<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996
REGISTRATION NO. 333-8069
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROCKSHOX, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3751 77-0396555
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
401 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 435-7469
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
STEPHEN SIMONS
PRESIDENT
ROCKSHOX, INC.
401 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 435-7469
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
COPY TO:
<TABLE>
<S> <C> <C>
Michael A. Woronoff, Esq. Sandra A. Golze, Esq. Gregory K. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom McCutchen, Doyle, Brown & Enersen, LLP Latham & Watkins
300 South Grand Avenue, Suite 3400 Three Embarcadero Center 505 Montgomery Street, Suite 1900
Los Angeles, California 90071 San Francisco, California 94111-4066 San Francisco, California 94111
(213) 687-5000 (415) 393-2000 (415) 391-0600
Fax: (213) 687-5600 Fax: (415) 393-2286 Fax: (415) 395-8095
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ROCKSHOX, INC.
CROSS REFERENCE SHEET
REQUIRED BY ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information.
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors.
4. Use of Proceeds...................................... Use of Proceeds.
5. Determination of Offering Price...................... Underwriting.
6. Dilution............................................. Dilution.
7. Selling Security Holders............................. Principal and Selling Stockholders; Management.
8. Plan of Distribution................................. Underwriting.
9. Description of Securities to Be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock.
10. Interests of Named Experts and Counsel............... Not applicable.
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The
Recapitalization and the Merger; Use of Proceeds;
Dividend Policy; Capitalization; Dilution; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Stockholders; Description of
Capital Stock; Shares Eligible for Future Sale;
Additional Information; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not applicable.
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 3, 1996
4,800,000 SHARES
[LOGO]
COMMON STOCK
------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by ROCKSHOX, INC. (the
"Company" or "RockShox").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price for the
Common Stock will be between $13.00 and $15.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
Application has been made to have the Common Stock approved for quotation on
The Nasdaq Stock Market under the symbol "RSHX."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $2,000,000.
(3) The Selling Stockholders named herein have granted the several Underwriters
an option, exercisable within 30 days after the date hereof, to purchase up
to an aggregate of 720,000 additional shares of Common Stock, on the same
terms as set forth above, to cover over-allotments, if any. The Company will
not receive any of the proceeds from the sale of such shares by the Selling
Stockholders. If all such additional shares are purchased, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about , 1996.
MERRILL LYNCH & CO.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[PICTURES]
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT INDICATES OTHERWISE, THE
"COMPANY" OR "ROCKSHOX," AS USED IN THIS PROSPECTUS, MEANS ROCKSHOX, INC., ITS
PREDECESSORS AND THEIR RESPECTIVE PARENTS AND SUBSIDIARIES ON A CONSOLIDATED
BASIS. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO A FISCAL YEAR
ARE TO THE COMPANY'S FISCAL YEAR. IN 1995, THE COMPANY CHANGED ITS FISCAL YEAR
END FROM DECEMBER 31 TO MARCH 31.
THE COMPANY
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. The Company developed the first
widely accepted front suspension fork for the mountain bike industry, and,
through a series of new product introductions, has continued to be at the
forefront of the design and development of bicycle suspension. ROCKSHOX
suspension products enhance riding performance and comfort by mitigating the
impact of rough terrain and providing better wheel contact with the riding
surface. The Company, which currently manufactures both front suspension forks
and rear shocks for mountain bikes, has combined technical innovation with high
quality products and creative marketing to establish one of the most widely
recognized brand names in the bicycle industry. In a 1995 BICYCLING MAGAZINE
readers' survey, 45% of the respondents who owned a suspension fork owned a
RockShox manufactured product--more than twice the share of the next leading
manufacturer--and more than 65% of the respondents who planned to purchase a
suspension fork within the next two years planned to purchase a ROCKSHOX
suspension fork.
The Company's sales have grown rapidly, from approximately $6 million in
fiscal 1991 to approximately $83.5 million in fiscal 1996, a compound annual
growth rate of approximately 85.5%. The Company believes that its growth has
been the result of increasing market acceptance of bicycle suspension worldwide
and, more specifically, growing demand for ROCKSHOX suspension products. From
1992 to 1996, the number of mountain bike models available in the U.S. with
suspension has increased from approximately 80 to over 660. The Company has been
a key contributor to this growth, with ROCKSHOX components now specified on over
460, or more than 60%, of these 1996 suspension-equipped mountain bike models.
The Company believes that significant opportunities for growth continue to exist
worldwide. Although the number of mountain bikes sold with suspension has been
rapidly increasing, suspension was included on only 17% of all mountain bike
units sold domestically by independent bicycle dealers ("IBDs") in 1995. The
Company believes that the market penetration of suspension-equipped mountain
bikes is even lower internationally.
RockShox currently markets ten front suspension forks and three rear shocks
under its JUDY, INDY, QUADRA, MAG and DELUXE product lines. The Company's
products have been repeatedly recognized for their innovative design and
superior performance. For example, the Company's first product, the RS1, won a
"Best of 1989" award from BICYCLE GUIDE MAGAZINE, and, in 1993, its first QUADRA
front suspension fork was voted "Best Product Tried This Year" by readers of
MOUNTAIN BIKE MAGAZINE. The Company's JUDY suspension fork received the 1994
award for "Best Technical Development of the Year" in the bicycle industry from
VELO NEWS, and, in 1995, the Company's QUADRA suspension fork was designated as
the "Best Value" among suspension forks by BICYCLING MAGAZINE'S BUYERS GUIDE. As
further evidence of the advanced design and technical benefits of its products,
ROCKSHOX suspension was used by more than half of the mountain bike racers
competing in the 1996 Olympic Games in Atlanta.
Approximately two-thirds of the Company's sales are to bicycle manufacturers
("OEMs"), including Trek, GT and Specialized, who incorporate ROCKSHOX branded
components as part of new, fully-assembled mountain bikes sold worldwide. The
Company is the primary supplier of front suspension forks to eight out of the
ten leading OEMs selling through domestic IBDs. Management believes that OEM
customers
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
recognize the strength of the Company's brand name as a deciding factor in the
consumer's choice of mountain bikes. In addition, the Company believes that OEMs
choose RockShox for product innovation and quality as well as reliable worldwide
distribution and service.
The Company's products are also sold as an accessory component to consumers
through a network of over 10,000 IBDs worldwide. According to a
Company-sponsored survey, 85% of responding domestic IBDs identified ROCKSHOX as
the most important brand of suspension product sold in their stores and
management believes that the Company enjoys a similar retail presence
internationally. The Company's front suspension forks and rear shocks are
generally priced to consumers from $199 to $649 and from $199 to $289,
respectively.
Management believes that the Company can continue to take advantage of
significant growth opportunities by (i) maintaining its leadership in providing
front suspension forks to the high-end of the mountain bike market, a segment
that has experienced approximately 33% cumulative growth in unit sales from 1992
to 1995, (ii) expanding its product offerings with recently-introduced rear
shocks that allow the Company to more aggressively pursue the fast growing
market for full suspension mountain bikes (i.e., bikes that include both front
suspension and rear shocks), (iii) developing more moderately priced suspension
forks, such as the QUADRA 5, which meet the needs of the emerging high-volume,
mid-priced mountain bike suspension market, and (iv) leveraging the ROCKSHOX
brand name into new product categories, including suspension products for road
and trekking bikes.
The Company's principal executive office is located at 401 Charcot Avenue,
San Jose, California 95131; its telephone number is (408) 435-7469.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 4,800,000 shares
Common Stock to be outstanding after the
Offering.................................... 13,620,000 shares (1)
Use of proceeds.............................. The net proceeds to the Company will be used
to repay indebtedness, to redeem all of the
outstanding shares of Holdings Preferred
Stock (as defined below), to make a payment
to terminate the Bonus Plan (as defined
below) and for working capital purposes. See
"Use of Proceeds."
Listing...................................... Application has been made to have the Common
Stock approved for quotation on The Nasdaq
Stock Market under the symbol "RSHX."
</TABLE>
- ------------------------
(1) Excludes approximately 596,320 shares of Common Stock issuable upon exercise
of stock options outstanding under the Company's 1996 Stock Plan (the "Stock
Plan"). See "Management -- 1996 Stock Plan."
------------------------
Unless otherwise noted, all Common Stock share amounts, per share data and
other information set forth in this Prospectus (i) have been adjusted to reflect
the consummation of the Merger (as defined below) and (ii) assume that the
Underwriters' over-allotment option granted by certain stockholders of the
Company (the "Selling Stockholders") has not been exercised. See "The
Recapitalization and the Merger."
This Prospectus includes references to registered trademarks and brand names
of the Company and of manufacturers who purchase the Company's products,
including Trek Bicycle Corp. ("Trek"), GT Bicycles, Inc. ("GT") and Specialized
Bicycle Components, Inc. ("Specialized"). The Company's trademarks and brand
names include: ROCKSHOX, ROCKSHOX, JUDY, INDY, DELUXE, QUADRA, MAG and ROCKSHOX
GARB.
Market data and industry information referred to in this Prospectus are
derived from various trade publications and industry sources (including the
results of a suspension study conducted by the Bicycle Market Research Institute
("BMRI"), BMRI's U.S. 1995 Annual Market Assessment Report for Bicycles (20" and
over), MOUNTAIN BIKE MAGAZINE'S 1996 Industry Survey and BICYCLING MAGAZINE'S
September 1995 Subscriber Study) as well as the Company's own research and
estimates. Unless otherwise noted, all references to "IBDs" include bike shops,
other sports specialty stores, mail order and television shopping.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
YEAR ENDED MARCH 31, MONTHS
THREE ENDED
MONTHS 1996 (1) JUNE 30,
YEAR ENDED DECEMBER 31, ENDED MARCH ---------------------- ---------
------------------------------------------ 31, PRO
1991 1992 1993 1994 1995 (1) ACTUAL FORMA (2) 1995
--------- --------- --------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales..................... $ 6,050 $ 16,442 $ 30,941 $ 37,900 $ 14,279 $ 83,509 $ 83,509 $ 18,784
Cost of sales................ 4,017 10,565 20,113 24,477 9,590 54,110 54,110 12,285
--------- --------- --------- --------- ----------- --------- ----------- ---------
Gross profit............... 2,033 5,877 10,828 13,423 4,689 29,399 29,399 6,499
Operating expenses........... 1,923 5,541 6,634 6,283 7,627 14,621 12,871 3,411
--------- --------- --------- --------- ----------- --------- ----------- ---------
Income (loss) from
operations.................. 110 336 4,194 7,140 (2,938) 14,778 16,528 3,088
Interest and other (income)
expense, net................ 21 67 16 6 51 5,650 (136) 1,484
--------- --------- --------- --------- ----------- --------- ----------- ---------
Income (loss) before income
taxes....................... 89 269 4,178 7,134 (2,989) 9,128 16,664 1,604
Provision for (benefit from)
income taxes................ 9 104 1,521 2,420 (653) 3,464 6,478 610
--------- --------- --------- --------- ----------- --------- ----------- ---------
Net income (loss)............ $ 80 $ 165 $ 2,657 $ 4,714 $ (2,336) $ 5,664 $ 10,186 $ 994
--------- --------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- --------- ----------- --------- ----------- ---------
Net income (loss) per share
(3)......................... $ 0.01 $ 0.02 $ 0.29 $ 0.51 $ (0.25) $ 0.57 $ 0.73 $ 0.10
--------- --------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- --------- ----------- --------- ----------- ---------
Shares used in
per share calculations (3).. 9,240 9,240 9,240 9,240 9,240 9,240 13,899(4) 9,240
<CAPTION>
1996 1996
ACTUAL PRO FORMA (2)
--------- -------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales..................... $ 21,378 $ 21,378
Cost of sales................ 13,733 13,733
-
--------- -------------
Gross profit............... 7,645 7,645
Operating expenses........... 4,159 3,503
-
--------- -------------
Income (loss) from
operations.................. 3,486 4,142
Interest and other (income)
expense, net................ 1,292 (49)
-
--------- -------------
Income (loss) before income
taxes....................... 2,194 4,191
Provision for (benefit from)
income taxes................ 845 1,644
-
--------- -------------
Net income (loss)............ 1,349 $ 2,547
-
-
--------- -------------
--------- -------------
Net income (loss) per share
(3)......................... $ 0.14 $ 0.18
-
-
--------- -------------
--------- -------------
Shares used in
per share calculations (3).. 9,240 13,899(4)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(5)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 1,797 $ 11,414
Total assets.................................................................... 28,665 31,898
Total debt...................................................................... 43,750 --
Mandatorily redeemable preferred stock.......................................... 7,449 --
Stockholders' equity (deficit).................................................. (38,358) 16,730
</TABLE>
- ------------------------
(1) In 1995, the Company changed its fiscal year end from December 31 to March
31.
(2) The pro forma statement of operations data for the fiscal year ended March
31, 1996 and the quarter ended June 30, 1996 give effect to the Offering and
the application of the net proceeds therefrom as if the Offering had
occurred at the beginning of the respective periods, and reflect the
reduction of operating expenses of $1.8 million and $0.7 million,
respectively, related to the termination of the Bonus Plan, the reduction of
interest expense of $5.8 million and $1.3 million, respectively, and the tax
effect of the foregoing (but exclude the effect of write-offs of
approximately $2.4 million relating to unamortized debt issuance costs,
expenses of approximately $6.7 million relating to the termination of the
Bonus Plan and the tax effect of the foregoing). See "Selected Financial
Data," "Use of Proceeds" and Note 2 of Notes to Pro Forma Condensed
Consolidated Balance Sheet and Statements of Operations.
(CONTINUED ON THE FOLLOWING PAGE)
5
<PAGE>
(CONTINUED FROM PRIOR PAGE)
(3) For an explanation of the determination of the number of shares used in per
share calculations and net income (loss) per share, see Note 2 of Notes to
Consolidated Financial Statements. For the fiscal year ended March 31, 1996
and the quarters ended June 30, 1995 and 1996, net income has been reduced
by accretion for dividends on the Holdings Preferred Stock of $357,000,
$94,000 and $92,000, respectively.
(4) Pro forma computation of net income per share includes 4,658,571 shares of
Common Stock to be issued pursuant to the Offering, net of expenses, the
proceeds from the sale of which the Company intends to use as follows: (a)
$26.75 million to repay borrowings outstanding under the Existing Credit
Facilities (as defined below), (b) $17.0 million to repay the Senior Notes
(as defined below) and the Junior Notes (as defined below), (c) $7.4 million
to redeem all of the outstanding shares of Holdings Preferred Stock and (d)
$7.3 million to make payments to terminate the Bonus Plan. Shares to be
issued for working capital purposes have been excluded from the pro forma
computation of net income per share. See "Use of Proceeds" and Note 2 to Pro
Forma Condensed Consolidated Balance Sheet and Statements of Operations.
(5) Pro forma as adjusted to give effect to the Offering and the application of
the net proceeds therefrom as if the Offering had occurred on June 30, 1996,
including write-offs of approximately $2.4 million relating to unamortized
debt issuance costs, expenses of approximately $6.7 million relating to the
termination of the Bonus Plan, payments of approximately $7.4 million to
redeem all of the outstanding shares of Holdings Preferred Stock and $26.75
million, $11.0 million and $6.0 million to repay the Existing Credit
Facilities, the Senior Notes and the Junior Notes, respectively, and the tax
effect of the foregoing. See "Use of Proceeds," "Capitalization" and Note 1
of Notes to Pro Forma Condensed Consolidated Balance Sheet and Statements of
Operations.
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD TAKE INTO ACCOUNT THE CONSIDERATIONS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE
PURCHASING ANY OF THE SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 THAT INVOLVE RISKS AND UNCERTAINTIES.
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
SUSCEPTIBILITY TO CHANGING ECONOMIC AND MARKET CONDITIONS
Consumer purchases of bicycles and bicycle components, including the
Company's products, are discretionary. Any decline in general economic
conditions, uncertainties regarding future economic prospects or changes in
other economic factors that affect consumer spending could have a material
adverse effect on the Company's direct customers (OEMs, distributors and IBDs)
and, therefore, on the Company or its prospects. Domestic mountain bike unit
sales through mass merchandisers and IBDs in the first half of 1996 have
declined from the first half of 1995, and industry sources estimate that such
sales will not grow in 1996 as compared to the prior year. Any material decline
in the size of, or prolonged lack of growth in, the overall bicycle market or
the mountain bike segment, or a material decline in the number or business
prospects of OEMs, distributors or IBDs, in general, or the Company's customers,
in particular, could have a material adverse effect on the Company or its
prospects.
DEPENDENCE ON MOUNTAIN BIKE FRONT SUSPENSION PRODUCT LINES
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks. The Company
believes that most of its sales for the foreseeable future will be of mountain
bike front suspension forks. Such products have been produced in substantial
numbers and widely accepted by the bicycle industry and consumers for less than
five years and there can be no assurance of their continuing popularity. Any
material decline or prolonged lack of growth in the popularity of, or market
demand for, mountain bike front suspension forks, in general, or the Company's
products, in particular, could have a material adverse effect on the Company or
its prospects. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General" and "Business--Products."
SALES CONCENTRATION; DEPENDENCE ON OEMS
In fiscal 1996, approximately 56% of the Company's sales were to the
Company's ten largest customers, certain of which (including Trek) purchase from
the Company as both an OEM customer and a distributor. Sales to Trek accounted
for more than 10% of the Company's net sales in fiscal 1996, substantially all
of which were for OEM use by Trek. At March 31, 1996 and June 30, 1996, the
Company's three OEM customers with the largest accounts receivable balances
accounted for approximately 61.5% and 47.8%, respectively, of the Company's
accounts receivable. The Company has no long-term contracts with any of its
customers and there can be no assurance that the Company's current or future
customers will continue to purchase from the Company. The loss of, substantial
decline in purchases of the Company's products by, or financial insolvency of,
any of the Company's largest customers individually, or a number of the
Company's other customers in the aggregate, could have a material adverse effect
on the Company or its prospects.
While the OEM market is fragmented, according to BMRI, ten leading OEM
brands represent over 75% of bicycle sales dollars generated through domestic
IBDs. Management believes that these OEMs also represent a significant portion
of better quality mountain bikes sold worldwide. All of these leading OEMs are
current customers of the Company and certain of these OEMs are among the
Company's largest customers. Management believes that any material growth in the
Company's business will likely require it to increase sales to, and will result
in additional sales concentration with, the Company's largest OEM customers. In
addition, the Company's customers, including OEMs, may acquire, or be acquired
by, other entities (including the Company's competitors) and there can be no
assurance that the combined entity will continue to purchase any or the same
amount of the Company's products.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources," "Business--Industry Overview"
and "--Sales and Distribution."
7
<PAGE>
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; DIFFICULTY IN FORECASTING OEM
ORDERS
Management believes that the Company's future operating results will
fluctuate on a quarterly basis due to a variety of factors, including seasonal
cycles, weather conditions, the timing and mix of orders and reorders, and the
number and timing of new product introductions. Management anticipates that the
Company's sales will normally be lowest in its first and fourth fiscal quarters,
which end on June 30 and March 31, respectively. Results in such quarters are
particularly sensitive to the timing and size of OEM orders and reorders, which
are difficult to forecast. Any misjudgment by the Company or any of its OEM
customers of the demand for any of its respective products could have a material
adverse effect on the Company or its prospects. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected Quarterly
Financial Data; Seasonality," "Business-- Manufacturing" and "--Sales and
Distribution."
