. ENDORSEMENT OF SHARES.
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
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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. Leg.H. 1975 ch. 682, effective
January 1, 1977, 1986 ch. 766.
(S)1303. AGREED PRICE--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. Leg.H. 1975 ch. 682,
effective January 1, 1977, 1980 ch. 501, 1986 ch. 766.
(S)1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(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 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. Leg.H. 1975 ch.
682, effective January 1, 1977.
(S)1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
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(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or 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, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301). Leg.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977,
1977 ch. 235, 1986 ch. 766.
(S)1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. Leg.H. 1975 ch. 682, effective
January 1, 1977.
(S)1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor. Leg.H. 1975 ch. 682, effective January 1, 1977.
(S)1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto. Leg.H. 1975 ch. 682, effective January 1, 1977.
(S)1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares
upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Leg.H. 1975 ch. 682, effective January 1, 1977.
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(S)1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation. Leg.H. 1975 ch. 682, effective January 1, 1977.
(S)1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger. Leg.H. 1975 ch.
682, effective January 1, 1977, 1988 ch. 919.
(S)1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled. Leg.H. 1975 ch. 682, 1976
ch. 641, effective January 1, 1977, 1988 ch. 919.
IV-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporation 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
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1++++++ Agreement and Plan of Merger dated February 17, 1998 among
Registrant, KAI Merger, Inc. and Republic Automotive Parts, Inc.
3.1+++ Amended and Restated Bylaws of the Registrant. [3.4]*
3.1.1+++++ Amendment to Amended and Restated Bylaws of the Registrant.
[3.1.1]*
3.2+++ Restated Articles of Incorporation of the Registrant. [3.5]*
4.1+++ Form of stock certificate. [4.1]#
5.1 Opinion of Manatt, Phelps & Phillips.
10.1+ Employment Agreement dated June 20, 1996, between the Registrant
and Virgil K. Benton II.
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 Ronald G. Brown. [10.5]*
10.5++++ Employment Agreement between North Star and Ronald G. Brown.
[10.5]*
10.6++++ Employment Agreement between North Star and Kim D. Wood. [10.6]*
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]*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.9+ Indemnification Agreement dated June 20, 1996 between the
Registrant and Al A. Ronco. [10.7]*
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+++ Indemnification Agreement between the Registrant and Ronald G.
Brown. [10.12]*
10.13++++ Indemnification Agreement between the Registrant and Kim D. Wood
[10.13]*
10.14+ 1996 Stock Incentive Plan, together with forms of incentive stock
option, non-qualified stock option and restricted stock
agreements. [10.10]*
10.15 Amendment to Registrant's 1996 Stock Incentive Plan.
10.16+ The Registrant's Employee Defined Benefit Pension Plan, as
amended. [10.11]*
10.17+ The Registrant's Employee Stock Ownership Plan, as amended.
[10.12]*
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, date April 1, 1995, between Benton
Real Properties, Inc. and the Registrant. [10.17]*
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]*
10.39+++++ Credit Agreement dated March 25, 1997 between the Registrant and
Mellon Bank, N.A. [10.38]*
10.40 Amendment No. 1 to Credit Agreement between the Registrant and
Mellon Bank, N.A.
10.41 Amendment No. 2 to Credit Agreement between the Registrant and
Mellon Bank, N.A.
10.42++++ Agreement and Plan of Merger among the Registrant, North Star
Merger, Inc., North Star Plating Company, Ronald G. Brown and
Kim D. Wood dated December 6, 1996. [2.1]*
10.43+++++ Resignation Agreement and General Release effective as of May 23,
1997 between the registrant and Virgil K. Benton II. [10.40]*
10.44+++++ Lease Agreement, dated January 1, 1995, between North Star and
the spouses of Ronald G. Brown and Kim D. Wood. [10.41]*
10.45+++++ Lease Agreement dated January 1, 1995, between North Star and the
spouse of Ronald G. Brown and a third party. [10.42]*
10.46+++++ Lease Agreement, dated January 1, 1995, between North Star and a
partnership owned by Kim D. Wood and an employee of North Star.