RISKS ASSOCIATED WITH RAPID GROWTH
Since its founding in 1989, the Company has experienced rapid and
substantial growth. The Company does not expect to achieve such high rates of
growth in the future. There can be no assurance that the Company will continue
to grow or that it will be able to sustain the level of sales that it has
achieved in the past. Furthermore, there can be no assurance that the Company
will be able to successfully implement its sales growth strategy or that, if
implemented, such a strategy will result in increases to, or maintenance of, the
Company's profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
The Company's rapid and substantial growth has placed, and could continue to
place, a significant strain on its employees and operations. Several members of
the Company's senior management have only recently joined the Company and other
members have only limited relevant prior experience outside of the Company. See
"Management--Directors, Executive Officers and Key Employees." To manage growth
effectively, the Company will be required to continue to implement changes in
its business; expand its operations, facilities and internal controls to handle
increased demand; enhance its information technology systems; and develop, train
and manage an increasing number of management-level and other employees.
Unexpected difficulties encountered during expansion, or management's inability
to respond effectively to or plan for such expansion, could have a material
adverse effect on the Company or its prospects.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS
The Company's future success will depend, in part, upon its continued
ability to develop and successfully introduce new and/or innovative bicycle
suspension products and other types of bicycle components that will be widely
accepted by the bicycle industry and consumers. There can be no assurance that
the Company will introduce any new products or, if introduced, that any such
products will be commercially successful. Furthermore, successful product
designs can be displaced or rendered obsolete by other product designs
introduced by the Company or its competitors. As a result of these and other
factors, there can be no assurance that the Company will expand the markets it
serves or will successfully maintain or increase its market share through
product innovations. The Company also anticipates that it may from time to time
evaluate acquisition opportunities to expand its product lines, including the
possible acquisition of non-suspension bicycle component product lines. The
Company has no experience in making such acquisitions, and there can be no
assurance that the Company will be able to compete successfully at favorable
prices for available acquisition candidates. The Company also has no significant
experience in developing, manufacturing or marketing non-suspension bicycle
components.
COMPETITION
The markets for bicycle components, in general, and bicycle suspension
products, in particular, are highly competitive. The Company competes with other
bicycle component companies that produce suspension products for sale to OEMs,
distributors and IBDs as well as with OEMs who produce their own line of
suspension products for their own use and for sale through distributors and
IBDs. The Company believes that it currently has the leading market share in
front suspension forks. The Company only recently introduced its rear shock
products for the emerging full suspension market and believes it currently
trails the leading manufacturer of rear shocks. In order to build or retain its
market share, the Company must
8
<PAGE>
continue to successfully compete in areas that influence the purchasing
decisions of OEMs, distributors, IBDs and consumers, including design, price,
quality, technology, distribution, marketing, style, brand image and customer
service. There can be no assurance that any number of bicycle component
manufacturers, OEMs or other companies, including those who are larger and have
greater resources than the Company or who currently do not provide bicycle
suspension products or do so on a limited basis, will not become direct or more
significant competitors of the Company. In addition, OEMs frequently design
their bicycles to meet certain retail price points, and, as a result, may choose
not to use a suspension product or may select a lower priced ROCKSHOX or
competing product in order to incorporate other components in the bicycle's
specifications that the OEM perceives as being desirable to the consumer. The
Company could therefore face competition from existing or new competitors that
introduce and promote suspension products or other bicycle components perceived
by the bicycle industry or consumers to offer price or performance advantages
to, or that otherwise have greater consumer appeal than, the Company's products.
See "Business-- Competition."
LIMITED PROTECTION OF TECHNOLOGY
Because much of the technology associated with suspension products is in the
public domain, patent protection is generally available only for particular
features or functions of a product, rather than for any product as a whole.
Management believes that many of the Company's current suspension products
contain some elements that are protected by the Company's patents. Nevertheless,
the Company's competitors currently replicate and may continue to replicate
certain features and functions of the Company's products. There can be no
assurance that current or future patent protection will prevent competitors from
offering competing products, that any issued patents will be upheld, or that
patent protection will be granted in any or all of the countries in which
applications are currently pending or granted on the breadth of the description
of the invention. In addition, due to considerations relating to, among other
things, cost, delay or adverse publicity, there can be no assurance that the
Company will elect to enforce its intellectual property rights.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. The Company has
occasionally received, and may receive in the future, claims asserting
intellectual property rights owned by third parties that relate to the Company's
products and product features. Although to date the Company has incurred no
material liabilities as a result of any such claims, there can be no assurance
that the Company will not incur material liabilities in the future.
Answer Products (a division of LDI, Ltd.), which manufactures Manitou
products ("Manitou"), has received a U.S. patent that may cover certain features
of the Company's suspension products. However, the Company has a patent
application pending before the U.S. Patent and Trademark Office (the "Patent
Office") that seeks a patent on certain of the same features (the "Features").
In the U.S., patent rights belong to the first to invent, and there can be only
one patent issued for a given invention. If an invention is otherwise patentable
to two patent applicants, an "interference" can be declared by the Patent Office
in order to determine which applicant was the first to invent and therefore
entitled to the patent on such invention. The Company is seeking to have the
Patent Office declare such an interference with Manitou with respect to the
patent covering the Features. The Company believes that it was the first to
invent the Features, and that the U.S. patent covering the Features will
ultimately belong to the Company, and not to Manitou. There can, however, be no
assurance that the Company will ultimately obtain such patent. In addition,
Manitou has received patents that may cover certain of the Features in various
countries outside of the U.S. and, in such countries, patent rights generally
belong to the first person filing a patent application.
In order to avoid the costs, delays and risks of an interference proceeding,
management of the Company has commenced discussions with Manitou regarding the
possible settlement of any interference and a licensing arrangement that would
allow both companies to use the Features. However, the Company and Manitou have
not entered into any such arrangement, and there can be no assurance that any
agreement relating to the Features will be reached. If Manitou ultimately
retains the patent described above and successfully asserts it against the
Company, or if any other person or entity were to assert a valid claim of
infringement with respect to, or otherwise have enforceable proprietary rights
in, features that the Company
9
<PAGE>
includes or desires to include on its products, and if the Company were unable
to design or alter its products or production methods so as to avoid such
infringement at a reasonable cost or to negotiate an acceptable licensing or
other arrangement with such person or entity, the Company could, among other
things, be precluded from making or marketing products containing such features
and be required to make payments to such person or entity, which could have a
material adverse effect on the Company or its prospects. See
"Business--Intellectual Property."
DEPENDENCE ON SUPPLIERS; MANUFACTURING RISKS
Although the Company has established relationships with its principal
suppliers and manufacturing sources, the Company does not currently have
long-term contracts with any of its vendors, nor does the Company currently have
multiple vendors for all parts, tooling, supplies or services critical to the
Company's manufacturing processes. The Company's future success will depend, in
part, on its ability to maintain relationships with its current suppliers and
manufacturing sources and to develop relationships with new suppliers. Failure
of a key supplier to meet the Company's product needs on a timely basis, loss of
a key supplier or significant disruption in the Company's production or
distribution activities for any other reason, including an earthquake or other
catastrophic event, could have a material adverse effect on the Company or its
prospects. See "Business-- Manufacturing" and "Certain Transactions--Other."
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS AND MARKET DEMAND
While the Company is currently manufacturing its products only in the United
States, the bicycle industry is, and many of the Company's OEM customers are,
highly dependent on manufacturing in overseas locations, and changes in economic
conditions, currency exchange rates, tariff regulations, "local content" laws or
other trade restrictions or political instability ("International Conditions")
could adversely affect the cost or availability of products sold by or to the
bicycle industry as a whole and the Company's OEM customers in particular, any
of which could have a material adverse effect on the Company or its prospects.
In addition, insufficient international consumer demand for mountain bikes and
related products, including the Company's products, whether due to changes in
International Conditions, consumer preferences or other factors, could have a
material adverse effect on the Company or its prospects.
PRODUCT LIABILITY
Because of the risks inherent in bicycling, in general, and mountain biking,
in particular, and because of the function of the Company's products, the
Company from time to time is a defendant in a number of product liability
lawsuits and expects that this will continue to be the case in the future. These
lawsuits generally seek damages, sometimes in substantial amounts, for personal
injuries sustained as a result of alleged defects in the Company's products.
Although the Company has experienced no material financial loss relating to such
lawsuits and maintains product liability insurance, due to the uncertainty as to
the number of claims or the nature and extent of liability for personal injuries
and changes in the historical or future levels of insurance coverage or the
terms or cost thereof, such insurance may not be adequate or available to cover
product liability claims or the applicable insurer may not be solvent at the
time of any covered loss, any of which could have a material adverse effect on
the Company or its prospects. See "Business--Legal Proceedings."
GOVERNMENT REGULATION; ADVERSE PUBLICITY
Bicycle suspension products are within the jurisdiction of the United States
Consumer Product Safety Commission (the "CPSC") and other Federal, state and
foreign regulatory bodies. In 1996, the CPSC sent a letter to major
manufacturers and importers of mountain bikes as well as several suspension
component manufacturers, including RockShox, expressing concern about reports of
injuries and recall activity relating to failures of mountain bike suspension
forks and urging manufacturers to participate in the development of voluntary
safety performance standards for such suspension products through the American
Society of Testing and Materials (the "ASTM"). The Company cannot predict
whether standards relating to the Company's products or otherwise affecting the
bicycle suspension industry will be adopted (whether by the CPSC or another
Federal, state or foreign regulatory body) and, if adopted, no assurance can be
given that the implementation of such standards will not have a material adverse
effect on the Company or its prospects.
10
<PAGE>
Adverse publicity relating to mountain bike suspension or mountain biking
generally, or publicity associated with actions by the CPSC or others expressing
concerns about the safety or function of the Company's products, other
suspension products or mountain bikes (whether or not such publicity is
associated with a claim against the Company or results in any action by the
Company or the CPSC), could have an adverse effect on the Company's reputation,
brand image or markets, any of which could have a material adverse effect on the
Company or its prospects.
PRODUCT RECALL; WARRANTY COSTS
Bicycles and bicycle components, including suspension products, are frequent
subjects of product recalls, corrective actions and manufacturers' bulletins.
Since its founding in 1989, the Company has conducted three voluntary corrective
actions, none of which has been financially material to the Company.
Nevertheless, the number of suspension products sold by the Company has
dramatically increased since its founding, new product introductions are
occurring frequently, and the Company's products may have not been used by
riders for a period of time sufficient to determine all of the effects of
prolonged use and the environment on such products. As a result, there can be no
assurance that there will not be recalls, corrective actions or other activity
voluntarily or involuntarily undertaken by the Company or involving the CPSC or
other regulatory bodies on a more frequent basis or at a higher cost than in the
past, any of which could have a material adverse effect on the Company or its
prospects. See "Business--Product Recall."
All of the Company's suspension products are covered by a one-year limited
warranty. The Company maintains an accrued liability on its balance sheet
representing management's estimate of future warranty costs of repair,
replacement or customer accommodation for products sold through the date
thereof. There can be no assurance that such accrued liability may not change in
the future or that future warranty costs for sales made through such date will
not be greater than the amounts accrued by the Company on its consolidated
financial statements, either of which could have a material adverse effect on
the Company or its prospects. See "Business -- Product Recall" and Notes 2 and 5
of Notes to Consolidated Financial Statements.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the management and leadership skills of the
members of its senior management team and other key personnel, including certain
members of its product development team. The loss of any such personnel or the
inability to attract, retain and motivate key personnel could have a material
adverse effect on the Company or its prospects. See "Business--Research and
Product Development" and "Management--Directors, Executive Officers and Key
Employees."
CONCENTRATION OF OWNERSHIP
Immediately after the Offering, Stephen Simons and Paul Turner, each of whom
is a director and executive officer of the Company, will each beneficially own
approximately 16.2% of the outstanding shares of the Common Stock (assuming that
the Underwriters' over-allotment option is not exercised). In addition,
immediately after the Offering, persons and entities affiliated with The Jordan
Company will beneficially own an aggregate of approximately 31.8% of the
outstanding shares of the Common Stock (assuming that the Underwriters'
over-allotment option is not exercised). Each of John W. Jordan II and Adam E.
Max is an affiliate of The Jordan Company and a director of the Company. As a
result, Messrs. Simons and Turner and such persons and entities associated with
The Jordan Company may have the ability to strongly influence, and, if voting
together, will control, the election of directors and the results of other
matters submitted to a vote of stockholders. Such concentration of ownership,
together with the anti-takeover effects of certain provisions in the Delaware
General Corporation Law (the "DGCL"), may have the effect of delaying or
preventing a change in control of the Company. See "Management," "Principal and
Selling Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered hereby
will be determined by negotiations among the Company, the Selling Stockholders
and the Underwriters and may not be indicative of the market price for the
Common Stock after the
11
<PAGE>
Offering. The market price for shares of the Common Stock may be volatile and
may fluctuate based upon a number of factors, including, without limitation,
business performance, timing of revenues, news announcements or changes in
general trading market conditions. See "Underwriting" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Financial Data; Seasonality."
FUTURE SALES OF COMMON STOCK; SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
13,620,000 shares of Common Stock, assuming no stock options are exercised. Of
these shares, all of the 4,800,000 shares sold in the Offering will be freely
transferable by persons other than "affiliates" (as hereinafter defined) of the
Company, without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"). Future sales of substantial amounts of
Common Stock (including shares issued upon the exercise of options that may be
granted pursuant to any employee stock option or other equity plan of the
Company), or the perception that such sales could occur, could have an adverse
effect on the market price of the Common Stock. If such sales or any other
factor should reduce the market price of Common Stock, the Company's ability to
raise additional capital in the equity markets could be adversely affected. The
Company and all of the Selling Stockholders and executive officers of the
Company have agreed, subject to certain exceptions, not to sell, offer to sell,
grant any option (other than pursuant to the Stock Plan) for the sale of, or
otherwise dispose of, any shares of Common Stock or securities convertible into
or exercisable or exchangeable for Common Stock (except for shares offered in
the Offering) for a period of 180 days after the date of this Prospectus without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will therefore incur immediate and substantial
dilution of $12.77 per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company does not expect to pay any cash dividends on shares of the
Common Stock in the foreseeable future. See "Dividend Policy."
12
<PAGE>
THE RECAPITALIZATION AND THE MERGER
On March 24, 1995, Stephen Simons, Debra Simons and Paul Turner transferred
all of the outstanding shares of capital stock of the Company's predecessor
("Old RockShox") to RSx Holdings, Inc., a newly formed Delaware corporation
("Holdings"), and RSx Acquisition, Inc., a newly formed Delaware corporation
("Acquisition"). In exchange therefor, Mr. and Mrs. Simons and Mr. Turner
received 50% of the common stock, par value $.01 per share, of Holdings
("Holdings Common Stock"), $6 million aggregate principal amount of 13.5% junior
subordinated notes of Holdings (the "Junior Notes"), 4,000 shares of Series B
Preferred Stock, par value $1.00 per share, of Holdings (the "Series B Preferred
Stock") and approximately $39 million in cash. Holdings then acquired all of the
capital stock of Acquisition and contributed to Acquisition all of Holdings'
shares of capital stock of Old RockShox, whereupon Old RockShox became a wholly
owned subsidiary of Acquisition. Old RockShox was then merged into Acquisition
and Acquisition changed its name to ROCKSHOX, INC. The transactions described in
this paragraph are collectively referred to as the "Recapitalization."
As part of the Recapitalization, MCIT PLC, an investment company organized
under the laws of England and Wales ("MCIT"), which is managed by an affiliate
of The Jordan Company and in which affiliates of The Jordan Company have an
ownership interest, and other persons and entities affiliated with The Jordan
Company purchased the remaining 50% of Holdings Common Stock, 3,000 shares of
Series A Preferred Stock, par value $1.00 per share, of Holdings (the "Series A
Preferred Stock" and, together with the Series B Preferred Stock, the "Holdings
Preferred Stock") and $11 million aggregate principal amount of 13.5% senior
subordinated notes of Holdings (the "Senior Notes") for an aggregate purchase
price of approximately $14.5 million.
In order to finance the Recapitalization, Acquisition entered into a credit
agreement (the "Existing Credit Facilities") pursuant to which Acquisition
borrowed $30 million under a term loan, and was permitted to borrow up to $6
million under a bank line of credit.
See "Certain Transactions--The Recapitalization."
Immediately prior to the closing of the Offering, Holdings will be merged
with and into the Company, with the Company as the surviving corporation (the
"Merger"), and each share of Holdings Common Stock will be converted into 88.2
shares of Common Stock of the Company. Unless the context otherwise requires,
all information set forth in this Prospectus has been adjusted to reflect the
consummation of the Merger.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,800,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$60.5 million based on an assumed initial public offering price of $14.00 per
share, after deducting the underwriting discount and estimated expenses of the
Offering.
The Company intends to use such net proceeds from the Offering (i) to repay
borrowings plus accrued interest, if any, outstanding under the Existing Credit
Facilities ($26.75 million principal amount at June 30, 1996); (ii) to repay the
$11 million principal amount of the Senior Notes plus accrued interest, if any;
(iii) to repay the $6 million principal amount of the Junior Notes plus accrued
interest, if any; (iv) to redeem all of the outstanding shares of Holdings
Preferred Stock (which had an aggregate redemption value of $7.4 million at June
30, 1996); (v) to make payments totalling approximately $7.3 million to
terminate the bonus arrangement provided for pursuant to the employment
agreements between Holdings and each of Messrs. Simons and Turner (the "Bonus
Plan"); and (vi) for working capital purposes. See "The Recapitalization and the
Merger," "Management--Employment Agreements" and "Certain Transactions--The
Recapitalization."
The Bonus Plan and the Existing Credit Facilities were entered into, and the
Senior Notes, the Junior Notes and the shares of Holdings Preferred Stock were
issued, in connection with the Recapitalization. The borrowings under the
Existing Credit Facilities mature on March 31, 2001 and bear interest at various
spreads over the applicable LIBOR rate or the bank's reference rate, generally
at the Company's option. At June 30, 1996, loans outstanding under the Existing
Credit Facilities bore interest at a blended rate of 8.625%. The Senior Notes
and the Junior Notes each bear interest at 13.5% per annum and mature on April
30, 2005 and May 31, 2006, respectively. The debt outstanding under each of the
Existing Credit Facilities, the Senior Notes and the Junior Notes is prepayable
without interest or premium. The holders of the Series A Preferred Stock are
entitled to receive, at the option of the Board of Directors of Holdings, annual
dividends at the rate of either (i) .05 shares of the Series A Preferred Stock
per share or (ii) $50 per share. The holders of the Series B Preferred Stock are
entitled to receive annual dividends at the rate of $50 per share. Each share of
the Holdings Preferred Stock is redeemable at the option of the Company at any
time and is mandatorily redeemable by the Company on July 31, 2006, in each case
for $1,000 plus all accrued and unpaid dividends thereon.
The Company intends to replace the Existing Credit Facilities with a new
revolving credit facility (the "New Credit Facility") after the consummation of
this Offering. Although the Company has contacted several institutions regarding
the New Credit Facility, the Company has not entered into any letter of intent
or other agreement relating to such facility.