[10.43]*
10.47+++++ Lease Agreement, dated May 20, 1996, between North Star and a
partnership owned by the spouses of Ronald G. Brown and Kim Wood
and the Brown Family Limited Partnership. [10.44]*
10.48+++++++ Agreement and Plan of Merger dated as of November 14, 1997, by
and among Registrant, Inteuro Merger, Inc., Inteuro Parts
Distributors, Inc., Leon Schigiel and Joseph Bick [10.45]*
11.1+++++ Computation of per share earnings.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
21.1 Subsidiaries.
23.1 Consent of Ernst & Young LLP, independent auditors of Registrant.
23.2 Consent of Price Waterhouse LLP, independent auditors of Republic
Automotive Parts, Inc.
</TABLE>
- --------
*Indicates the exhibit number of the document in the original filing.
+ 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 June
17, 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.
++++ Filed as an exhibit to the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on December 23, 1996 (File
No. 333-18663).
+++++ Filed as an exhibit to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on June 6, 1997 (File No.
333-28709).
++++++ Filed as an exhibit to Registrant's Form 8-K filed with the Securities
and Exchange Commission on February 19, 1998.
+++++++ Filed as an exhibit to Registrant's Form 8-K filed with the Securities
and Exchange Commission on January 9, 1998.
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:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(B) 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 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 SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(C) 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) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrants annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of any employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registrant
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed
by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date responding to the request.
(e) 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pomona, State of
California on May 15, 1998.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
By: /s/ Charles J. Hogarty
----------------------------------
Charles J. Hogarty
President and Chief Executive
Officer
Each person whose signature appears below hereby constitutes and appoints
each of Charles J. Hogarty, John M. Palumbo and James C. Lockwood, his or her
true and lawful attorney-in-fact and agent with full powers of substitution,
for the undersigned and in the name of the undersigned, in any and all
capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement on Form S-4, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Charles J. Hogarty President, Chief Executive May 15, 1998
____________________________________ Officer and Director
Charles J. Hogarty (Principal Executive
Officer)
/s/ John M. Palumbo Vice President, Treasurer May 15, 1998
____________________________________ and Chief Financial Officer
John M. Palumbo (Principal Financial and
Accounting Officer)
/s/ Ronald G. Brown Chairman of the Board May 15, 1998
____________________________________
Ronald G. Brown
/s/ Al A. Ronco Executive Vice President and May 15, 1998
____________________________________ Director
Al A. Ronco
/s/ Timothy C. McQuary Director May 15, 1998
____________________________________
Timothy C. McQuay
/s/ George E. Seebart Director May 15, 1998
____________________________________
George E. Seebart
</TABLE>
II-5
<PAGE>
LOGO
PROXY KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
700 EAST BONITA AVENUE
POMONA, CALIFORNIA 91767
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles J. Hogarty, Al A. Ronco and John M.
Palumbo, and each of them, the attorneys and proxies of the undersigned with
full powers of substitution to vote as indicated herein, all of the common
stock ("Keystone Common Stock"), no par value, of Keystone Automotive
Industries, Inc. ("Keystone") held of record by the undersigned at the close of
business on May 15, 1998, at the Special Meeting of Keystone Stockholders to be
held on June 25, 1998, at 10:00 a.m., Pacific Daylight Savings Time at the
Sheraton Fairplex, 601 West McKinley Avenue, Pomona, California 91768, or at
any postponements or adjournments thereof, with all the powers the undersigned
would possess if then and there personally present.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE OTHER SIDE OF THIS PROXY CARD.
WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1 AND
PROPOSAL NO. 2. In their discretion, the proxy holders are authorized to vote
upon such other business as may properly come before the Meeting or any
adjournments or postponements thereof.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR PROPOSAL 1 AND FOR PROPOSAL 2.
1. Proposal to approve, authorize and accept the Agreement and Plan of
Merger, dated as of February 17, 1998, by and among Keystone Automotive
Industries, Inc., Republic Automotive Parts, Inc. and KAI Merger, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Proposal to amend Keystone's Amended and Restated Articles of
Incorporation and Bylaws, as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE DATE, SIGN AND RETURN
PROMPTLY.
LOGO
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND PROXY STATEMENT OF KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
(Signature should be exactly
as name or names appear on
this proxy. If stock is held
jointly each holder should
sign. If signature is by
attorney, executor,
administrator, trustee or
guardian, please give full
title.)