If the Underwriters exercise their over-allotment option, the Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company expects that all earnings will be retained for the foreseeable
future for use in the operations of the business; the Board of Directors of
Holdings has not declared a cash dividend on the Holdings Common Stock
subsequent to the Recapitalization, and the Company does not expect to pay cash
dividends on the Common Stock in the foreseeable future. Any future decision
with respect to dividends will depend on earnings, capital needs, restrictions
imposed by lenders or other security holders of the Company and the Company's
operating and financial condition, among other factors. In addition, the Company
is currently prohibited by the terms of the Existing Credit Facilities from
paying cash dividends on the Common Stock, and may in the future enter into loan
or other agreements (including, without limitation, the New Credit Facility) or
issue debt securities or preferred stock that restrict the payment of cash
dividends on the Common Stock.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and current portion of
long-term debt of the Company at June 30, 1996, as adjusted to reflect the sale
of 4,800,000 shares of Common Stock by the Company in the Offering (at an
assumed initial public offering price of $14.00 per share) and the application
of the estimated net proceeds therefrom to redeem all of the outstanding shares
of Holdings Preferred Stock; repay the Existing Credit Facilities, the Senior
Notes and the Junior Notes, including write-offs of approximately $2.4 million
relating to unamortized debt issuance costs; and terminate the Bonus Plan,
resulting in expenses of approximately $6.7 million. See "Use of Proceeds." The
information below should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto and the Pro Forma Condensed
Consolidated Balance Sheet and Statements of Operations and the related notes
thereto, which are included elsewhere in this Prospectus. See also "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of Capital Stock."
<TABLE>
<CAPTION>
JUNE 30, 1996(1)
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
--------- --------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current portion of long-term debt...................................................... $ 3,375 $ --
--------- -------
--------- -------
Long-term debt, excluding current portion:
Existing Credit Facilities........................................................... $ 23,375 $ --
Senior Notes......................................................................... 11,000 --
Junior Notes......................................................................... 6,000 --
--------- -------
Total long-term debt............................................................... 40,375 --
--------- -------
Mandatorily redeemable preferred stock:
Series A Preferred Stock............................................................. 3,192 --
Series B Preferred Stock............................................................. 4,257 --
--------- -------
Total mandatorily redeemable preferred stock....................................... 7,449 --
--------- -------
Stockholders' equity (deficit):
Common Stock, par value $.01 per share, 9,799,020 shares authorized; 50,000,000
shares authorized, pro forma as adjusted; 8,820,000 shares outstanding; 13,620,000
shares outstanding, pro forma as adjusted (2)....................................... 88 136
Additional paid-in capital........................................................... 412 60,860
Distribution in excess of net book value............................................. (45,422) (45,422)
Retained earnings.................................................................... 6,564 1,156
--------- -------
Total stockholders' equity (deficit)............................................... (38,358) 16,730
--------- -------
Total capitalization............................................................. $ 9,466 $ 16,730
--------- -------
--------- -------
</TABLE>
- ------------------------
(1) Gives effect to the Merger, which will occur immediately prior to the
closing of the Offering.
(2) Does not include approximately 596,320 shares of Common Stock issuable upon
exercise of options currently outstanding under the Stock Plan. See
"Management--1996 Stock Plan."
(3) Pro forma as adjusted to give effect to the Offering and the application of
the net proceeds therefrom as if the Offering had occurred on June 30, 1996,
including write-offs of approximately $2.4 million relating to unamortized
debt issuance costs, expenses of approximately $6.7 million relating to the
termination of the Bonus Plan, payments of approximately $7.4 million to
redeem all of the outstanding shares of Holdings Preferred Stock and $26.75
million, $11.0 million and $6.0 million to repay the Existing Credit
Facilities, the Senior Notes and the Junior Notes, respectively, and the tax
effect of the foregoing. See "Use of Proceeds" and Note 1 of Notes to Pro
Forma Condensed Consolidated Balance Sheet and Statements of Operations.
15
<PAGE>
DILUTION
The negative net tangible book value of the Company at June 30, 1996 was
approximately $(40.7) million, or $(4.62) per share of Common Stock. Negative
net tangible book value per share represented the Company's total tangible
assets less its total liabilities and Holdings Preferred Stock, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of 4,800,000 shares of Common Stock in the Offering and the
application of the net proceeds therefrom, the pro forma net tangible book value
of the Company at June 30, 1996 would have been approximately $16.7 million, or
$1.23 per share. See "Use of Proceeds." This represents an immediate net
tangible book value dilution of $12.77 per share to investors purchasing shares
in the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)............... $ 14.00
Negative net tangible book value at June 30, 1996............... $ (4.62)
Increase attributable to new investors in the Offering.......... 5.85
---------
Pro forma net tangible book value per share after the Offering
(2).............................................................. 1.23
---------
Dilution per share to new investors............................... $ 12.77
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1996 the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders of the Company (the "Existing Stockholders") and the
investors purchasing shares in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (3)....................... 8,820,000 64.8% $ 500,000 0.7% $ 0.06
New investors................................... 4,800,000 35.2% $ 67,200,000 99.3% $ 14.00
------------ --------- ------------- ---------
Total......................................... 13,620,000 100.0% 67,700,000 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>
- ------------------------
(1) Before deducting estimated underwriting discount and estimated expenses of
the Offering payable by the Company.
(2) Excludes approximately 596,320 shares of Common Stock issuable upon exercise
of options to be outstanding upon consummation of the Offering pursuant to
the Stock Plan. See "Management--1996 Stock Plan." To the extent that
options are exercised, there will be further dilution to new investors.
(3) If the Underwriters' over-allotment option is exercised in full, the number
of shares held by the Existing Stockholders will be reduced to 8,100,000
shares, or 59.5% of the number of shares to be outstanding after the
Offering.
16
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the fiscal years ended December 31,
1993 and 1994 and March 31, 1996 and the three months ended March 31, 1995 and
the balance sheet data at December 31, 1994 and March 31, 1995 and 1996 are
derived from the Consolidated Financial Statements contained elsewhere herein,
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
See "Experts." The statement of operations data for the years ended December 31,
1991 and 1992, and the balance sheet data at December 31, 1991, 1992 and 1993,
are derived from the Company's consolidated financial statements, which are not
contained herein and, with the exception of the balance sheet at December 31,
1993, are unaudited. The balance sheet data at June 30, 1996 and the statement
of operations data for the three month periods ended June 30, 1995 and 1996 are
derived from the unaudited financial statements of the Company and, in the
opinion of management, include all of the adjustments, consisting of only normal
recurring accruals, necessary for the fair presentation of the financial data
for the periods indicated. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year. The
selected pro forma statement of operations and balance sheet data set forth
below are for informational purposes only and may not necessarily be indicative
of the results of operations of the Company in the future. The following
selected financial data should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, the Pro Forma Condensed
Consolidated Balance Sheet and Statements of Operations and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
THREE YEAR ENDED ENDED
MONTHS MARCH 31, 1996 (1) JUNE 30,
YEAR ENDED DECEMBER 31, ENDED ------------------------ ---------
------------------------------------------ MARCH 31, PRO
1991 1992 1993 1994 1995(1) ACTUAL FORMA(2) 1995
--------- --------- --------- --------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $ 6,050 $ 16,442 $ 30,941 $ 37,900 $ 14,279 $ 83,509 $ 83,509 $ 18,784
Cost of sales............... 4,017 10,565 20,113 24,477 9,590 54,110 54,110 12,285
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Gross profit................ 2,033 5,877 10,828 13,423 4,689 29,399 29,399 6,499
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Selling, general and
administrative expense..... 1,788 4,703 5,098 4,210 5,404 11,220 10,408 2,634
Research, development and
engineering expense........ 135 838 1,536 2,073 2,223 3,401 2,463 777
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Income (loss) from
operations................. 110 336 4,194 7,140 (2,938) 14,778 16,528 3,088
Interest and other (income)
expense, net............... 21 67 16 6 51 5,650 (136) 1,484
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Income (loss) before income
taxes...................... 89 269 4,178 7,134 (2,989) 9,128 16,664 1,604
Provision for (benefit from)
income taxes............... 9 104 1,521 2,420 (653) 3,464 6,478 610
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Net income (loss)........... $ 80 $ 165 $ 2,657 $ 4,714 $ (2,336) $ 5,664 $ 10,186 $ 994
--------- --------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Net income (loss) per share
(3)........................ $ 0.01 $ 0.02 $ 0.29 $ 0.51 $ (0.25) $ 0.57 $ 0.73 $ 0.10
--------- --------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- --------- ----------- ----------- ----------- ---------
Shares used in per share
calculations (3)........... 9,240 9,240 9,240 9,240 9,240 9,240 13,899(4) 9,240
--------- --------- --------- --------- ----------- ----------- ----------- ---------
--------- --------- --------- --------- ----------- ----------- ----------- ---------
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
------------------------------------------ ------------------------
1991 1992 1993 1994 1995(1) 1996(1)
--------- --------- --------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency)............... $ (29) $ 906 $ 2,226 $ 5,995 $ 1,939 $ 2,327
Total assets................ 2,123 4,081 7,660 13,493 17,679 26,932
Total debt.................. 512 1,146 1,345 998 48,500 44,500
Mandatorily redeemable
preferred stock............ -- -- -- -- 7,000 7,357
Stockholders' equity
(deficit).................. 27 167 2,774 7,188 (44,922) (39,615)
<CAPTION>
1996 1996
ACTUAL PRO FORMA(2)
--------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $ 21,378 $ 21,378
Cost of sales............... 13,733 13,733
--------- -------------
Gross profit................ 7,645 7,645
--------- -------------
Selling, general and
administrative expense..... 2,916 2,604
Research, development and
engineering expense........ 1,243 899
--------- -------------
Income (loss) from
operations................. 3,486 4,142
Interest and other (income)
expense, net............... 1,292 (49)
--------- -------------
Income (loss) before income
taxes...................... 2,194 4,191
Provision for (benefit from)
income taxes............... 845 1,644
--------- -------------
Net income (loss)........... $ 1,349 $ 2,547
--------- -------------
--------- -------------
Net income (loss) per share
(3)........................ $ 0.14 $ 0.18
--------- -------------
--------- -------------
Shares used in per share
calculations (3)........... 9,240 13,899(4)
--------- -------------
--------- -------------
AT JUNE 30, 1996
------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(5)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency)............... $ 1,797 $ 11,414
Total assets................ 28,665 31,898
Total debt.................. 43,750 --
Mandatorily redeemable
preferred stock............ 7,449 --
Stockholders' equity
(deficit).................. (38,358) 16,730
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
17
<PAGE>
- ------------------------
(CONTINUED FROM PRIOR PAGE)
(1) In 1995, the Company changed its fiscal year end from December 31 to March
31.
(2) The pro forma statement of operations data for the fiscal year ended March
31, 1996 and the quarter ended June 30, 1996 give effect to the Offering and
the application of the net proceeds therefrom as if the Offering had
occurred at the beginning of the respective periods, and reflect the
reduction of operating expenses of $1.8 million and $0.7 million,
respectively, related to the termination of the Bonus Plan, the reduction of
interest expense of $5.8 million and $1.3 million, respectively, and the tax
effect of the foregoing (but exclude the effect of write-offs of
approximately $2.4 million relating to unamortized debt issuance costs,
expenses of approximately $6.7 million relating to the termination of the
Bonus Plan and the tax effect of the foregoing). See "Use of Proceeds" and
Note 2 of Notes to Pro Forma Condensed Consolidated Balance Sheet and
Statements of Operations.
(3) For an explanation of the determination of the number of shares used in per
share calculations and net income (loss) per share, see Note 2 of Notes to
Consolidated Financial Statements. For the fiscal year ended March 31, 1996
and the quarters ended June 30, 1995 and 1996, net income has been reduced
by accretion for dividends on the Holdings Preferred Stock of $357,000,
$94,000 and $92,000, respectively.
(4) Pro forma computation of net income per share includes 4,658,571 shares of
Common Stock to be issued pursuant to the Offering, net of expenses, the
proceeds from the sale of which the Company intends to use as follows: (a)
$26.75 million to repay borrowings outstanding under the Existing Credit
Facilities, (b) $17.0 million to repay the Senior Notes and the Junior
Notes, (c) $7.4 million to redeem all of the outstanding shares of Holdings
Preferred Stock and (d) $7.3 million to make payments to terminate the Bonus
Plan. Shares to be issued for working capital purposes have been excluded
from the pro forma computation of net income per share. See "Use of
Proceeds" and Note 2 to Pro Forma Condensed Consolidated Balance Sheet and
Statements of Operations.
(5) Pro forma as adjusted to give effect to the Offering and the application of
the net proceeds therefrom as if the Offering had occurred on June 30, 1996,
including write-offs of approximately $2.4 million relating to unamortized
debt issuance costs, expenses of approximately $6.7 million relating to the
termination of the Bonus Plan, payments of approximately $7.4 million to
redeem all of the outstanding shares of Holdings Preferred Stock and $26.75
million, $11.0 million and $6.0 million to repay the Existing Credit
Facilities, the Senior Notes and the Junior Notes, respectively, and the tax
effect of the foregoing. See "Use of Proceeds," "Capitalization" and Note 1
of Notes to Pro Forma Condensed Consolidated Balance Sheet and Statements of
Operations.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Consolidated Financial Statements and the
related notes thereto, which are included elsewhere in this Prospectus.
GENERAL
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. The Company's sales have grown
rapidly, from approximately $6 million in fiscal 1991 to approximately $83.5
million in fiscal 1996, a compound annual growth rate of approximately 85.5%.
The Company believes that its growth has been the result of increasing market
acceptance of bicycle suspension worldwide and, more specifically, growing
demand for ROCKSHOX suspension products.
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks. The Company's two
principal channels of distribution are: (i) sales to OEMs and (ii) sales to
distributors and IBDs (the "retail accessory market"). A large portion of the
Company's sales are to a small group of OEM customers. See "Risk Factors--Sales
Concentration; Dependence on OEMs."
The Company has substantial international sales, a significant portion of
which include products shipped to Asian manufacturing subcontractors for certain
U.S.-based OEMs. The Company believes that a substantial portion of these
products are ultimately shipped back to the U.S. and sold domestically by OEMs.
The Company recognizes revenue upon shipment of the product and, to date,
product returns have not been material.
The Company's gross margins have remained relatively consistent over the
past several years. While gross margins are generally higher on retail accessory
market sales compared to OEM sales, OEM sales generate much higher unit volume,
which allows the Company an opportunity to capitalize on manufacturing
efficiencies. Research, development and engineering costs are expensed as
incurred.
The Company moved its principal operations from North Carolina to California
in August 1992. In September 1994, the Company consolidated its operations in
its present facilities located in San Jose, California. In 1995, the Company
changed its fiscal year end from December 31 to March 31, which more closely
corresponds to the Company's product model year and business cycle.
In March 1995, the Company consummated the Recapitalization, which resulted
in Stephen Simons, Paul Turner and certain members of their respective families
owning 50% of Holdings Common Stock and persons and entities affiliated with The
Jordan Company owning the other 50% of Holdings Common Stock. In order to
finance the Recapitalization, the Company incurred approximately $48.5 million
of debt. In connection with the Recapitalization, the Company incurred the
following expenses during the quarter ended March 31, 1995: (i) initial payments
under the Bonus Plan of an aggregate of $4.7 million, of which $2.8 million was
included in selling, general and administrative expense and $1.9 million was
included in research, development and engineering expense, and (ii) $400,000 of
expenses related to the Recapitalization, which were included in selling,
general and administrative expense. See "The Recapitalization and the Merger."
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operations data as a percentage of net sales
for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS ENDED
31, JUNE 30,
---------------------- YEAR ENDED ----------------------
1993 1994 MARCH 31, 1996 1995 1996
---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 65.0 64.6 64.8 65.4 64.2
Gross margin....................................... 35.0 35.4 35.2 34.6 35.8
Selling, general and administrative expenses....... 16.5 11.1 13.4 14.0 13.6
Research, development and engineering expenses..... 4.9 5.5 4.1 4.1 5.8
Operating income (loss)............................ 13.6 18.8 17.7 16.4 16.3
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 (FIRST QUARTER FISCAL 1997) COMPARED TO
THREE MONTHS ENDED JUNE 30, 1995 (FIRST QUARTER FISCAL 1996)
NET SALES. Net sales increased by approximately 13.8% to $21.4 million in
the first quarter of fiscal 1997 compared to $18.8 million in the first quarter
of fiscal 1996. The increase in net sales was primarily due to the introduction
of the INDY product line as well as increased revenues from the QUADRA product
line, which experienced higher unit volume partially offset by a lower average
sales price. Sales to OEMs increased by approximately 39.3% to $13.3 million (or
approximately 62.3% of net sales) in the first quarter of fiscal 1997 from $9.6
million (or approximately 50.9% of net sales) in the first quarter of fiscal
1996. Net sales to the retail accessory market decreased by approximately 12.6%
to $8.1 million (or approximately 37.7% of net sales) in the first quarter of
fiscal 1997 from $9.2 million (or approximately 49.1% of net sales) in the first
quarter of fiscal 1996 principally due to the timing of certain new product
introductions in the retail accessory market.
International sales, a significant portion of which included products
shipped to Asian manufacturing subcontractors for certain U.S.-based OEMs,
accounted for approximately 48.4% and 41.7% of net sales in the first quarters
of fiscal 1997 and fiscal 1996, respectively.
GROSS MARGIN. Gross margin (gross profit as a percentage of net sales)
increased to approximately 35.8% for the first quarter of fiscal 1997 compared
to approximately 34.6% for the first quarter of fiscal 1996 principally due to
increased production activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses in the first quarter of fiscal 1997 increased by
approximately 10.7% to $2.9 million compared to the first three months of fiscal
1996, but decreased as a percentage of net sales from approximately 14.0% to
13.6%. This decrease was primarily the result of certain fixed expenses being
allocated over an increased sales base offset by an increase in the amounts
accrued under the Bonus Plan to $375,000 in the first quarter of fiscal 1997
from $265,000 in the first quarter of fiscal 1996. As discussed in "Use of
Proceeds," the Bonus Plan will be terminated upon completion of the Offering. In
the quarter that the Company's Registration Statement of which this Prospectus
is a part becomes effective, the Company will incur a one-time pre-tax charge of
approximately $6.7 million in connection with the termination of the Bonus Plan.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE. Research, development and
engineering expense increased by approximately 59.9% to $1.2 million (or
approximately 5.8% of net sales) in the first quarter of fiscal 1997 compared to
$800,000 (or approximately 4.1% of net sales) in the first quarter of fiscal
1996 principally due to increases in product development expenses and headcount.
The amounts accrued under the Bonus Plan increased in the first quarter of
fiscal 1997 to $375,000 from $265,000 in the first quarter of fiscal 1996.
INTEREST EXPENSE. The Company incurred interest expense (which included
amortization of capitalized financing costs) of $1.3 million in the first
quarter of fiscal 1997 compared to $1.5 million in the first quarter of fiscal
1996. The decrease was primarily due to lower interest rates and a reduction of
outstanding debt
20
<PAGE>
issued in connection with the Recapitalization in the first quarter of fiscal
1997 compared to the first quarter of fiscal 1996. In the quarter that the
Company's Registration Statement of which this Prospectus is a part becomes
effective, the Company will incur a one-time pre-tax charge, reflected as an
extraordinary item, as a result of the write-off of capitalized financing costs,
of approximately $2.4 million in connection with the planned repayment of such
debt.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to
38.5% in the first quarter of fiscal 1997 from 37.9% in the first quarter of
fiscal 1996 primarily due to a higher federal tax rate.
FISCAL YEAR ENDED MARCH 31, 1996 (FISCAL 1996) COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1994 (FISCAL 1994)
NET SALES. Net sales increased by approximately 120.3% to $83.5 million in
fiscal 1996 compared to $37.9 million in fiscal 1994. (Net sales increased by
approximately 97.7% to $83.5 million in fiscal 1996 compared to $42.2 million
for the twelve months ended March 31, 1995.) The increase in net sales was
primarily due to higher unit volume in fiscal 1996 of both the Company's JUDY
product, for which significant shipments began in late fiscal 1994, and QUADRA
product line, which experienced increased demand during fiscal 1996. Sales to
OEMs increased by approximately 133.2% to $57.1 million (or approximately 68.4%
of net sales) in fiscal 1996 from $24.5 million (or approximately 64.6% of net
sales) in fiscal 1994. Net sales to the retail accessory market increased by
approximately 96.8% to $26.4 million (or approximately 31.6% of net sales) in
fiscal 1996 from $13.4 million (or approximately 35.4% of net sales) in fiscal
1994. The Company does not expect to achieve such high rates of growth in the
future. See "Risk Factors--Susceptibility to Changing Economic and Market
Conditions," "--Dependence on Mountain Bike Front Suspension Product Lines" and
"--Risks Associated with Rapid Growth."