Dated: _________________ , 1998
-------------------------------
Signature
----------------------
Signature if held jointly
I plan to attend the meeting:
Yes [_] No [_]
This proxy will be
voted FOR the above
matters unless
otherwise indicated,
and in the discretion
of the proxies on all
other matters
properly brought
before the Meeting.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
May 18, 1998
Keystone Automotive Industries, Inc.
700 East Bonita Avenue
Pomona, California 91767
RE: KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
Ladies and Gentlemen:
As special counsel for Keystone Automotive Industries, Inc., a
California corporation ("Keystone"), in connection with Keystone's Registration
Statement on Form S-4, No. 333-_______ ("Registration Statement"), registering a
maximum of 3,092,656 shares (the "Shares") of Keystone's common stock, no par
value, to be issued in connection with Keystone's acquisition of Republic
Automotive Parts, Inc. ("Republic"), and subsequent merger of KAI Merger, Inc. a
wholly owned subsidiary of Keystone ("KAI"), with and into Republic (the
"Merger"), we have been requested to render this opinion.
We have examined and reviewed only such questions of law as we have
deemed necessary or appropriate for the purpose of rendering the opinion set
forth herein.
For the purpose of rendering the opinion set forth herein, we have
been furnished with and examined only the following documents:
1. The Articles of Incorporation of Keystone, certified by the
California Secretary of State as of May 18, 1998;
2. The Bylaws of Keystone, certified by the Secretary of the Company
as of May 18, 1998;
3. The Registration Statement;
4. Resolutions of the Board of Directors of Keystone duly adopted on
February 14, 1998, approving, among other things, the filing of the Registration
Statement, the Merger and the issuance of the Shares in connection with the
Merger; and
5. The Agreement and Plan of Merger dated as of February 17, 1998,
among Republic, Keystone and KAI.
<PAGE>
Keystone Automotive Industries, Inc.
May 18, 1998
Page 2
With respect to all of the foregoing documents, we have assumed,
without investigation, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals and the conformity to originals of
all documents submitted to us as certified or reproduced copies. We also have
obtained from the officers of Keystone such advice as to such factual matters as
we consider necessary for the purpose of this opinion, and insofar as this
opinion is based on such matters of fact, we have relied on such advice without
independent investigation. We express no opinion with respect to the
statistical information and the financial statements, the notes thereto and
related schedules and other financial data included, or documents incorporated
by reference, in the Registration Statement.
Based on the foregoing, subject to the assumptions, limitations and
exceptions set forth herein, we are of the opinion that the Shares to be issued
in the Merger will, when delivered in the manner and on the terms described in
the Registration Statement (assuming the Merger is duly approved by Keystone's
shareholders and after and while the Registration Statement is declared
effective and assuming no stop order suspending the effectiveness of the
Registration Statement has been issued under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act") or proceedings therefor initiated or threatened by the Securities and
Exchange Commission), will be duly authorized, validly issued, fully paid and
nonassessable.
Our opinion expressed herein is limited to those matters expressly set
forth herein, and no opinion may be implied or inferred beyond the matters
expressly stated herein. We hereby disclaim any obligation to notify any person
or entity after the date hereof if any change in fact or law should change our
opinion with respect to any matter set forth in this letter.
This opinion is limited to the current laws of the State of California
and the Securities Act, to present judicial interpretations thereof and to facts
as they presently exist. In rendering this opinion, we have no obligation to
revise or supplement it should the current laws of the State of California or
the Securities Act be changed by legislative action, judicial decision or
otherwise.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is part of the Registration Statement.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 10.15
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.
AMENDMENT NO. 1 TO 1996 EMPLOYEE STOCK INCENTIVE PLAN
-----------------------------------------------------
Adopted as of August 26, 1997
Section 5(a) of the 1996 Employee Stock Incentive Plan is hereby amended by
striking said Section in its entirety and replacing it with the following:
"Section 5. STOCK SUBJECT TO PLAN
(a) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all Awards (including all Incentive Stock Options)
granted under this Plan shall not exceed 1,100,000, subject to adjustment
as provided in Section 8 hereof."
<PAGE>
EXHIBIT 10.40
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
----------
August 25, 1997, is entered into between MELLON BANK, N.A. ("Lender"), with a
-------
place of business at Mellon Bank Center, 400 South Hope Street, 5th Floor, Los
Angeles, California 90071, and KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a
California corporation ("Borrower"), with its chief executive office located at
---------
700 East Bonita Avenue, Pomona, California 91767.
RECITAL
-------
A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated as of March 25, 1997 (the "Credit Agreement"), pursuant
-----------------
to which Lender has made a certain loan available to Borrower. Terms used herein
without definition shall have the meanings ascribed to them in the Credit
Agreement.
B. Borrower has requested Lender to amend the Credit Agreement (i) to
eliminate the requirement of consolidating financial statements, effective as of
Borrower's fiscal quarter ended June 27, 1997 and (ii) to replace all references
in the Credit Agreement to "Vice President -- Finance" with "Chief Financial
Officer".
C. Lender is willing to further amend the Credit Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of Lender's rights or remedies as set forth in the Credit
Agreement is being waived or modified by the terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Amendments to Credit Agreement.
------------------------------
(a) Clauses (i) and (ii) of Section 6.1(a) of the Credit Agreement
are hereby amended, effective as of Borrower's fiscal quarter ended June 27,
1997, to read in their entirety as follows:
"(i) as soon as available, but in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of the
Borrower's audited consolidated balance sheet of itself and its
consolidated Subsidiaries as at the end of each fiscal year and the
related audited consolidated statements of income and retained
earnings (or comparable statement) employed in the business and
changes in financial position and cash flow for such year, setting
forth in each case in comparative form the figures for the previous
year, accompanied by an unqualified report and opinion thereon of
<PAGE>
independent certified public accountants acceptable to the Bank, and,
if prepared, such accountants' letter to management; and
(ii) as soon as available, but in any event within 45 days
after the end of each fiscal quarter, the Borrower's unaudited
consolidated balance sheet of itself and its consolidated Subsidiaries
as at the end of such period and the related unaudited consolidated
statements of income and retained earnings (or comparable statement)
and changes in financial position and cash flow for such period and
year to date, setting forth in each case in comparative form the
figures as at the end of the previous fiscal year as to the balance
sheet and the figures for the previous corresponding period as to the
other statements, certified by the Chief Financial Officer or the
Treasurer of the Borrower as being fairly stated in all material
respects subject to year end adjustments; all such financial
statements to be complete and correct in all material respects and to
be prepared in reasonable detail acceptable to the Bank and in
accordance with GAAP applied consistently throughout the periods
reflected therein (except as approved by such accountants and
disclosed therein); and"
(b) Clause (iv) of Section 6.1(a) of the Credit Agreement is hereby
amended to delete the reference therein to "Vice President-Finance" and to
insert in lieu thereof a reference to "Chief Financial Officer."
2. Effectiveness of this Amendment. Lender must have received the
-------------------------------
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is required to extend any credit to Borrower as
provided for by this Amendment. The date on which all of the following
conditions have been satisfied is the "Closing Date".
-------------
(a) Amendment. This Amendment fully executed in a sufficient number of
---------
counterparts for distribution to Lender and Borrower.
(b) Authorizations. Evidence that the execution, delivery and
--------------
performance by Borrower and each guarantor or subordinating creditor of
this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
------------------------------
Warranties set forth in the Credit Agreement must be true and correct.
(d) Other Required Documentation. All other documents and legal
-----------------------------
matters in connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to Lender.
3. Representations and Warranties. The Borrower represents and warrants
------------------------------
as follows:
2
<PAGE>
(a) Authority. Borrower has the requisite corporate power and
---------
authority to execute and deliver this Amendment, and to perform its
obligations hereunder and under the Loan Documents (as amended or modified
hereby). The execution, delivery and performance by the Borrower of this
Amendment and each Loan Document (as amended or modified hereby) have been
duly approved by all necessary corporate action of Borrower and no other
corporate proceedings on the part of Borrower are necessary to consummate
such transactions.
(b) Enforceability. This Amendment has been duly executed and
--------------
delivered by Borrower. This Amendment and each Loan Document (as amended
or modified hereby) is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, and is in full
force and effect.
(c) Representations and Warranties. The representations and
------------------------------
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
(d) No Default. No event has occurred and is continuing that
----------
constitutes an Event of Default.