International sales, a significant portion of which included products
shipped to Asian manufacturing subcontractors for certain U.S.-based OEMs,
accounted for approximately 48.6% and 49.4% of net sales in fiscal 1996 and
fiscal 1994, respectively.
GROSS MARGIN. Gross margin remained relatively constant at approximately
35.2% in fiscal 1996 compared to approximately 35.4% in fiscal 1994. Increases
in facility expenses and provisions for warranty costs and inventory reserves in
fiscal 1996 were largely offset by a greater absorption of fixed manufacturing
costs due to the higher sales volumes in fiscal 1996 compared to fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased by approximately 166.5% to $11.2 million (or
approximately 13.4% of net sales) in fiscal 1996 from $4.2 million (or
approximately 11.1% of net sales) in fiscal 1994 principally due to increased
sales and marketing expenses, which related in part to an increase in headcount,
provisions for uncollectible accounts receivable, an officer bonus of $1.1
million under the Bonus Plan in fiscal 1996 compared to discretionary bonuses
paid to certain officers of approximately $800,000 in fiscal 1994 and certain
severance provisions incurred in fiscal 1996.
As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company incurred officer bonuses of $2.2 million in fiscal 1996 under the Bonus
Plan entered into following the Recapitalization (of which $1.1 million was
included in selling, general and administrative expense as discussed in the
preceding paragraph and $1.1 million was included in research, development and
engineering expense as discussed below). As discussed in "Use of Proceeds," the
Bonus Plan will be terminated upon completion of the Offering. In the quarter
that the Company's Registration Statement of which this Prospectus is a part
becomes effective, the Company will incur a one-time pre-tax charge of
approximately $6.7 million in connection with the termination of the Bonus Plan.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE. Research, development and
engineering expense increased by approximately 64% to $3.4 million (or
approximately 4.1% of net sales) in fiscal 1996 compared to $2.1 million (or
approximately 5.5% of net sales) in fiscal 1994. Research, development and
engineering expense included an officer bonus in fiscal 1996 of $1.1 million
under the Bonus Plan, as discussed above, and a discretionary bonus in fiscal
1994 of approximately $800,000, which was paid to an officer of the Company.
Excluding these bonuses, research, development and engineering expense was
approximately 2.8% and 3.4% of net sales in fiscal 1996 and fiscal 1994,
respectively.
21
<PAGE>
INTEREST EXPENSE. The Company incurred interest expense (which included
amortization of capitalized financing costs) of $5.8 million in fiscal 1996
compared to $21,000 in fiscal 1994. The increase was due to debt issued in
connection with the Recapitalization that occurred in March 1995. In the quarter
that the Company's Registration Statement of which this Prospectus is a part
becomes effective, the Company will incur a one-time pre-tax charge, reflected
as an extraordinary item, as a result of the write-off of capitalized financing
costs, of approximately $2.4 million in connection with the planned repayment of
such debt.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to
37.9% in fiscal 1996 from 33.9% in fiscal 1994 primarily due to a decrease in
research and development tax credits and higher state income taxes in fiscal
1996 compared to fiscal 1994.
FISCAL YEAR ENDED DECEMBER 31, 1994 (FISCAL 1994) COMPARED TO FISCAL YEAR
ENDED DECEMBER 31, 1993 (FISCAL 1993)
NET SALES. Net sales increased by approximately 22.5% to $37.9 million in
fiscal 1994 compared to $30.9 million in fiscal 1993 primarily due to the
introduction of the Company's JUDY product in late fiscal 1994 and continued
growth in the Company's QUADRA product line. Sales to OEMs increased by
approximately 25.7% to $24.5 million (or approximately 64.6% of net sales) in
fiscal 1994 from $19.5 million (or approximately 62.9% of net sales) in fiscal
1993. Net sales to the retail accessory market increased by approximately 17.1%
to $13.4 million (or approximately 35.4% of net sales) in fiscal 1994 from $11.5
million (or approximately 37.1% of net sales) in fiscal 1993.
International sales accounted for approximately 49.4% and 44.5% of net sales
in fiscal 1994 and fiscal 1993, respectively. This increase resulted principally
from an increase in net sales of products shipped to Asian manufacturing
subcontractors for certain U.S.-based OEMs.
GROSS MARGIN. Gross margin remained relatively constant at approximately
35.4% in fiscal 1994 compared to approximately 35.0% in fiscal 1993. Improvement
in fiscal 1994 gross margin was due to increased sales volume, allowing for
greater manufacturing efficiencies, which was partially offset by increased
customer service and materials costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased by approximately 17.4% to $4.2 million (or
approximately 11.1% of net sales) in fiscal 1994 from $5.1 million (or
approximately 16.5% of net sales) in fiscal 1993. This decrease was principally
due to discretionary bonuses paid to certain officers of approximately $800,000
during fiscal 1994 compared to discretionary bonuses paid to certain officers of
approximately $1.8 million during fiscal 1993, partially offset by an increase
in other marketing expenses in fiscal 1994.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE. Research, development and
engineering expense increased by approximately 35.0% to $2.1 million (or
approximately 5.5% of net sales) in fiscal 1994 compared to $1.5 million (or
approximately 4.9% of net sales) in fiscal 1993 primarily due to an increase in
headcount. Fiscal 1994 includes discretionary bonuses paid to an officer of the
Company of approximately $800,000 compared to discretionary bonuses paid to
certain officers in fiscal 1993 of approximately $900,000.
INTEREST EXPENSE. Interest expense was $21,000 in fiscal 1994 compared to
$36,000 in fiscal 1993, less than 1% of net sales in both periods.
PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to
33.9% in fiscal 1994 from 36.4% in fiscal 1993 principally due to lower state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has satisfied its operating
cash needs, other than expenses relating to the Recapitalization, principally
through cash flow from operations. Net cash provided by operating activities was
$8.5 million during fiscal 1996, which consisted of net income of $5.7 million,
depreciation and amortization of $1.7 million, provisions for doubtful accounts
and excess and obsolete inventory of $3.5 million and increases in accounts
payable and accrued liabilities of $7.6 million offset partially by increases in
deferred income taxes of $2.3 million, accounts receivable of $1.7 million and
inventories of $6.1 million. Currently, the Company does not generally grant
extended payment terms to its OEM or distributor customers, and requires its
22
<PAGE>
retail accessory market customers to pay by credit card or cash on delivery. The
Company may change this policy in the future in response to competitive or other
market conditions. See "Risk Factors -- Sales Concentration; Dependence on
OEMs."
Net cash provided by operating activities was $3.2 million in the first
quarter of fiscal 1997, which consisted of net income of $1.3 million,
depreciation and amortization of $600,000, a decrease in inventory of $700,000
and an increase in accounts payable of $3.6 million offset partially by
decreases in accrued liabilities of $2.0 million and accrued income taxes of
$500,000 and an increase in prepaid expenses of $400,000.
Net cash used in investing activities was $4.0 million during fiscal 1996
and $1.4 million in the first quarter of fiscal 1997, which consisted of
purchases of property, equipment and other assets. The Company expects that its
capital expenditures will increase to approximately $5 million to $7 million in
fiscal 1997.
In March 1995, the Company effected the Recapitalization. See "The
Recapitalization and the Merger." Net cash used by financing activities was $4.0
million during fiscal 1996, which consisted of a $2.5 million reduction in
long-term debt, a $1.3 million payment to satisfy all revolving loans under the
Existing Credit Facilities and a $250,000 repayment of a note held by a
stockholder. At June 30, 1996, the Company had working capital of $1.8 million
and had available a $6.0 million line of credit. The Company intends to replace
the Existing Credit Facilities with the New Credit Facility after consummation
of the Offering. Although the Company has contacted several institutions
regarding the New Credit Facility, the Company has not entered into any letter
of intent or other agreement relating to such facility. See "Use of Proceeds."
The Existing Credit Facilities contain covenants, the most restrictive of
which requires the maintenance of various financial ratios and, among other
things, restricts additional borrowings and the sale of assets. In addition, the
Existing Credit Facilities restrict the ability of the Company to pay cash
dividends on its capital stock.
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"), which requires the Company to review
for impairment of long-lived assets and, in certain situations, recognize an
impairment loss. SFAS No. 121 will become effective for the Company's fiscal
year ending March 31, 1997. The Company has studied the implications of SFAS No.
121 and, based on its initial evaluation, does not expect SFAS No. 121 to have a
material impact on the Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which established a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company plans to adopt SFAS No. 123 utilizing the disclosure
alternative during fiscal 1997.
SELECTED QUARTERLY FINANCIAL DATA; SEASONALITY
The following table presents selected quarterly financial information for
the last nine fiscal quarters. This information has been prepared by the Company
on a basis consistent with the Company's audited financial statements and
includes all adjustments, consisting of normal recurring adjustments, that
management considers necessary for a fair presentation of the results for such
quarters. The operating results for any quarter are not necessarily indicative
of the results for any entire year.
23
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED:
----------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1995 1995 1995 1995
----------- --------------- ------------- ----------- ----------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $ 6,853 $ 7,568 $ 13,543 $ 14,279 $ 18,784 $ 21,258 $ 23,223
Gross margin.............. 2,281 2,596 4,752 4,689 6,420 7,493 8,363
Operating income (loss)... 768 767 3,103 (2,938) 3,087 3,976 5,337
Net income (loss)......... 500 513 2,053 (2,336) 990 1,587 2,445
----------- ------ ------------- ----------- ----------- ------- -------------
----------- ------ ------------- ----------- ----------- ------- -------------
Net income (loss) per
share.................... $ 0.05 $ 0.06 $ 0.22 $ (0.25) $ 0.10 $ 0.16 $ 0.26
----------- ------ ------------- ----------- ----------- ------- -------------
----------- ------ ------------- ----------- ----------- ------- -------------
Shares used in per share
calculations............. 9,240 9,240 9,240 9,240 9,240 9,240 9,240
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
----------- -----------
<S> <C> <C>
Net sales................. $ 20,244 $ 21,378
Gross margin.............. 7,123 7,645
Operating income (loss)... 2,378 3,486
Net income (loss)......... 642 1,349
----------- -----------
----------- -----------
Net income (loss) per
share.................... $ 0.06 $ 0.14
----------- -----------
----------- -----------
Shares used in per share
calculations............. 9,240 9,240
</TABLE>
Because of the Company's rapid and substantial growth, historical quarterly
operating results do not reflect management's expectations of future quarterly
operating results. Management believes that future operating results will
fluctuate on a quarterly basis due to a variety of factors, including seasonal
cycles associated with the bicycle industry; the effects of weather conditions
on consumer purchases; the timing of orders from OEMs, distributors and IBDs;
the number and timing of new product introductions; and changes in the mix of
products ordered and re-ordered by OEMs, distributors and IBDs. Management
anticipates that the Company's sales will normally be lowest in its first and
fourth fiscal quarters, which end on June 30 and March 31, respectively. See
"Risk Factors--Quarterly Fluctuations in Operating Results; Difficulty in
Forecasting OEM Orders."
24
<PAGE>
BUSINESS
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. In a 1995 BICYCLING MAGAZINE
readers' survey, 45% of the respondents who owned a suspension fork owned a
RockShox manufactured product--more than twice the share of the next leading
manufacturer--and more than 65% of the respondents who planned to purchase a
suspension fork within the next two years planned to purchase a ROCKSHOX
suspension fork.
The Company's sales have grown rapidly, from approximately $6 million in
fiscal 1991 to approximately $83.5 million in fiscal 1996, a compound annual
growth rate of approximately 85.5%. The Company believes that its growth has
been the result of increasing market acceptance of bicycle suspension worldwide
and, more specifically, growing demand for ROCKSHOX suspension products. The
Company believes that significant opportunities for growth continue to exist
worldwide. Although the number of mountain bikes sold with suspension has been
rapidly increasing, suspension was included on only 17% of all mountain bike
units sold domestically by IBDs in 1995. The Company believes that the market
penetration of suspension-equipped mountain bikes is even lower internationally.
RockShox currently markets ten front suspension forks and three rear shocks
under its JUDY, INDY, QUADRA, MAG and DELUXE product lines. The Company's
products have been repeatedly recognized by the bicycle industry for their
innovative design and superior performance. As evidence of the advanced design
and technical benefits of its products, ROCKSHOX suspension was used by more
than half of the mountain bike racers competing in the 1996 Olympic Games in
Atlanta.
Approximately two-thirds of the Company's sales are to OEMs, including Trek,
GT and Specialized, who incorporate ROCKSHOX branded components as part of new,
fully-assembled mountain bikes sold worldwide. The Company's products are also
sold as an accessory component to consumers through a network of over 10,000
IBDs worldwide.
OPERATING STRATEGIES
The Company believes that it currently has the leading market share in front
suspension forks and is a major participant in the developing market for rear
shocks. The Company has established and continues to enhance its position as the
worldwide leader in the design, manufacture and marketing of high performance
bicycle suspension products through the following operating strategies:
- INNOVATIVE PRODUCT DEVELOPMENT. Management believes that no other company
has been as successful as RockShox in bringing to market a series of new
and innovative mountain bike suspension products. From the original
oil-damped RS1 fork introduced in 1989 to the new generation of the
monococque (one-piece) casted forks, RockShox has remained a leader in the
growing mountain bike suspension market. In the current model year, the
Company has introduced six new products, including the INDY product line,
and has incorporated design improvements in a number of its more seasoned
product offerings. The Company supports its research and development
efforts with a team of 14 product development professionals, sophisticated
computer-based design tools and an advanced product testing center. The
Company expects to spend in excess of $3 million on research and product
development in its current fiscal year.
- WIDELY RECOGNIZED BRAND NAME AND DISTINCTIVE IMAGE. The Company has one of
the most widely recognized brand names in the bicycle industry and is
closely identified with the mountain biking culture. Every front
suspension fork sold by the Company today, including components sold as
part of OEM mountain bikes, prominently displays the ROCKSHOX brand name.
The Company promotes its brand name and image through focused marketing
programs, including sponsorship of mountain bike race teams and creative
advertising in a variety of U.S. and international bicycle publications.
The Company's brand name and products receive further promotion through
inclusion in many OEM advertisements and frequent editorial references in
cycling publications.
- STRONG RELATIONSHIPS WITH OEMS AND IBDS. The Company has become an
increasingly important supplier to mountain bike OEMs worldwide, and is
currently the primary supplier of front suspension forks to eight out of
the ten leading OEMs selling through domestic IBDs. The Company's products
25
<PAGE>
are currently included on more than 60% (or 460) of the mountain bike
models sold with suspension in the U.S., according to MOUNTAIN BIKE
MAGAZINE'S 1996 annual industry survey. Management believes that its OEM
customers recognize the strength of the ROCKSHOX name as a deciding factor
in the consumer's choice of mountain bikes. The Company supports its OEM
customer relationships with joint product development and global
distribution and service. The Company's products, both as part of an OEM
mountain bike or as an accessory item, are sold to consumers through a
network of over 10,000 IBDs worldwide. Management believes that ROCKSHOX
is the leading brand of suspension product sold by IBDs, and that IBD
enthusiasm for ROCKSHOX has contributed to consumer acceptance of the
Company's suspension products. The Company maintains its strong position
among IBDs with a variety of programs, ranging from unique point-of-sale
materials to worldwide warranty support.
- PRODUCT LINE EXPANSION AND BRAND SEGMENTATION. The Company has
successfully expanded the market for mountain bike suspension by extending
its product line and segmenting its brands to address a growing range of
price points and performance needs. In 1992, the Company offered only two
suspension forks and participated in a narrow market segment represented
by mountain bikes that retailed for over $1,000. Today, RockShox offers
ten front suspension forks under four different product lines and has
effectively expanded the primary market for its products to mountain bikes
that retail from $600 to more than $2,500. The Company believes its broad
and segmented product lines enable RockShox to leverage its design and
manufacturing capabilities to meet the cost and performance needs of its
customers at various price points while maintaining brand name integrity.
- INCREASINGLY EFFICIENT DESIGN AND MANUFACTURING PROCESSES. The Company
constantly seeks increased productivity in its product development and
manufacturing activities. Continuing improvements in product design as
well as the Company's ability to bring critical manufacturing processes
in-house have generated significant operating efficiencies. As a result,
the Company has been able to expand the target market for its products by
introducing more moderately-priced suspension products without
experiencing a material change in its overall gross margin. Management
believes that the Company's emphasis on design and manufacturing
improvements will continue to be a critical factor in RockShox's ability
to expand the market for its products.
GROWTH STRATEGIES
The Company has developed the following growth strategies to capitalize on
its strong brand name, successful products and operating capabilities:
- CAPITALIZE ON THE ONGOING GROWTH OF HIGH-END MOUNTAIN BIKE SEGMENT. The
Company believes that the high-end of the mountain bike market will
continue to grow at a faster rate than the overall bicycle market,
creating the opportunity for increased sales of suspension products.
According to BMRI, mountain bikes sold in the U.S. by IBDs with a retail
price of $600 or more experienced cumulative unit sales growth of
approximately 33% from 1992 to 1995, and this segment of the market is
expected to continue to grow in the coming year. Furthermore, bicycle
suspension manufacturers, led by RockShox, have achieved significant
market penetration (in excess of 80%) among these higher priced mountain
bikes. The Company believes that it is well positioned to capitalize on
the anticipated growth of the high-end mountain bike market based on its
existing market penetration and leadership, widely recognized brand name,
innovative and high quality products, and strong OEM relationships.
- PURSUE FAST GROWING FULL SUSPENSION MARKET. According to MOUNTAIN BIKE
MAGAZINE, the number of mountain bike models available in the U.S. with
full suspension has grown from 39 in 1992 to 213 in 1996. The Company
recently introduced its DELUXE line of rear shocks, which complements its
front suspension forks and allows the Company to participate fully in the
growing demand for full suspension mountain bikes. Since it is generally
not possible to retrofit a mountain bike with rear suspension, management
believes that consumer interest in full suspension should generate
incremental
26
<PAGE>
demand for new mountain bikes, which, in turn, should lead to additional
sales of the Company's well-established front suspension forks as well as
provide a growing market for its newly introduced rear shocks.
- EXPAND INTO THE HIGHER-VOLUME, MID-PRICED MOUNTAIN BIKE SEGMENT. Most of
the Company's products are included on higher-priced mountain bikes that
retail for $600 or more. According to BMRI, approximately 17% of all
mountain bike units sold in the U.S. by IBDs during 1995 were priced at
$600 or above, and 80% of these units included suspension. In contrast,
approximately 83% of mountain bikes sold by IBDs in 1995 were priced under
$600 and, while suspension is becoming more common on such bikes, less
than 15% included suspension. Management believes that the demand for
suspension on mountain bikes priced below $600 is potentially significant
and growing rapidly. The Company intends to continue to broaden its
product line within its existing distribution channels to capture more of
this high-volume, mid-priced mountain bike market. The Company recently
repositioned, and is already experiencing success with, its QUADRA
suspension fork, which is priced to be incorporated on OEM mountain bikes
that retail for as low as $475.
- LEVERAGE BRAND NAME IN NEW PRODUCT CATEGORIES. Management believes that
the performance and comfort of suspension can be applied to bicycles other
than mountain bikes. The Company is currently designing new suspension
forks for other types of bicycles, including road and trekking bikes, and
expects to introduce a new road fork on a limited basis in fiscal 1997.
The Company also anticipates that it may develop new products and from
time to time evaluate acquisition opportunities to expand its product
lines, including the possible development or acquisition of non-suspension
bicycle component product lines. See "Risk Factors--Dependence on New
Product Introductions."
INDUSTRY OVERVIEW
BICYCLING. BMRI estimates that approximately 12 million bicycles (excluding
juvenile bikes) were sold in the United States in 1995, representing
approximately $2.2 billion of retail sales. Although unit sales of bicycles in
the U.S. have increased less than 7% since 1993, the average retail price per
bicycle during this same time period has increased more than 26% to $183. The
Company believes the average retail price per bicycle has increased in recent
years as consumers have "traded-up" to purchase new bicycles with more advanced
performance features, including suspension.
Limited information is available regarding the sale of bicycles in
international markets; however, it is estimated that 114 million bicycles were
produced worldwide in 1995. The Company believes the two largest international
bicycle markets are Western Europe and Japan, where approximately 18 million and
8.5 million bicycles were sold in 1994, respectively.
Bicycles are sold through two primary retail channels: mass merchandise
retailers and IBDs. In the United States, mass merchandise retailers typically
sell lower priced bicycles that retail for under $400 (the average price per
bicycle sold by mass merchandise retailers in 1995 was $105) with minimal
service. In contrast, IBDs typically sell higher quality, higher priced bicycles
with full service and sales support. IBD retail prices can exceed $2,500 with an
average price in 1995 of $349. IBDs (including general sporting goods stores),
which accounted for 27% of U.S. unit sales and 48% of U.S. bicycle retail
dollars in 1993, are increasingly becoming the preferred channel for bicycle
purchases, and, in 1995, accounted for 32% of U.S. unit sales and 61% of U.S.
bicycle retail dollars.
IBDs sell new, fully-assembled OEM bicycles as well as a wide range of
bicycle performance accessories and products. Leading OEMs selling through IBDs
include Trek, Schwinn Cycling and Fitness, Inc., Specialized, Cannondale
Corporation ("Cannondale") and GT, all of which are customers of the Company.
Whether included as part of an OEM's fully-assembled mountain bike or as an
aftermarket accessory, ROCKSHOX suspension products are only available to
consumers through IBDs.
MOUNTAIN BIKES. BMRI estimates that approximately eight million mountain
bikes were sold in the United States in 1995, representing approximately $1.6
billion of retail sales. As a percentage of all bicycles sold in the U.S., sales
of mountain bikes have increased from approximately 54% of units in 1992 to
approximately 67% of units in 1995 and from approximately 58% of retail dollars
in 1992 to approximately
27
<PAGE>
72% of retail dollars in 1995. In addition, management believes the
international popularity of mountain biking is growing and mountain bikes now
represent a significant share of the international bicycle market. The growth in
popularity of mountain bikes is attributable, in part, to the superior comfort
of mountain bikes as compared to road bicycles as well as the dramatically
increased terrain available for mountain biking versus other types of cycling.
According to BMRI, over 2.1 million mountain bikes were sold by IBDs in the
U.S. in 1995 at an average price of $425. According to BMRI, during the same
period another four to five million mountain bike units were sold by IBDs in
Western Europe. Management believes that there has been a general trend of
increasing sales and increasing average selling price for high-end mountain
bikes, which has benefitted IBDs worldwide over the past several years.
The growth of the high performance segment of the mountain bike market has
been a major factor in the overall strength of IBD mountain bike sales
worldwide. BMRI estimates that unit sales of mountain bikes with a retail price
over $600 by IBDs in the U.S. have increased by 33% from 1992 to 1995, and
management believes a similar trend has occurred over the same period in the
international market. The recent popularity of the more expensive mountain bikes
is due in large part to innovations such as lighter frames and suspension, which
attract both first-time buyers and consumers "trading-up" to obtain more
advanced performance features.
Despite recent growth, high priced mountain bikes still represent a small
part of the overall mountain bike market as measured by units. Most mountain
bikes sold by domestic IBDs retail for under $600 per unit as follows:
<TABLE>
<CAPTION>
1995 U.S. IBD
MOUNTAIN BIKE SALES
------------------------------
UNITS
RETAIL PRICE POINT (IN THOUSANDS) % OF TOTAL
- ------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
$600 and over...................................................... 360 17%
$599 and under..................................................... 1,760 83%
----- ---
Total.......................................................... 2,120 100%
----- ---
----- ---
</TABLE>
-------------------------------
Source: BMRI
SUSPENSION. According to BMRI, approximately 360,000 suspension-equipped
mountain bikes were sold by IBDs in the United States in 1995. The average
retail price of a suspension-equipped mountain bike sold in 1995 through
domestic IBDs was $925, and over 80% of all mountain bikes sold domestically for
$600 or more included suspension as standard equipment. The significant market
penetration of suspension at the high-end of the mountain bike market reflects
the industry's success in developing suspension products for
performance-oriented mountain bike enthusiasts and racers. Management believes
that an opportunity is now emerging to design suspension products for the
broader, mid-priced market. Since 1992, an increasing number of mountain bike
models priced below $600 are being sold with suspension, as demonstrated below:
<TABLE>
<CAPTION>
NUMBER OF MODELS
DESIGNED BY OEMS WITH
SUSPENSION AVAILABLE IN
THE U.S.
------------------------
RETAIL PRICE POINT 1992 1996
- --------------------------------------------------------- ----- -----
<S> <C> <C>
$600 or more............................................. 84 608
$599 or less............................................. 0 56
--
---
Total................................................ 84 664
--
--
---
---
</TABLE>
-------------------------------
Source: MOUNTAIN BIKE MAGAZINE
28
<PAGE>
Today, less than 15% of mountain bikes sold for under $600 in the U.S. by IBDs
include suspension, but management expects market penetration in this price
segment to increase dramatically over the next several years following the
pattern established at the high-end of the mountain bike market.
In addition, full-suspension bike models, which have both a front suspension
fork and a rear shock, are becoming increasingly common. According to MOUNTAIN
BIKE MAGAZINE, mountain bike models available in the U.S. with full suspension
have increased from 39 in 1992 to 213 in 1996. Management expects full
suspension to gain increased market share and achieve substantial market
penetration, first on mountain bikes priced above $1,000 and, eventually, on
mountain bikes at lower price points.
While suspension has grown in popularity in recent years, a number of
manufacturers of suspension products have withdrawn from the market. These
former manufacturers of suspension products were primarily mountain bike OEMs
who produced suspension products under their own brand name for their own use.
Management believes these OEMs, including Trek and Scott U.S.A., withdrew from
the suspension market because they could not develop the necessary technical
proficiency, cost efficiency or brand name recognition to compete with other
suspension manufacturers.
CORPORATE HISTORY
RockShox was founded by Steve Simons and Paul Turner in 1989. Their interest
in suspension technology preceded the founding of RockShox by many years, and
can be traced back to their independent experiences as designers of high
performance products in the motorcycle industry.
In 1974, Mr. Simons founded a company that specialized in the design and
production of advanced motorcycle suspension products, including the manufacture
of motorcycle front forks. Through this venture, Mr. Simons obtained patents on
two of his suspension fork designs, and became known for his technical and
manufacturing expertise relating to motorcycle suspension. During this same
period, Mr. Turner worked for the Honda motocross team and, subsequently, became
an independent consultant in the motorcycle industry.
In 1988, Mr. Turner, who had become increasingly interested in mountain bike
competition, approached Mr. Simons with a prototype of a mountain bike
suspension fork for which Mr. Turner needed production advice. Messrs. Simons
and Turner took this prototype and created a commercially-viable bicycle
component ready for production. This suspension fork, the RS1, was introduced at
a bicycle trade show in January 1989. Several months later, RockShox was
incorporated in North Carolina. The original stockholders of RockShox included
Messrs. Simons and Turner as well as Dia-Compe, Inc. ("Dia-Compe"), a U.S.
subsidiary of a Japanese bicycle parts manufacturer, which provided start-up
capital, manufacturing facilities and administrative support for the venture.
In July 1992, Dia-Compe was divested by its parent and, in turn, sold its
interest in RockShox to Mr. Simons and his wife, Debra Simons. The Company then
moved its principal operations from North Carolina to California. In September
1994, the Company consolidated its operations into its present facilities
located in San Jose, California.
Recognizing both the opportunities and challenges of managing and operating
a high-growth company, Messrs. Simons and Turner decided to seek a partner to
support their efforts and strengthen the Company's management team. In March
1995, the Company was recapitalized in a transaction with certain persons and
entities affiliated with The Jordan Company. As a result thereof, Messrs. Simons
and Turner and certain members of their respective families became equal owners
in the Company with such affiliates of The Jordan Company. See "The
Recapitalization and the Merger." In addition, the Company has recently made
several significant additions to its management group. See
"Management--Directors, Executive Officers and Key Employees."
PRODUCTS
ROCKSHOX suspension products are generally designed to enhance riding
performance and comfort, and include front suspension forks and rear shocks
based on elastomer, hydraulic and spring coil technologies. The Company's
bicycle suspension systems incorporate two functional components: a spring and a
damper. The spring function absorbs the impact of rough terrain and returns the
fork to its original position after
29
<PAGE>
compression. The damper also absorbs impact and moderates the movement of the
fork as it returns to its original position. As a result, suspension provides
better wheel contact with the riding surface, especially on off-road or nonpaved
surfaces, enabling the cyclist to ride with more speed, comfort and control.
Every ROCKSHOX fork uses aerospace alloys and features adjustable
suspension, a progressive spring rate, structural rigidity, low weight and
durable construction. Adjustable suspension allows the rider to fine-tune the
fork's performance to accommodate weight, skill level and performance
objectives. Key to any suspension system is the spring rate, which allows the
front suspension fork to move easily over small bumps but not "bottom out" over
larger ones. The structural rigidity of ROCKSHOX suspension forks improves the
rider's ability to control the bike, while low weight enhances overall bicycle
performance. Every ROCKSHOX fork is covered by a one-year limited warranty.
The 1997 models represent the Company's broadest line of product offerings
to date. For the 1997 model year, the Company has ten front suspension forks,
including five new forks, and three rear shocks, including one new rear shock.
All of the Company's products that were introduced prior to the current product
year have experienced model year modifications or upgrades since they were
originally introduced.
The following tables summarize the Company's 1997 product offerings of front
forks and rear shocks:
FRONT FORKS
<TABLE>
<CAPTION>
TYPICAL
RETAIL BIKE SUGGESTED WEIGHT FOR DATE OF
PRICE RETAIL PRICE IN SUSPENSION STANDARD ORIGINAL
1997 MODEL POINT(1) ACCESSORY MARKET INTENDED USE TECHNOLOGY CONFIGURATION SHIPMENT(2)
- ----------- ------------- ---------------- ---------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
QUADRA 5 $475-$800 Not offered at Recreational; Elastomer 3.2 pounds May 1994
retail Light Terrain
INDY C $500-$850 $199 Recreational; Coil/Solid 3.25 pounds April 1996
Moderate Terrain Urethane
INDY XC $600-$1,200 $239 Cross-Country; Coil/Multicellular 3.1 pounds May 1996
Moderate Terrain Urethane ("MCU")
INDY SL $900-$2,000 $359 Cross-Country; Coil/MCU 2.7 pounds June 1996
Moderate Terrain
MAG 21 $850-$1,200 $299 Cross-Country; Air/Oil 3.0 pounds September 1992
Moderate Terrain
JUDY C $900-$2,000 Not offered at Cross-Country; Cartridge 3.25 pounds July 1996
retail Extreme Terrain
JUDY XC $1,100-$2,500 $409 Cross-Country; Cartridge 2.95 pounds September 1994
Extreme Terrain
JUDY DH $1,500+ $549 Downhill Racing Cartridge 3.5 pounds September 1994
JUDY SL $1,600+ $649 Cross-Country; Cartridge 2.7 pounds September 1994
Extreme Terrain
JUDY DHO $2,000+ $1,000 Downhill Racing Cartridge 4.2 pounds Fall 1996
REAR SHOCKS
<CAPTION>
TYPICAL
RETAIL BIKE SUGGESTED WEIGHT FOR DATE OF
PRICE RETAIL PRICE IN SUSPENSION STANDARD ORIGINAL
1997 MODEL POINT(1) ACCESSORY MARKET INTENDED USE TECHNOLOGY CONFIGURATION SHIPMENT(2)
- ----------- ------------- ---------------- ---------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DELUXE $1,000-$1,200 Not offered at Cross-Country/ Coil over 0.71 pounds June 1995
retail Downhill hydraulic damper
COUPE $1,200-$1,700 $199 Cross-Country/ Coil over 0.71 pounds July 1996
DELUXE Downhill hydraulic damper
SUPER $1,700+ $289 Cross-Country/ Coil over 0.79 pounds June 1995
DELUXE Downhill hydraulic damper
with oil reservoir
</TABLE>
- ------------------------------
(1) The typical retail bike price point represents management's estimate of the
retail price range for OEM mountain bikes that include the indicated
product.
(2) Following their introduction, models are generally upgraded and revised
each year.
30
<PAGE>
The following describes the Company's 1997 model year product offerings:
QUADRA
The QUADRA product line has been offered by the Company since 1992 and, in
1995, BICYCLING MAGAZINE recognized the QUADRA 21R as the "best value" in front
suspension forks. Building on this reputation for providing suspension
performance at a moderate price, the Company repositioned the line to capture
more of the mid-priced OEM mountain bike market. As a result, the line includes
only one offering in 1997, the QUADRA 5, which is targeted at recreational and
mid-performance cyclists. The QUADRA 5 utilizes an elastomeric damper to provide
reliable performance and has low maintenance requirements. The fork is not
currently available as a retail accessory, and has been targeted for inclusion
on OEM mountain bikes that retail between $475 and $800.
INDY
The INDY line was introduced for the 1997 bicycle model year. The INDY
series is comprised of three suspension forks: the INDY C, the INDY XC and the
INDY SL. These forks are targeted at cyclists who spend between $500 and $2,000
on a mountain bike. All three INDY forks utilize a combination spring
coil/urethane elastomer system that allows for a responsive ride while
maintaining a relatively low fork weight for its price range. Management
believes that INDY technology and design delivers significant performance at a
moderate price. The INDY product line retails to consumers from approximately
$199 for the INDY C to approximately $359 for the INDY SL.
MAG
The MAG line is targeted at high-performance and professional cyclists who
spend more than $850 on a mountain bike. The MAG line utilizes an air/oil
hydraulic damper and uses RockShox's exclusive STATIC LOCKOUT to minimize energy
absorption and fork contraction during pedaling. The MAG 21 is the only fork
currently sold under the MAG line. The MAG 10, MAG 21 SL and MAG 21 SL/TI forks
previously in this line were superseded in the 1995 model year by the Judy line.
JUDY
In 1994, the Company introduced the Judy line, which was recognized at such
time by VELO NEWS as the "Best Technical Development of the Year" in the bicycle
industry. The JUDY product line is based on an adjustable hydraulic damper unit
in which the damping mechanism is sealed in a replaceable cartridge. For 1997,
the JUDY line consists of five forks: the JUDY C, the JUDY XC, the JUDY SL, the
JUDY DH and the JUDY DHO. The JUDY C, a recent addition to the JUDY product
line, can be purchased only by OEMs and is currently not available as a retail
accessory. The JUDY XC retails for approximately $409 and is targeted at racing
and other performance enthusiasts. The JUDY SL weighs only 2.7 pounds, retails
for approximately $649 and is designed for cyclists who demand premium
performance with minimum weight and who spend in excess of $1,600 on a mountain
bike. The JUDY DH retails for approximately $549 and is a more rigid, heavy-duty
fork, specifically designed to meet the demanding requirements of the downhill
racer. The JUDY DHO is the Company's newest downhill racing fork and is expected
to retail for approximately $1,000.
DELUXE REAR SHOCKS
In the 1996 model year, the Company introduced the DELUXE line, its first
rear suspension products to be incorporated on full suspension bicycles. The
DELUXE series has been expanded for the 1997 model year, and consists of three
rear shocks: the DELUXE, the COUPE DELUXE and the SUPER DELUXE. All three rear
shocks feature oil damped, nitrogen charged suspension technology, and allow the
Company to target a variety of performance levels in the emerging full
suspension mountain bike market. The Company's rear shocks retail from
approximately $199 for the COUPE DELUXE to approximately $289 for the SUPER
DELUXE.
31
<PAGE>
PRODUCT AWARDS
Management believes that improvements in RockShox's existing suspension
products and the development of new product designs and technologies are
necessary for the Company's continued success and growth. The Company is
generally recognized as an industry leader in product development and design,
and has won numerous awards for its products, including the following:
<TABLE>
<CAPTION>
YEAR MAGAZINE PRODUCT AWARD
- --------- ------------------------ -------------- ----------------------------------------------------------------
<S> <C> <C> <C>
1989 BICYCLING GUIDE MAGAZINE RS1 "Best of 1989"
1993 MOUNTAIN BIKE QUADRA 21R "Best Product Tried This Year"
ROCKSHOX forks "Cycling Product Most Likely to Top Your Wish List This
Year"
1994 VELO NEWS JUDY "Best Technical Development of the Year"
1995 BICYCLING MAGAZINE QUADRA 21R "Best Value Fork"
BUYERS GUIDE JUDY XC "Best Overall Fork"
1995 MOUNTAIN BIKE JUDY SL "Favorite Suspension Fork"
JUDY SL "Cycling Product Most Likely to Top Your Wish List This
Year"
1995 AUGUST BIKE MAGAZINE MAG 21 "Winner: Most Durable Fork"
(Germany)
</TABLE>
RESEARCH AND PRODUCT DEVELOPMENT
Management believes that the Company's commitment to product innovation,
research and development is one of the most significant in the bicycle
suspension industry. As of June 30, 1996, the Company's product development
activities, based in San Jose, California, were supported by 14 professionals,
including nine project engineers, who utilize an array of sophisticated design
and analytical tools. Development for each major product line (e.g., JUDY, INDY,
etc.) is headed by a senior level project engineer with assistance from at least
one other project engineer. In addition, the Company has an ongoing advanced
materials/ technologies program led by its engineering manager, which
investigates and applies materials and processes not currently used in the
manufacture of current products.
The Company maintains a testing center in San Jose, California to collect
data and test designs prior to commercial introduction. The testing center is
staffed by two technicians and managed by a senior project engineer, who perform
various fatigue, impact and cycle tests on components and assembled prototypes
during the design process. In addition, the Company operates a field test site
in Santa Cruz, California to provide in-use data on new products. Management
believes that these testing facilities and procedures allow the Company to
design superior suspension products and provide a competitive advantage with
regard to product quality and safety.
The product development process usually begins one to two years prior to the
expected commercial introduction of a new product, and generally focuses on
having a product ready for distribution at the start of the applicable model
year. In addition, short-term projects involving annual upgrades of existing
products and improvements to manufacturing processes occur regularly. New
product ideas come from a variety of sources, including mountain bike race
teams, OEMs, consumers and the Company's employees. Products are developed using
design and engineering software tools that provide full parametric
three-dimensional modeling and finite element analysis, allowing for computer
optimization of structures and greatly reducing the time required to develop and
prototype designs. Currently, an interdepartmental team, including
representatives from the Company's engineering, manufacturing, and, in certain
cases, sales and marketing departments, is established at the beginning of every
development project. Management believes this interdepartmental approach to
product development reduces the time necessary to bring a successful product to
market.