4. Choice of Law. The validity of this Amendment, its construction,
-------------
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of California governing contracts only to be performed in that
State.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
6. Due Execution. The execution, delivery and performance of this
-------------
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.
7. Reference to and Effect on the Loan Documents.
---------------------------------------------
(a) Upon and after the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words
of like import referring to the Credit Agreement, and each reference in the
other Loan Documents to "the Credit Agreement", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement as modified and amended hereby.
3
<PAGE>
(b) Except as specifically amended above, the Credit Agreement and all
other Loan Documents, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed and shall constitute
the legal, valid, binding and enforceable obligations of Borrower to
Lender.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
(d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions
of the Credit Agreement, after giving effect to this Amendment, such terms
and conditions are hereby deemed modified or amended accordingly to reflect
the terms and conditions of the Credit Agreement as modified or amended
hereby.
8. Ratification. Borrower hereby restates, ratifies and reaffirms each
------------
and every term and condition set forth in the Credit Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
9. Estoppel. To induce Lender to enter into this Amendment and to
--------
continue to make advances to Borrower under the Credit Agreement, Borrower
hereby acknowledges and agrees that, after giving effect to this Amendment, as
of the date hereof, there exists no Event of Default and no right of offset,
defense, counterclaim or objection in favor of Borrower as against Lender with
respect to the Obligations.
4
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.,
a California corporation
By:
---------------------------------------------------------------------
John M. Palumbo
Chief Financial Officer
MELLON BANK, N.A.,
By:
---------------------------------------------------------------------
Kevin D. Kelly
Vice President
5
<PAGE>
EXHIBIT 10.41
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
----------
March 17, 1998, is entered into between MELLON BANK, N.A. (the "Bank"), with a
-----
place of business at Mellon Bank Center, 400 South Hope Street, 5th Floor, Los
Angeles, California 90071, and KEYSTONE AUTOMOTIVE INDUSTRIES, INC., a
California corporation ("Borrower"), with its chief executive office located at
---------
700 East Bonita Avenue, Pomona, California 91767.
RECITAL
-------
A. Borrower and the Bank have previously entered into that certain Credit
Agreement dated as of March 25, 1997, as amended by First Amendment Credit
Agreement dated August 25, 1997 (collectively, the "Credit Agreement"), pursuant
-----------------
to which the Bank has made a certain loan available to Borrower. Terms used
herein without definition shall have the meanings ascribed to them in the Credit
Agreement.
B. Borrower has requested the Bank to amend the Credit Agreement to
extend the Maturity Date to September 30, 1998.
C. The Bank is willing to further amend the Credit Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of the Bank's rights or remedies as set forth in the
Credit Agreement is being waived or modified by the terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Amendment to Credit Agreement.
-----------------------------
(a) The definition of "Maturity Date" set forth in Section 1.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"'Maturity Date': September 30, 1998."
--------------
(b) The definition of "Guarantors" set forth in Section 1.1 of the
Credit Agreement is hereby amended to add the following additional sentence
at the end thereof:
"Without limiting the generality of the foregoing, `Guarantors' shall
include North Star Plating Company, a Minnesota corporation, Inteuro
Parts Distributors, Inc. a Florida corporation, and Car Body Concepts,
Inc., a Florida corporation."
<PAGE>
(c) Section 4.2 of the Credit Agreement (entitled "Conditions
Precedent to Each Borrowing") is hereby amended to revise clause (b)
thereof in its entirety as follows:
"and (b) the Bank shall have received such other approvals, opinion or
documents as the Bank may reasonably request, including, without
limitation, a guarantee from each of the Guarantors in form and
substance satisfactory to the Bank."
2. Effectiveness of this Amendment. The Bank must have received the
-------------------------------
following items, in form and content acceptable to the Bank, before this
Amendment is effective and before the Bank is required to extend any credit to
Borrower as provided for by this Amendment. The date on which all of the
following conditions have been satisfied is the "Closing Date".
-------------
(a) Amendment. This Amendment fully executed in a sufficient number of
---------
counterparts for distribution to the Bank and Borrower.
(b) Authorizations. Evidence that the execution, delivery and
--------------
performance by Borrower and each Guarantor of this Amendment and any
instrument or agreement required under this Amendment have been duly
authorized.