Current areas of focus for product development include, among others, (i)
research in the area of new materials and processes to reduce the cost and
improve the performance of the Company's current products;
32
<PAGE>
(ii) the continuation of the development of rear suspension products; (iii) the
introduction of products appropriately priced for the mid-priced segment of the
mountain bike market; and (iv) the design of new products, including suspension
systems for road and trekking bikes. The Company's future success will depend,
in part, upon its continued ability to develop and successfully introduce new
and popular bicycle suspension products and other types of bicycle components.
There can be no assurance that the Company will introduce any new products or,
if introduced, that any such products will be commercially successful. See "Risk
Factors--Dependence on New Product Introductions."
Research and product development expenditures in fiscal years 1993, 1994 and
1996 were approximately $1.5 million, $2.1 million and $3.4 million,
respectively.
MANUFACTURING
All manufacturing is done in the Company's San Jose facilities on multiple,
continuous flow assembly lines. These lines are computer-controlled and are
comprised of a combination of automated and manual assembly stations supported
by satellite subassembly operations. The assembly lines are designed for
efficiency and can potentially produce a complete suspension fork every 20
seconds. In addition to assembly activities, the Company does some machining of
parts on-site. Management reviews manufacturing processes available through
sub-contractors to determine if opportunities exist to re-engineer such
processes and to bring them in-house. To this end, the manufacturing department
has its own engineering function, which is currently carried out by four
engineers and six technicians. Typically, RockShox brings certain machining
operations into the Company on the basis of cost, quality control, lead-time and
the critical nature of the subcomponent in achieving production efficiencies.
Such in-house machining is generally performed on specialized equipment designed
and built by the Company's manufacturing engineers and subcontractors.
As of June 30, 1996, manufacturing included approximately 220 non-unionized
employees plus approximately 100 temporary hires brought in during the peak
building season from June through January. The Company generally operates on a
single shift, adding a second shift when needed. Extensive training occurs so
supervisors and lead assemblers can manage their own work areas and monitor
product quality. In addition, computerized testing and statistical process
control are used to maintain and measure product quality during the assembly
process. Finished products are also tested in the Company's product development
test center.
The Company works closely with a variety of vendors to meet its production
needs, including machine shops, die casters, forging houses, tube manufacturers
and injection molders. Although the Company has established relationships with
its principal suppliers and manufacturing sources, the Company does not
currently have long-term contracts with any of its vendors, nor does the Company
currently have multiple vendors for all parts, tooling, supplies or services
critical to the Company's manufacturing processes. See "Risk Factors--Dependence
on Suppliers; Manufacturing Risks." Currently, all of the Company's major
suppliers are based in the U.S. The Company continually reviews its vendor
relationships with regard to cost, delivery and quality. During fiscal 1996, the
Company purchased approximately $8.5 million of components from its largest
vendor. See "Certain Transactions--Other."
Production planning starts with a general forecast several months before the
beginning of the model/ fiscal year. This general forecast is then turned into a
more complete, time-phased forecast by customer and suspension product, which
guides initial planning for parts and labor requirements. As the year
progresses, the forecast is constantly reviewed and compared with actual
customer orders. Manufacturing inventory levels are currently managed through an
Integrated ERP (Enterprise Resource Planning) Package.
The Company's policy is to require firm purchase orders from OEMs 60 days
prior to shipment, which generally allows the Company to manufacture product
against a known backlog. As of June 30, 1996, the Company's backlog was
approximately $21.9 million. Substantially all of the Company's backlog orders
are expected to be filled within 90 days, although there can be no assurance
that all such backlog orders will be filled within that time period, if at all.
The backlog of orders at any given time is affected by a number of factors,
including seasonality, availability of parts and the scheduling of manufacturing
and shipment of products. Accordingly, the backlog of orders for a particular
period is not necessarily meaningful and may not be indicative of future sales
activity or product popularity.
33
<PAGE>
See "Risk Factors--Sales Concentration; Dependence on OEMs," "--Quarterly
Fluctuations in Operating Results; Difficulty in Forecasting OEM Orders" and
"--Dependence on Suppliers; Manufacturing Risks"
SALES AND DISTRIBUTION
The Company's products are primarily sold to OEMs, who incorporate ROCKSHOX
branded components as part of new, fully-assembled mountain bikes sold
worldwide, and through distributors or, in some cases, directly to IBDs, each of
whom serve the retail accessory market. For the fiscal year ended March 31,
1996, approximately 68% of the Company's total net sales were to OEMs and
approximately 32% were to distributors and IBDs. OEM customers have become
increasingly important to the Company as bicycle suspension has evolved from an
accessory niche component into standard equipment on better quality mountain
bikes. The following table demonstrates the historical shift in the Company's
customer base and product distribution:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1996
---------------------------- ---------------------------- ----------------------------
NET SALES NET SALES NET SALES
(IN % OF (IN % OF (IN % OF
THOUSANDS) NET SALES THOUSANDS) NET SALES THOUSANDS) NET SALES
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OEMs...................................... $ 19,479 63% $ 24,482 65% $ 57,103 68%
Distributors and IBDs..................... 11,462 37% 13,418 35% 26,406 32%
------------- --- ------------- --- ------------- ---
Total................................. $ 30,941 100% $ 37,900 100% $ 83,509 100%
------------- --- ------------- --- ------------- ---
------------- --- ------------- --- ------------- ---
</TABLE>
Management believes that the Company's products play an important role in
the sale of OEM bikes and that OEMs are aware of the influence that the ROCKSHOX
brand name has on a consumer's selection of a mountain bike. Every front
suspension fork sold today to OEMs prominently displays the ROCKSHOX name. In
addition to its strong brand name, the Company believes that OEMs also choose
ROCKSHOX for product innovation, reliability and quality. The Company further
solidifies its OEM relationships by providing a high level of customer service,
ranging from early stage engineering and design support to worldwide
distribution and aftermarket service for its products.
The Company currently sells to over 150 OEM accounts worldwide. While the
OEM market is fragmented, according to BMRI, ten leading OEM brands represent
over 75% of bicycle sales dollars generated through domestic IBDs. Management
believes that these OEMs also represent a significant portion of better quality
mountain bikes sold worldwide. All of these leading OEMs are customers of the
Company and eight of the ten rely on RockShox as their primary supplier of front
suspension forks. The Company has substantial international sales, a significant
portion of which include products shipped to Asian manufacturing subcontractors
for certain U.S.-based OEMs. See "Risk Factors--Sales Concentration; Dependence
on OEMs," "--Risks Associated with International Business and Market Demand,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Industry Overview."
The sales process for OEM customers begins in January and February with
presentations of the Company's product line for the coming model year.
Typically, the Company learns between April and June if its products have been
specified on various OEM bike models and of OEM volume expectations per model,
although such estimates are subject to significant adjustment throughout the
year. Shipments are then made directly to OEMs or to their subcontractors
(typically bicycle frame manufacturers located in Asia) beginning in the
April-June quarter and peaking in the July-September quarter. OEM sales slow
down in the second half of the Company's fiscal year and are principally
comprised of OEM reorders, which the Company believes primarily reflect the
popularity and sell-through rates of various OEM mountain bikes that incorporate
ROCKSHOX components. See "Risk Factors -- Quarterly Fluctuations in Operating
Results; Difficulty in Forecasting OEM Orders."
Sales to distributors and IBDs generally trail the OEM process, with sales
to distributors at their highest during the middle of the Company's fiscal year
(August and September) and sales to dealers peaking during the following March
and April. The Company currently has five distributors in the United States, all
of
34
<PAGE>
whom are owned by OEM customers, and 40 additional distributors worldwide.
Management believes that sales of the Company's products through OEM-owned
distributors are an important revenue source for OEMs and further strengthen the
Company's relationships with its major customers. Distributors purchase ROCKSHOX
products for resale to IBDs and also provide worldwide servicing and marketing
support for all of the Company's products. In the U.S., the Company generally
sells directly to IBDs for product quantities too small for third-party
distributors to handle. Direct sales to IBDs in the United States were
approximately $4.7 million in fiscal 1996.
As of June 30, 1996, the Company had approximately 35 people in sales and
customer service functions. The Company's principal sales activities are based
in San Jose, California. In addition, the Company has an independent sales
representative based in Bern, Switzerland. The Company's customer service
activities include a warranty program managed by an in-house technical support
department in the U.S. and a distributor network of technicians outside the U.S.
In fiscal 1996, approximately 56% of the Company's sales were to the
Company's ten largest customers, certain of which (including Trek) purchase from
the Company as both an OEM customer and a distributor. Sales to Trek accounted
for more than 10% of the Company's net sales in fiscal 1996, substantially all
of which were for OEM use by Trek. The Company received an award from Trek as a
"key supplier of the year" in 1995. At March 31, 1996 and June 30, 1996, the
Company's three OEM customers with the largest accounts receivable balances
accounted for approximately 61.5% and 47.8%, respectively, of the Company's
accounts receivable. The Company has no long-term contracts with any of its
customers. See "Risk Factors-- Sales Concentration; Dependence on OEMs."
MARKETING
ROCKSHOX has one of the most widely recognized brand names in the bicycle
industry. Management believes that the Company's brand image, in combination
with the performance features of its products, is an important element in the
consumer's decision to purchase ROCKSHOX suspension as an accessory product and
that its OEM customers recognize the strength of the ROCKSHOX brand name as a
deciding factor in the consumer's choice of mountain bikes.
The Company promotes and maintains its brand name through focused marketing
efforts such as sponsorship of mountain bike racing teams, magazine advertising
and editorial programs, IBD packaging and point of sale materials, participation
in trade shows and promotional clothing and merchandise. The Company's marketing
department oversees all aspects of the promotion of the Company's products and
brand name.
The principal user of the Company's products is the mountain bike enthusiast
between 19 and 34 years of age. To appeal to this market, the Company emphasizes
the high performance features of its products as well as its affinity with the
mountain biking culture. The goal of the Company's marketing efforts is to
communicate both technical information and an offbeat and irreverent image.
The sponsorship of mountain bike racing teams and racers is an important
part of the Company's research and product development efforts as well as its
marketing strategy. The Company believes that the association of its products
with successful racers increases its knowledge of the requirements of
professional racers as well as consumer awareness of and demand for RockShox
suspension products. The Company currently co-sponsors 20 world-class and over
50 junior and amateur race teams, many of which also have affiliations with
OEMs. The Company's sponsorship agreements with racing teams generally are for a
one-year term, and provide for a retainer plus contingent performance payments.
The Company also provides free product and technical support for sponsored
racers, including access to RockShox's technical service trucks that attend many
of the major races in the U.S. and Europe. There can be no assurance that such
racing teams will continue to be sponsored by the Company and use the Company's
products on terms the Company deems acceptable, or that the Company will be able
to attract new mountain bike racing teams to use its products in the future.
The Company's products are advertised in a variety of U.S. and international
consumer and trade bicycle publications, including BICYCLING, MOUNTAIN BIKE,
MOUNTAIN BIKE ACTION, VELO NEWS and BICYCLE
35
<PAGE>
RETAILER, as well as on the World Wide Web. The Company's goal is to expand
awareness of the ROCKSHOX brand name and to support product line segmentation
with advertising campaigns built around the JUDY, INDY, DELUXE and other product
lines. The Company also seeks to increase RockShox's editorial exposure in
bicycle print media by working closely with magazine editors. The Company's
focus on editorial content has helped maintain high visibility for the ROCKSHOX
brand name and the Company's products.
The Company currently supports its brand name in the retail bike market by
supplying unique packaging and point of sale displays to IBDs, as well as by
providing brochures that are designed to help explain the technical performance
features of its products. Materials are generally provided at cost or for free
to distributors and IBDs. The Company also maintains a strong presence at
national and international trade shows. As part of its retail marketing efforts,
the Company recently introduced a line of mountain bike lifestyle clothing known
as ROCKSHOX GARB. The clothing line includes t-shirts, cotton jerseys, jackets,
vests and hats and is sold to distributors, bicycles shops and directly to
consumers at race events. The Company believes that ROCKSHOX GARB provides
another avenue to promote the ROCKSHOX brand name and the Company's products.
Sales and marketing expenditures totaled approximately $2.7 million, $1.8
million and $3.7 million in fiscal years 1993, 1994 and 1996, respectively.
COMPETITION
The markets for bicycle components, in general, and bicycle suspension
products, in particular, are highly competitive. The Company competes with other
bicycle component companies that produce suspension products for sale to OEMs,
distributors and IBDs as well as with OEMs who produce their own line of
suspension products for their own use and for sale through distributors and
IBDs.
The Company competes with several component companies that manufacture front
suspension products, including, among others, Manitou, Rapid Suspension
Technology USA, Inc. ("RST"), Marzocchi SpA ("Marzocchi"), SR Suntour USA, Inc.,
Amp Research Corp. ("Amp") and Girvin, Inc. ("Girvin"), which is a subsidiary of
K2 Incorporated ("K2"). The Company also competes with several component
companies that manufacture rear shocks, including, among others, Fox Factory,
Inc. ("Fox"), RST, Risse Racing Technology, Inc., Amp, Marzocchi and Girvin. The
Company believes that it currently has the leading market share in front
suspension forks. The Company only recently introduced its rear shock products
for the emerging full suspension market and believes it currently trails Fox,
the leading manufacturer of rear shocks.
Over the past few years, Trek and Scott U.S.A. have discontinued their own
lines of suspension products and have been specifying ROCKSHOX products on many
of their mountain bike models. Today, Cannondale and K2, through its Girvin
subsidiary, are the only major OEMs that have their own brand of suspension
products, although Cannondale does use ROCKSHOX products on certain bike models.
Both of these OEMs also make their suspension products available to the retail
accessory market. In addition, Manitou has introduced its own bicycle with
Manitou-branded front and rear shocks.
In order to build or retain its market share, the Company must continue to
successfully compete in areas that influence the purchasing decisions of OEMs,
distributors, IBDs and consumers, including design, price, quality, technology,
distribution, marketing, style, brand image and customer service. There can be
no assurance that any number of bicycle component manufacturers, OEMs or other
companies, including those who are larger and have greater resources than the
Company and who currently do not provide bicycle suspension products or do so on
a limited basis, will not become direct or more significant competitors of the
Company. In addition, OEMs frequently design their bicycles to meet certain
retail price points, and, as a result, may choose not to use a suspension
product or may select a lower priced ROCKSHOX or competing product in order to
incorporate other components in the bicycle's specifications that the OEM
perceives as being desirable to the consumer. The Company could therefore face
competition from existing or new competitors that introduce and promote
suspension products or other bicycle components perceived by the bicycle
industry or consumers to offer price or performance advantages to, or otherwise
have greater consumer appeal than, the Company's products.
See "Risk Factors--Competition."
36
<PAGE>
INTELLECTUAL PROPERTY
Because much of the technology associated with suspension products is in the
public domain, patent protection is generally available only for particular
features or functions of a product, rather than for any product as a whole.
Management believes that many of the Company's current suspension products
contain some elements that are protected by the Company's patents. Nevertheless,
the Company's competitors currently replicate and may continue to replicate
certain features and functions of the Company's products. There can be no
assurance that current or future patent protection will prevent competitors from
offering competing products, that any issued patents will be upheld, or that
patent protection will be granted in any or all of the countries in which
applications are currently pending or granted on the breadth of the description
of the invention. In addition, due to considerations relating to, among other
things, cost, delay or adverse publicity, there can be no assurance that the
Company will elect to enforce its intellectual property rights.
The Company currently holds patents on its fork brace and hydraulic valving
in certain European countries and the United States, and it is attempting to
have patents granted thereon in Canada, Japan and Taiwan. The Company also holds
patents in the United States covering its removable cartridge technology and
rear shock suspension and has applied for a patent covering its hydraulically
damped spring shock absorbing fork technology. The Company is seeking
corresponding patent protection in Canada, Japan, Taiwan and certain European
countries. The Company also has trademark registrations for its name and the
name of its products in the United States and both registrations and
applications in Canada and certain South American and Pacific Rim countries.
Although the Company believes that patents are useful in maintaining the
Company's competitive position, it considers other factors, such as the
Company's brand name, ability to design innovative products, technical and
manufacturing expertise and customer service to be its primary competitive
advantages.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. The Company has
occasionally received, and may receive in the future, claims asserting
intellectual property rights owned by third parties that relate to the Company's
products and product features. Although to date the Company has incurred no
material liabilities as a result of any such claims, there can be no assurance
that the Company will not incur material liabilities in the future.
Manitou has received a U.S. patent that may cover certain features of the
Company's suspension products. However, the Company has a patent application
pending before the Patent Office that seeks a patent on certain of the same
Features. In the U.S., patent rights belong to the first to invent, and there
can be only one patent issued for a given invention. If an invention is
otherwise patentable to two patent applicants, an "interference" can be declared
by the Patent Office in order to determine which applicant was the first to
invent and therefore entitled to the patent on such invention. The Company is
seeking to have the Patent Office declare such an interference with Manitou with
respect to the patent covering the Features. The Company believes that it was
the first to invent the Features, and that the U.S. patent covering the Features
will ultimately belong to the Company, and not to Manitou. There can, however,
be no assurance that the Company will ultimately obtain such patent. In
addition, Manitou has received patents that may cover certain of the Features in
various countries outside the U.S., and, in such countries, patent rights
generally belong to the first person filing a patent application.
In order to avoid the costs, delays and risks of an interference proceeding,
management of the Company has commenced discussions with Manitou regarding the
possible settlement of any interference and a licensing arrangement that would
allow both companies to use the Features. However, the Company and Manitou have
not entered into any such arrangement, and there can be no assurance that any
agreement relating to the Features will be reached. If Manitou ultimately
retains the patent described above and successfully asserts it against the
Company, or if any other person or entity were to assert a valid claim of
infringement with respect to, or otherwise have enforceable proprietary rights
in, features that the Company includes or desires to include on its products,
and if the Company were unable to design or alter its products or production
methods so as to avoid such infringement at a reasonable cost or to negotiate an
acceptable
37
<PAGE>
licensing or other arrangement with such person or entity, the Company could,
among other things, be precluded from making or marketing products containing
such features and be required to make payments to such person or entity, which
could have a material adverse effect on the Company or its prospects.
See "Risk Factors--Limited Protection of Technology."
FACILITIES
The Company's headquarters are located in an approximately 55,000 square
foot building in San Jose, California, pursuant to a lease that expires in 2000.
The Company leases three other facilities of approximately 15,000, 26,000 and
36,000 square feet in San Jose, pursuant to leases that expire in 1997, 2000 and
2001, respectively. The Company also leases several smaller facilities. The
Company believes that its existing facilities are adequate to meet its existing
requirements. The Company expects that it will need additional space or to
relocate if its sales continue to grow.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects (such as emissions to air, discharges to water, and the
generation, handling, storage, transportation, treatment and disposal of solid
and hazardous wastes) or (ii) impose liability for cleaning up or remediating
contaminated property (or the costs therefor), including damages from, spills,
disposals or other releases of hazardous substances or wastes, in certain
circumstances without regard to fault. The Company's manufacturing operations
routinely involve the handling of chemicals and wastes, some of which are or may
be regulated as hazardous substances. The Company has not incurred, and does not
expect to incur, any significant expenditures or liabilities for environmental
matters. As a result, the Company believes that its environmental obligations
will not have a material adverse effect on its operations or financial position.
LEGAL PROCEEDINGS
Because of the risks inherent in bicycling, in general, and mountain biking,
in particular, and because of the function of the Company's products, the
Company from time to time is a defendant in a number of product liability
lawsuits and expects that this will continue to be the case in the future. These
lawsuits generally seek damages, sometimes in substantial amounts, for personal
injuries sustained as a result of alleged defects in the Company's products.
Although the Company has experienced no material financial loss relating to such
lawsuits and maintains product liability insurance, due to the uncertainty as to
the number of claims or the nature and extent of liability for personal injuries
and changes in the historical or future levels of insurance coverage or the
terms or cost thereof, such insurance may not be adequate or available to cover
product liability claims or the applicable insurer may not be solvent at the
time of any covered loss, any of which could have a material adverse effect on
the Company or its prospects. See "Risk Factors--Product Liability."
The Company may from time to time be a party to various other claims,
complaints and other legal action that arise in the normal course of business.
The Company believes that the outcome of its current legal proceedings,
individually or in the aggregate, will not have a material adverse effect on the
Company or its prospects.
GOVERNMENT REGULATION
Bicycle suspension products are within the jurisdiction of the CPSC and
other Federal, state and foreign regulatory bodies. Under CPSC regulations, a
manufacturer of consumer goods is obligated to notify the CPSC if, among other
things, the manufacturer becomes aware that one of its products has a defect
that could create a substantial risk of injury. If the manufacturer has not
already undertaken to do so, the CPSC may require a manufacturer to recall a
product, which may involve product repair, replacement or refund.
In 1996, the CPSC sent a letter to major manufacturers and importers of
mountain bikes as well as several suspension component manufacturers, including
RockShox, expressing concern about reports of injuries and recall activity
relating to failures of mountain bike suspension forks and urging manufacturers
to participate in the development of voluntary safety performance standards for
such suspension products through the ASTM. While an employee of the Company is
participating in the development of these
38
<PAGE>
standards by chairing an ASTM task force on bicycle suspension, such standards,
if adopted, could increase the development and manufacturing costs of the
Company's products, make the Company's products less desirable (by, for example,
increasing the weight of the product) or favor a competitor's product. The
Company cannot predict whether standards relating to the Company's products or
otherwise affecting the bicycle suspension industry will be adopted (whether by
the CPSC or another Federal, state or foreign regulatory body) and, if adopted,
no assurance can be given that the implementation of such standards will not
have a material adverse effect on the Company or its prospects.
Adverse publicity relating to mountain bike suspension or mountain biking
generally, or publicity associated with actions by the CPSC or others expressing
concerns about the safety or function of the Company's products, other
suspension products or mountain bikes (whether or not such publicity is
associated with a claim against the Company or results in any action by the
Company or the CPSC), could have an adverse effect on the Company's reputation,
brand image or markets, any of which could have a material adverse effect on the
Company or its prospects.
Several local, state and Federal authorities have recently considered
substantial restrictions or closures of public trails to biking use, citing
environmental concerns and disputes between mountain bikers and other trail
users (including hikers). Such restrictions or closures, if implemented in a
regional or widespread manner, could lead to a decline in the popularity of
mountain biking, which could have a material adverse effect on the Company or
its prospects.
The Company is subject to Federal, state and local environmental laws,
regulations and ordinances. The Company has not incurred, and does not expect to
incur, any significant expenditures or liabilities for environmental matters. As
a result, the Company believes that its environmental obligations will not have
a material adverse effect on the Company or its prospects.
See "Risk Factors--Government Regulation; Adverse Publicity."
PRODUCT RECALL
Bicycles and bicycle components, including suspension products, are frequent
subjects of product recalls, corrective actions and manufacturers' bulletins.
Since its founding in 1989, the Company has conducted one voluntary corrective
action without CPSC involvement and two voluntary corrective actions in
conjunction with the CPSC. None of these actions has been financially material
to the Company.
The Company's first voluntary corrective action was conducted without CPSC
involvement and involved braces on the MAG 20 and MAG 30 forks, which were
manufactured prior to 1992. In response to reports of fork brace breakage on
some mountain bike models, the Company instituted the corrective action in early
1992 and offered to replace the braces. The cost of this voluntary corrective
action was immaterial.
The second voluntary corrective action involved approximately 21,000 MAG 20
and MAG 30 suspension forks, which were manufactured between October 1991 and
June 1992. The Company received notice of two incidents involving minor injuries
and concluded, after investigation, that some fork crowns did not meet the
Company's standards. After reviewing the progress of such corrective action, in
March 1996, the CPSC ceased monitoring the situation and closed its
investigation, although it reserved the right to reopen the investigation if it
determined that the public had not been adequately protected by such corrective
action. The Company estimates that the cost of this voluntary corrective action
will be approximately $150,000, which amount has been provided for on the
Company's financial statements to date.
The third voluntary corrective action involved molded plastic top caps used
on approximately 180,000 QUADRA 5, QUADRA 21R and QUADRA 21 forks manufactured
between January 1995 and August 1995. The Company received reports of top caps
coming loose and popping up. Although no reports of serious injury were
received, the Company decided to provide replacement top caps. In January 1996,
the CPSC indicated that the nature and degree of risk of injury presented by
such products did not necessitate action by the CPSC. The Company estimates that
the cost of this voluntary corrective action will be approximately $300,000,
which amount has been provided for on the Company's financial statements to
date.
39
<PAGE>
The number of suspension products sold by the Company has dramatically
increased since the Company's founding in 1989, new product introductions are
occurring frequently, and the Company's products may not have been used by
riders for a period of time sufficient to determine all of the effects of
prolonged use and the environment on such products. As a result, there can be no
assurance that there will not be recalls, corrective actions or other activity
voluntarily or involuntarily undertaken by the Company or involving the CPSC or
other regulatory bodies on a more frequent basis or at a higher cost than in the
past, involving past, current or future products, including those products
previously subject to voluntary corrective action, any of which could have a
material adverse effect on the Company or its prospects.
See "Risk Factors--Product Recall; Warranty Costs" and Notes 2 and 5 of
Notes to Consolidated Financial Statements.
EMPLOYEES
As of June 30, 1996, the Company employed approximately 300 full-time
employees. In addition, the Company utilizes approximately 100 occasional
personnel in its assembly operations to meet production demand. The Company is
not a party to any labor agreements and none of its employees is represented by
a labor union. The Company considers its relationship with its employees to be
excellent and has never experienced a work stoppage.
40
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and other key employees of the Company. Shortly after
consummation of the Offering, the Company intends to appoint two directors who
are neither officers nor employees of the Company, The Jordan Company or their
respective affiliates ("Independent Directors").
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- -------------------------------
<S> <C> <C>
John W. Jordan II 48 Chairman of the Board of
Directors
Stephen W. Simons 41 President and Director
Paul Turner 37 Vice President of Advanced
Research and Director
Charles E. Noreen Jr. 35 Chief Financial Officer
Robert Kaswen 49 Executive Vice President of
Operations
Elizabeth Bradley 37 Director of Sales and Marketing
Adam E. Max 38 Vice President and Director
</TABLE>
Mr. Jordan has served as Chairman of the Board of Directors of the Company
since March 1995. Mr. Jordan will resign as Chairman of the Board of Directors
prior to the consummation of the Offering, and will continue to serve as a
director of the Company. Mr. Jordan has been the managing partner of The Jordan
Company, a private merchant banking firm that he founded, since February 1982.
Mr. Jordan is also a director of Jordan Industries, Inc., American Safety Razor
Company, Jackson Products, Inc., Carmike Cinemas, Inc., Welcome Home, Inc.,
Apparel Ventures, Inc. and other private companies.
Mr. Simons is a co-founder of the Company, has been a director since its
inception in 1989 and became President in 1992. In addition to executive
functions, he oversees product manufacturing and sales. Prior to founding the
Company, Mr. Simons founded SIMONS, which developed suspension modifications and
complete motorcycle front forks. Mr. Simons also founded Simons Precision, a
precision manufacturer of parts for motorcycles. Simons Precision is now known
as Simons & Susslin, Inc. and is wholly owned by persons who are not affiliated
with either the Company or Mr. Simons. See "Certain Transactions."
Mr. Turner is a co-founder of the Company, has been a director since its
inception in 1989 and became Vice President in 1992. In addition to executive
functions, Mr. Turner often represents the Company at industry and public
events, and participates in certain marketing decisions. Prior to founding the
Company in 1989, Mr. Turner worked with Honda Motor Company and founded Paul
Turner Racing. Mr. Turner is generally regarded as a pioneer in bicycle
suspension and is well known throughout the mountain bike industry.
Mr. Noreen has been the Chief Financial Officer of the Company since May
1996. Prior to such time, Mr. Noreen was an audit manager and then a partner in
the San Jose, California office of the accounting firm of Coopers & Lybrand
L.L.P., which he joined in 1983.
Mr. Kaswen joined the Company in September 1992 and became Executive Vice
President of Operations in April 1996. Since joining the Company, Mr. Kaswen has
progressively assumed responsibility for engineering, production, materials
management, quality assurance and service warranty functions. From May 1990 to
September 1992, Mr. Kaswen was the Director of Professional Services for
Relevant Business Systems, Inc., a supplier of software for manufacturing
companies.
Ms. Bradley joined RockShox in May 1996 as Director of Sales and Marketing.
From 1989 until joining the Company, Ms. Bradley was an Executive Vice
President, Marketing and Strategic Planning of Giro Sport Design, Inc., a
manufacturer of performance bicycle helmets. Ms. Bradley was the Marketing
Director of a division of Saturday's Group from 1988 to 1989 and an account
executive at Chiat/Day Advertising from 1983 to 1986.
41
<PAGE>
Mr. Max has served as a director and officer of the Company since March
1995. Mr. Max will resign as an officer of the Company prior to the consummation
of the Offering. Mr. Max is a principal of The Jordan Company, which he joined
in April 1986. Mr. Max is also a director of a number of private companies.
BOARD OF DIRECTORS
The Company's Board of Directors is currently comprised of Messrs. Simons,
Turner, Jordan and Max, each of which was nominated to the Board of Directors
pursuant to the Stockholders Agreement (as defined below), which required the
stockholders named therein to vote for such nominees. Such provisions will
terminate immediately following the consummation of the Offering. See "Certain
Transactions--Stockholders Agreement." Shortly following the consummation of the
Offering, the Company intends to appoint two Independent Directors.
Upon the appointment of the Independent Directors, the Board of Directors
intends to establish an Audit Committee and a Compensation Committee. The Audit
Committee will be responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors. The Compensation Committee will
be responsible for reviewing and approving all compensation and for
administering the Stock Plan.
The DGCL provides that a company may indemnify its directors and officers as
to certain liabilities. The Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws provide for the indemnification of
its directors and officers to the fullest extent permitted by law, and the
Company intends to enter into separate indemnification agreements with each of
its directors and officers and to purchase directors' and officers' liability
insurance. The effect of such provisions and actions is to indemnify, to the
fullest extent permitted by law, the directors and officers of the Company
against all costs, expenses and liabilities incurred by them in connection with
any action, suit or proceeding in which they are involved by reason of their
affiliation with the Company.
COMPENSATION OF DIRECTORS
Pursuant to the Stockholders Agreement, each director of the Company
receives $7,500 per year. After the consummation of the Offering, directors who
are employees of the Company will receive no compensation for serving on the
Board. It is expected that directors who are not employees of the Company will
receive $20,000 per year. All directors will be reimbursed for expenses incurred
in connection with attendance at Board or Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
President (who serves as its chief executive officer) and to each of its other
most highly compensated executive officers whose salary and bonus exceeded
$100,000 in fiscal 1996.
42
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------- ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (1) ($) ($) ($)
- -------------------------------------------- ----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Stephen W. Simons 1996 $ 250,000 $ 1,062,500(2) $ 7,556(3)
President
Paul Turner 1996 250,000 1,062,500(2) 7,556(3)
Vice President of Advanced Research
Robert Kaswen 1996 105,000 110,000(4) 56
Executive Vice President
of Operations
Robert Hood 1996 132,500 0 33
Treasurer-Chief Operating Officer
and Chief Financial Officer (5)
</TABLE>
- ------------------------
(1) The information provided is for the Company's 1996 fiscal year.
(2) Represents the bonus earned for fiscal year 1996 under the Bonus Plan, which
was paid in fiscal year 1997.
(3) Includes $7,500 paid to each director of the Company pursuant to the
Stockholders Agreement.
(4) Includes $100,000, which was paid in fiscal year 1997.
(5) Mr. Hood resigned from the Company on February 16, 1996. Salary does not
include severance payments totalling $200,000 made or to be made to Mr. Hood
in fiscal years 1996 and 1997 pursuant to a severance agreement, dated
February 28, 1996, between Mr. Hood and the Company, or $44,444 paid in
consideration of Mr. Hood's release of the Company from certain claims.
EMPLOYMENT AGREEMENTS
Each of Stephen W. Simons and Paul Turner entered into an employment
agreement with the Company, dated as of March 24, 1995 (each, an "Employment
Agreement"). Each Employment Agreement was for an initial one-year term and
automatically renews for additional one-year terms, not to exceed four one-year
renewal terms in total, at the election of Messrs. Simons or Turner, as the case
may be. Each Employment Agreement may be terminated by the Company for cause (as
defined therein) or by Messrs. Simons or Turner, as the case may be, for good
reason (as defined therein). Pursuant to his respective Employment Agreement,
each of Messrs. Simons and Turner (i) received initial payments of $2,820,000
and $1,880,000, respectively, (ii) receives an annual salary of $250,000 and
certain perquisites and (iii) is entitled to receive an annual payment under the
Bonus Plan based upon the Company's operating results up to a maximum payment of
$1.5 million for any one fiscal year during the period commencing April 1, 1995
and ending March 31, 2000, but not to exceed an aggregate of $5 million during
such period. Each of Messrs. Simons and Turner earned approximately $1.1 million
pursuant to the Bonus Plan for the 1996 fiscal year.
Effective simultaneously with the closing of the Offering, the Company
intends to enter into amended and restated employment agreements with each of
Messrs. Simons and Turner (each, an "Amended Employment Agreement"). Each
Amended Employment Agreement will be substantially similar to the Employment
Agreements, except that pursuant to the Amended Employment Agreements the Bonus
Plan will be terminated and, in consideration thereof, the Company will pay to
each of Messrs. Simons and Turner approximately $3.7 million. Each Amended
Employment Agreement will also provide that, for each fiscal year commencing
April 1, 1996 during the term of the Amended Employment Agreement in which
Messrs. Simons or Turner has been an employee of the Company for the entire
fiscal year, the Company will pay to
43
<PAGE>
Messrs. Simons or Turner a cash bonus of an amount not to exceed 100% and 50%,
respectively, of his annual salary based upon an evaluation of his duties and,
in the case of Mr. Simons, upon the performance of the Company during such
fiscal year.
1996 STOCK PLAN
In May 1996, Holdings' Board of Directors adopted, and Holdings'
stockholders approved, the Stock Plan. In connection with the Merger, the Board
of Directors of the Company approved the assumption by the Company of Holdings'
obligations under the Stock Plan and the conversion of each option to purchase
shares of Holdings Common Stock into an option to purchase 88.2 shares of Common
Stock of the Company at an exercise price determined by dividing the exercise
price of such existing option by 88.2.
The Stock Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company upon the establishment
thereof. See "Board of Directors."
The Stock Plan provides for the issuance of up to a maximum of 979,020
shares of Common Stock pursuant to awards under the Stock Plan, subject to
adjustment to protect against dilution in the event of certain changes in the
Company's capitalization. The Stock Plan provides for the granting of "incentive
stock options" within the meaning of section 422 of the Internal Revenue Code of
1986, as amended, options not intended to qualify as incentive stock options
("nonstatutory stock options") and stock purchase rights (collectively, "Stock
Rights") to employees and directors of the Company or any parent or subsidiary
thereof.
Options are rights to purchase the number of shares of Common Stock at the
option price (and upon such other conditions) specified in the applicable option
agreement. Stock purchase rights (which may be issued alone, in addition to, or
in tandem with other awards under the Stock Plan, or cash awards made outside of
the Stock Plan) entitle the holder to purchase shares of Common Stock on such
terms and conditions as are set forth in the Rights Notice (as defined in the
Stock Plan) and the stock purchase agreement provided in connection with the
award. Under the Stock Plan, incentive stock options may be granted to employees
of the Company or any parent or subsidiary thereof, and nonstatutory stock
options and stock purchase rights may be granted to employees and directors of
the Company or any parent or subsidiary thereof.
The exercise price of options will be determined by the Committee; PROVIDED,
that (i) incentive stock options may not be granted with option exercise prices
less than the Fair Market Value (as defined in the Stock Plan) of the Common
Stock on the date of grant, (ii) options granted to an employee who, at the time
of such grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent, subsidiary or
predecessor of the Company may not have an option exercise price less than 110%
of the Fair Market Value of the Common Stock as of the date of grant and (iii)
nonstatutory stock options may not be granted with option exercise prices less
than 85% of the Fair Market Value of the Common Stock on the date of grant. The
Stock Plan provides that the form of consideration to be paid for the shares of
the Common Stock to be issued upon exercise of options will be determined by the
Committee, and may be a cash payment, a payment in shares of the Common Stock or
any combination thereof or any other form of consideration permitted under
applicable law. The Stock Plan also provides that shares of previously owned
Common Stock delivered in payment of the option price will be valued at the Fair
Market Value of such shares and must have been held by the optionee for a period
of six months prior to surrender.
Unless otherwise provided in the option agreement, each option will become
exercisable for 20% of the shares of the Common Stock underlying such option
each year. All options expire no more than ten years after the date of grant,
other than those incentive stock options granted to an optionee who, at the time
of such grant, owns stock representing more than 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary thereof, which will
expire no more than five years from the date of grant. The Committee may at any
time offer to buy a Stock Right previously granted, based on such terms and
conditions as the Committee establishes and communicates to the optionee at the
time such offer is made. Stock Rights may not be sold, pledged, assigned,
hypothecated, transferred, gifted or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
44
<PAGE>
lifetime of the optionee only by such optionee. The Stock Plan also provides
that if requested by the Company or any representative of the underwriters in
connection with the first two registration statements of the Company to become
effective under the Securities Act that include securities to be sold on behalf
of the Company to the public in underwritten public offerings, holders of Stock
Rights may not sell or otherwise transfer the shares acquired upon exercise of
such Stock Rights during the 180-day periods following the effective date of
such registration statements.
The Stock Plan provides that in the event of (i) a reorganization, merger or
consolidation of the Company with one or more corporations, as a result of which
the Company is not the surviving corporation, (ii) a sale of all or
substantially all of the property of the Company to another corporation, (iii) a
transaction (or a series of related transactions) in which there is a change in
the beneficial ownership, directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power or value of the Company's
then outstanding equity securities or (iv) the dissolution or liquidation of the
Company, the Stock Plan and any options outstanding thereunder will terminate
unless provision is made in connection with such transaction for the (a)
assumption of such options or (b) substitution for such options of new incentive
awards covering the stock of a successor employer corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to number and kind of shares
and prices. The Committee may also provide, in any option agreement entered into
in connection with the Stock Plan, that all or a portion of unvested options
accelerate upon a transaction specified in clause (i) or (iii) of the preceding
sentence, subject to such terms and conditions as may be approved by the
Committee.
In addition, the Committee may at any time amend, alter, suspend or
discontinue the Stock Plan, but, except as provided in the Stock Plan in
connection with a dissolution, merger or other change in control transaction,
any such amendment or termination of the Stock Plan will not affect Stock Rights
already granted and such Stock Rights will remain in full force and effect as if
the Stock Plan had not been amended or terminated, unless mutually agreed
otherwise by the optionee and the Committee. The Stock Plan will expire in May
2006, unless terminated earlier as described in the preceding sentence.