(c) Delivery of Guarantees. The Bank shall have received guarantees
----------------------
of Inteuro Parts Distributors, Inc. and Car Body Concepts, Inc. in form and
substance satisfactory to the Bank.
(d) Representations and Warranties. The Representations and
------------------------------
Warranties set forth in the Credit Agreement must be true and correct.
(e) Other Required Documentation. All other documents and legal
-----------------------------
matters in connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to the Bank.
3. Representations and Warranties. The Borrower represents and warrants
------------------------------
as follows:
(a) Authority. Borrower has the requisite corporate power and
---------
authority to execute and deliver this Amendment, and to perform its
obligations hereunder and under the Loan Documents (as amended or modified
hereby). The execution, delivery and performance by the Borrower of this
Amendment and each Loan Document (as amended or modified hereby) have been
duly approved by all necessary corporate action of Borrower and no other
corporate proceedings on the part of Borrower are necessary to consummate
such transactions.
(b) Enforceability. This Amendment has been duly executed and
--------------
delivered by Borrower. This Amendment and each Loan Document (as amended
or modified hereby) is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, and is in full
force and effect.
2
<PAGE>
(c) Representations and Warranties. The representations and
------------------------------
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
(d) No Default. No event has occurred and is continuing that
----------
constitutes an Event of Default.
4. Choice of Law. The validity of this Amendment, its construction,
-------------
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of California governing contracts only to be performed in that
State.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
6. Due Execution. The execution, delivery and performance of this
-------------
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.
7. Reference to and Effect on the Loan Documents.
---------------------------------------------
(a) Upon and after the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words
of like import referring to the Credit Agreement, and each reference in the
other Loan Documents to "the Credit Agreement", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Credit Agreement and all
other Loan Documents, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed and shall constitute
the legal, valid, binding and enforceable obligations of Borrower to the
Bank.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any the Bank or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
(d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions
of the Credit Agreement, after giving effect to this Amendment, such terms
and conditions are hereby deemed
3
<PAGE>
modified or amended accordingly to reflect the terms and conditions of the
Credit Agreement as modified or amended hereby.
8. Ratification. Borrower hereby restates, ratifies and reaffirms each
------------
and every term and condition set forth in the Credit Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
9. Estoppel. To induce the Bank to enter into this Amendment and to
--------
continue to make advances to Borrower under the Credit Agreement, Borrower
hereby acknowledges and agrees that, after giving effect to this Amendment, as
of the date hereof, there exists no Event of Default and no right of offset,
defense, counterclaim or objection in favor of Borrower as against the Bank with
respect to the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
KEYSTONE AUTOMOTIVE INDUSTRIES, INC.,
a California corporation
By:
---------------------------------------------------------------------
John M. Palumbo
Chief Financial Officer
MELLON BANK, N.A.,
By:
---------------------------------------------------------------------
Kevin D. Kelly
Vice President
4
<PAGE>
EXHIBIT 21.1
Registrant had the following significant subsidiaries as of May 18, 1998:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION PERCENTAGE OWNERSHIP
---- ---------------------- --------------------
<S> <C> <C>
North Star Plating Company Minnesota 100%
Inteuro Parts Distributors,
Inc. Florida 100%
Car Body Concepts, Inc. Florida 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-0000) and related Prospectus of
Keystone Automotive Industries, Inc. for the registration of 3,092,656 shares
of its common stock and to the incorporation by reference therein of our
reports dated May 23, 1997, with respect to the consolidated financial
statements and schedule of Keystone Automotive Industries, Inc. incorporated
by reference in its Annual Report on Form 10-K for the year ended March 28,
1997 and our report dated May 23, 1997, except for Note 3, as to which the
date is January 1, 1998 with respect to the supplemental consolidated
financial statements and schedule of Keystone Automotive Industries, Inc. as
of March 29, 1996 and March 28, 1997 and for each of the years in the three
year period ended March 28, 1997 included in its Current Report on Form 8-K
dated April 8, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angeles, California
May 15, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Keystone
Automotive Industries, Inc. of our report dated February 27, 1998 appearing on
page 11 of the Republic Automotive Parts, Inc. Annual Report on Form 10-K for
the year ended December 31, 1997. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Nashville, Tennessee
May 18, 1998