In May 1996, 11 employees were granted stock options to purchase an
aggregate of 596,320 shares of Common Stock pursuant to the Stock Plan,
including a grant to Mr. Kaswen of 146,853 option shares. None of the stock
options granted under the Stock Plan have been exercised. No options were
outstanding as of March 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during its 1996 fiscal
year. The Board of Directors determined officers' compensation during the 1996
fiscal year. During such fiscal year, the Company engaged in certain
transactions with certain of its directors and certain entities affiliated with
certain of such directors. See "Certain Transactions."
CERTAIN TRANSACTIONS
The following summarizes various transactions between the Company and
certain of its directors or executive officers or entities affiliated with such
persons. The Company believes that each such transaction was, and that any
future transaction will be, approved in accordance with the DGCL.
THE RECAPITALIZATION
On March 24, 1995, Holdings issued 25,000 shares of Holdings Common Stock to
each of Messrs. Simons and Turner and 50,000 shares of Holdings Common Stock to
certain persons and entities affiliated with The Jordan Company. Holdings also
issued 3,000 shares of Series A Preferred Stock to MCIT. In addition, Holdings
issued shares of Series B Preferred Stock as follows: Stephen Simons, 1,200
shares; Stephen and Debra Simons, 1,200 shares; and Paul Turner, 1,600 shares.
Holdings also issued $6 million aggregate principal amount of the Junior Notes
to Stephen and Debra Simons and Paul Turner and $11 million aggregate principal
amount of the Senior Notes to MCIT. See "The Recapitalization and the Merger."
45
<PAGE>
CONSULTING AGREEMENT. On March 24, 1995, the Company entered into a
management consulting agreement (the "Consulting Agreement") with TJC Management
Corporation ("TJCMC"), an affiliate of The Jordan Company, pursuant to which
TJCMC was retained to render consulting services to the Company. Pursuant to the
Consulting Agreement, TJCMC is entitled to (i) a quarterly fee of $62,500; (ii)
an investment banking and sponsorship fee of 2% of the aggregate consideration
paid (including non-competition and similar payments, but net of transaction
expenses) in connection with an initial public offering of Common Stock, the
sale of all or substantially all of the Common Stock or substantially all of the
assets of the Company to a company other than an affiliate, or the purchase by
the Company of all the equity or substantially all of the assets of a company
(other than an affiliate), and (iii) a financial consulting fee of 1% of the
amount obtained or made available pursuant to any financing. The fees payable
under clauses (ii) and (iii) of the preceding sentence are payable with respect
to a transaction only if TJCMC is retained to render services in connection
therewith. Pursuant to the Consulting Agreement, TJCMC received a fee of $1.0
million in March 1995 in connection with the consummation of the
Recapitalization. The Board of Directors of the Company has agreed to pay TJCMC
a fee of $1.0 million in connection with the consummation of the Offering in
lieu of any fees payable under clause (ii) above. The Consulting Agreement also
provides that if TJCMC renders services outside the ordinary course of business,
TJCMC is entitled to an additional amount equal to the value of such services.
Also pursuant to the Consulting Agreement, TJCMC and certain of its affiliates
are indemnified from certain liabilities related to services performed pursuant
to the Consulting Agreement and TJCMC is entitled to reimbursement of reasonable
out-of-pocket expenses. The term of the Consulting Agreement generally continues
until April 1, 2000.
NONCOMPETITION AGREEMENTS. Each of Stephen Simons, Debra Simons and Paul
Turner has entered into a noncompetition agreement, dated March 24, 1995,
pursuant to which each such person agreed, among other things, that until March
24, 1998 he or she will not directly or indirectly engage in, assist or have any
active interest in a business located anywhere in the contiguous United States
that (i) competes with the Company or (ii) sells to, supplies, provides goods or
services to, purchases from or does business in any manner with the Company.
Each such person also agreed that until three years from and after the date such
person ceases to be employed by the Company, he or she will not directly or
indirectly (a) divert or attempt to divert from the Company any business with
any customer or account with which he or she had any contact or association,
which was under his or her supervision, or the identity of which was learned by
him or her as a result of his or her employment with the Company, (b) solicit
any person transacting business with the Company to terminate its relationship
or association with the Company, or to represent, distribute or sell services or
products in competition with the services or products of the Company, or (c)
solicit any employee of the Company to leave its employ. Mrs. Simons resigned as
an officer of the Company on August 1, 1995 and, therefore, the provisions of
the preceding sentence will terminate on August 1, 1998 with respect to Mrs.
Simons.
EMPLOYMENT AGREEMENTS. Each of Stephen Simons and Paul Turner has entered
into an Employment Agreement, which is described in "Management--Employment
Agreements."
STOCKHOLDERS AGREEMENT.
VOTING AND RESTRICTIONS ON TRANSFER. The Company, Stephen Simons, Debra
Simons, Paul Turner, MCIT and certain other persons and entities affiliated with
The Jordan Company (collectively, the "Stockholder Parties") have entered into a
subscription and stockholders agreement, dated March 24, 1995 (the "Stockholders
Agreement"), pursuant to which each Stockholder Party agreed to vote all shares
of Common Stock owned by such Stockholder Party to maintain a Board of Directors
consisting of four members, two nominated by Messrs. Simons and Turner and two
nominated by the Stockholder Parties other than Messrs. Simons and Turner and
Debra Simons. The Stockholders Agreement also imposes certain restrictions on
transferability of the shares of Common Stock owned by the Stockholder Parties.
Such voting provisions and restrictions on transfer will terminate upon the
consummation of the Offering.
46
<PAGE>
REGISTRATION RIGHTS. The Stockholders Agreement also provides MCIT with the
right, subject to certain exceptions, to include its shares of Common Stock in a
registration statement proposed to be filed by the Company in connection with
any public offering. Such provision will terminate upon the consummation of the
Offering.
Also pursuant to the Stockholders Agreement, at any time after the
consummation of the Offering (i) if either Messrs. Simons or Turner is no longer
employed by the Company, any Stockholder Party holding at least 10% of the
outstanding shares of the Common Stock has the right (a "demand registration
right") to cause the Company to register its shares of the Common Stock under
the Securities Act, subject to certain exceptions, and (ii) the Stockholder
Parties have the right (an "incidental registration right") with respect to
8,820,000 shares of Common Stock, if the Company proposes to register any shares
of the Common Stock under the Securities Act for sale to the public (other than
pursuant to a registration statement on Forms S-4 or S-8, or any successor
forms), to require the Company to use its best efforts to cause a requested
amount of their shares of Common Stock to be covered by such registration
statement, subject to reduction pursuant to a specified formula if the managing
underwriter determines that such inclusion would adversely affect the marketing
of the shares of Common Stock to be sold by the Company. Pursuant to the
Stockholders Agreement, the Company is required to pay all registration expenses
in connection with each demand and incidental registration and has agreed to
indemnify the Stockholder Parties against, and provide contribution with respect
to, certain liabilities under the Securities Act.
Effective simultaneously with the closing of the Offering, the Company
intends to enter into a Registration Rights Agreement with certain of the
Stockholder Parties, which will replace and supersede the Stockholders Agreement
(the "Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Stockholder Parties will have demand registration rights to
require the Company to register the number of shares requested to be so
registered until such time as such shares of Common Stock (i) are effectively
registered under the Securities Act and disposed of in accordance with a
registration statement covering such shares, (ii) are saleable by the holder
thereof pursuant to Rule 144(k) under the Securities Act or (iii) are
distributed for resale pursuant to Rule 144 under the Securities Act
("Registrable Securities"). The Registration Rights Agreement will also provide
that, subject to certain exceptions, in no event will the number of demand
registrations exceed two for all holders of Registrable Securities. In addition,
the Registration Rights Agreement will provide that the Stockholder Parties will
have incidental registration rights if the Company proposes to file a
registration statement under the Securities Act with respect to an offering of
Common Stock (other than a registration statement on Form S-4 or Form S-8 or any
successor form thereto or filed solely in connection with an exchange offer or
an offering made solely to employees of the Company) to require the Company to
include in each such registration all Registrable Securities as each Stockholder
Party may request in accordance with the terms of the Registration Rights
Agreement. In the event of any registration effected thereunder, the
Registration Rights Agreement will contain certain customary provisions relating
to holdback and indemnification arrangements. The Registration Rights Agreement
will also provide that all reasonable fees and expenses incident to the
performance thereof or compliance therewith by the Company will be borne by the
Company.
The Stockholder Parties have agreed to waive their demand and incidental
registration rights for a period of 180 days after the date of this Prospectus.
See "Principal and Selling Stockholders" and "Shares Eligible for Future Sale."
MCIT PLEDGE AGREEMENT. Holdings and MCIT entered into a pledge agreement
(the "MCIT Pledge Agreement") pursuant to which Holdings pledged to MCIT, as
agent for all holders of the Senior Notes, a continuing security interest in and
to all issued and outstanding shares of capital stock of Acquisition, including
all payments and rights with respect thereto and all proceeds thereof. The MCIT
Pledge Agreement will be terminated upon the repayment of the Senior Notes. See
"Use of Proceeds."
OTHER
Simons & Susslin, Inc. ("Susslin") entered into a consultant agreement (the
"Susslin Agreement") with Stephen Simons on January 1, 1994. In March 1994, Mr.
Simons sold his entire ownership interest in Susslin, which equalled 50% of its
common stock, to the other stockholder thereof. The Company purchased
47
<PAGE>
approximately $3.6 million, $3.1 million and $8.5 million of components from
Susslin in fiscal years 1993, 1994 and 1996, respectively. Management believes
that purchases from Susslin during the 1997 fiscal year will be substantially
less than those during the 1996 fiscal year. Mr. Simons provides consulting
services to Susslin pursuant to the Susslin Agreement for business, sales and
marketing activities, in consideration of which Susslin pays Mr. Simons a fee
equal to 3% of Susslin's net sales (as defined therein). The Susslin Agreement
terminates on December 31, 2002; PROVIDED, that the Susslin Agreement (i) will
be automatically renewed for two years, if the total of all consulting fees paid
to Mr. Simons pursuant to the Susslin Agreement are less than $1,000,000 on
December 31, 2002, (ii) will automatically terminate when the total of all
consulting fees paid to Mr. Simons pursuant to the Susslin Agreement equal
$1,700,000 and (iii) may be terminated by Mr. Simons at any time upon 30 days'
written notice. As of June 30, 1996, Susslin had paid to Mr. Simons an aggregate
of $579,238 pursuant to the Susslin Agreement.
At the end of each of fiscal 1993 and fiscal 1994, the Company paid bonuses
to members of senior management. In order to preserve cash flow, each such
member of senior management who was also a stockholder of the Company loaned the
bonus amount back to the Company. The Company repaid each loan during the next
fiscal year. No amounts remain outstanding from any of these loans.
On November 10, 1995, Peter Turner, the brother of Paul Turner, entered into
an employment agreement with the Company (the "Peter Turner Agreement") pursuant
to which Peter Turner serves as the Company's manager of product development
engineering. Immediately prior to joining the Company, Peter Turner was employed
as Senior Engineer and Manufacturing Manager at Cobe Cardiovascular, Inc. based
in Arvada, Colorado. The Peter Turner Agreement provides that Peter Turner is
entitled to receive, among other things, (i) a salary of $110,000 per year for
the first two years of his employment, after which time he will be eligible for
his first compensation review, and a cost of living adjustment for each of the
first three years of his employment with the Company, (ii) the right to
participate in an annual bonus program and receive a guaranteed bonus of at
least $30,000 on December 31, 1996 for the first year of employment with the
Company, (iii) a one-time relocation allowance of $25,000, (iv) a secured
interest-free bridge loan in the principal amount of $150,000, which was repaid
to the Company in January 1996 upon the sale of Peter Turner's Colorado home,
and (v) mortgage assistance in the amount of $1,600 per month for up to six
months.
In November 1993, Christine Feeter, the former wife of Paul Turner, resigned
as Vice President-Marketing of the Company and, in connection therewith,
received as severance $100,000 and the continuation of health insurance coverage
for one year. In March 1995, the Company and Ms. Feeter entered into agreements
pursuant to which, among other things, Ms. Feeter received $310,000 from the
Company in consideration of her release of the Company from certain claims.
Immediately prior to the Recapitalization, Ms. Feeter sold her entire ownership
interest in the Company to Paul Turner.
For certain additional related transactions, see "Use of Proceeds" and
"Management."
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 30, 1996 and as adjusted to give effect
to the Offering by (i) each beneficial owner of more than 5% of Common Stock,
(ii) each of the Company's directors, (iii) each of the Company's executive
officers named in the table under "Management--Executive Compensation," (iv) all
directors and executive officers of the Company as a group and (v) each Selling
Stockholder. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect of
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING (1) THE OFFERING (1)
---------------------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
John W. Jordan II (2)............................................. 2,427,350 27.5 2,427,350 17.8
David W. Zalaznick (3)............................................ 2,427,350 27.5 2,427,350 17.8
Stephen W. Simons (4)............................................. 2,205,000 25.0 2,205,000 16.2
Paul Turner (5)................................................... 2,205,000 25.0 2,205,000 16.2
MCIT PLC (6)...................................................... 2,100,042 23.8 2,100,042 15.4
Adam E. Max (7)................................................... 210,004 2.4 210,004 1.5
Leucadia Investors, Inc. (8)...................................... 525,010 6.0 525,010 3.9
Robert Kaswen (9)................................................. 29,370 * 29,370 *
All directors and executive officers as a group (6 persons)
(10)............................................................. 7,076,724 80.2 7,076,724 52.0
</TABLE>
- ------------------------
* Less than 1%.
(1) Gives effect to the Merger, which will occur immediately prior to the
closing of the Offering. See "The Recapitalization and the Merger."
(2) Includes 327,308 shares held by the John W. Jordan II Revocable Trust, of
which Mr. Jordan is trustee and 2,100,042 shares held by MCIT, which is
advised by Jordan/Zalaznick Advisors, Inc., an entity controlled by Messrs.
Jordan and Zalaznick ("JZAI"). If the Underwriters' over-allotment option is
exercised in full, Mr. Jordan will beneficially own 2,067,350 shares of the
Common Stock, or approximately 15.2% of the total number of shares of the
Common Stock outstanding after the Offering. Mr. Jordan is a partner of The
Jordan Company, an entity with which Messrs. Zalaznick and Max and Leucadia
Investors, Inc. ("Leucadia") are also affiliated. Mr. Jordan's address is
c/o The Jordan Company, 9 West 57th Street, New York, New York 10019.
(3) Includes 2,100,042 shares held by MCIT, which is advised by JZAI, an entity
controlled by Messrs. Jordan and Zalaznick. If the Underwriters'
over-allotment option is exercised in full, Mr. Zalaznick will beneficially
own 2,067,350 shares of the Common Stock, or approximately 15.2% of the
total number of shares of the Common Stock outstanding after the Offering.
Mr. Zalaznick is a partner of The Jordan Company, an entity with which
Messrs. Jordan and Max and Leucadia are also affiliated. Mr. Zalaznick's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(4) Includes 1,757,305 shares held by The Simons Revocable Trust, of which Mr.
Simons and Debra Simons, Mr. Simons' wife, are trustees. Also includes
213,003 shares held by each of the Debra W. Simons Grantor Retained Annuity
Trust and the Stephen W. Simons Grantor Retained Annuity Trust, of which in
each case Mr. and Mrs. Simons are two of four trustees. Also includes 21,688
shares held by The Simons Children Irrevocable Trusts, of which Mrs. Simons
is one of three trustees and as to which shares Mr. Simons disclaims
beneficial ownership. If the Underwriters' over-allotment option is
exercised in full, Mr. Simons will beneficially own 2,025,000 shares of the
Common Stock, or approximately 14.9% of the total number of shares of the
Common Stock outstanding after the Offering.
49
<PAGE>
(5) Includes 551,250 shares held by Turner Family LP, a Colorado limited
partnership (the "Turner Partnership"). Mr. Turner is the sole general
partner of the Turner Partnership, and a trust, the trustees of which are
persons other than Mr. Turner and the beneficiaries of which are certain
family members of Mr. Turner, is the sole limited partner of the Turner
Partnership holding a 40% interest in the Turner Partnership. Mr. Turner
disclaims beneficial ownership of the 220,500 shares representing the
trust's interest in the Turner Partnership. If the Underwriters'
over-allotment option is exercised in full, Mr. Turner will beneficially own
2,025,000 shares of the Common Stock, or approximately 14.9% of the total
number of shares of the Common Stock outstanding after the Offering.
(6) If the Underwriters' over-allotment option is exercised in full, MCIT will
beneficially own 1,740,042 shares of the Common Stock, or approximately
12.8% of the total number of shares of the Common Stock outstanding after
the Offering. MCIT is advised by JZAI, an entity controlled by Messrs.
Jordan and Zalaznick. The principal address of MCIT is c/o Jordan/Zalaznick
Advisers, Inc., 9 West 57th Street, New York, New York 10019.
(7) Mr. Max is a principal of The Jordan Company, an entity with which Messrs.
Jordan and Zalaznick and Leucadia are also affiliated. Mr. Max's address is
c/o The Jordan Company, 9 West 57th Street, New York, New York 10019.
(8) Leucadia is an affiliate of The Jordan Company, an entity with which
Messrs. Jordan, Zalaznick and Max are also affiliated. The principal address
of Leucadia is 315 Park Avenue South, New York, New York 10010.
(9) Includes 29,370 shares with respect to which Mr. Kaswen has the right to
acquire beneficial ownership by virtue of currently exercisable stock
options and options that become exercisable within 60 days of August 30,
1996.
(10) Includes 29,370 shares with respect to which all directors and executive
officers have the right to acquire beneficial ownership by virtue of
currently exercisable stock options and options that become exercisable
within 60 days of August 30, 1996.
SELLING STOCKHOLDERS EXERCISE OF OVER-ALLOTMENT OPTION
If the Underwriters' over-allotment option is exercised in full, the Selling
Stockholders will be selling an aggregate of 720,000 shares of Common Stock. The
number of shares being sold, and, if sold, the number of shares and percentage
of outstanding shares beneficially owned after the Offering, by the following
individuals and entities will be as follows: MCIT--360,000 shares to be sold,
1,740,042 shares (approximately 12.8%) beneficially owned after the Offering;
and each of Messrs. Simons and Turner--180,000 shares to be sold, 2,025,000
shares (approximately 14.9%) beneficially owned after the Offering. See the
"Principal and Selling Stockholders" table above, which indicates the number of
shares beneficially owned by each of these individuals and entities after the
Merger and prior to the Offering, and "Management--Directors, Executive Officers
and Key Employees" and "Certain Transactions," which indicate certain
relationships between these individuals and entities and the Company.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") and Amended and Restated Bylaws (the "Bylaws") is a summary
and is qualified in its entirety by the provisions of the Certificate and the
Bylaws, forms of which have been filed as exhibits to the Company's Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The authorized capital stock of the Company includes 50,000,000 shares of
Common Stock, par value $.01 per share, of which 13,620,000 shares will be
outstanding upon the consummation of the Offering. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
the stockholders, including the election of directors. The Certificate does not
provide for cumulative voting
50
<PAGE>
in the election of directors. Accordingly, holders of a majority of shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. See "Risk Factors--Concentration of Ownership."
Subject to preferences that may be applicable to any Preferred Stock outstanding
at the time, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets of the Company
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive, subscription or redemption rights. As of the
date hereof, the Common Stock is held of record by approximately 15
stockholders. The transfer agent with respect to the Common Stock is American
Stock Transfer & Trust Company.
PREFERRED STOCK
Pursuant to the Certificate, the Company is authorized to issue 10,000,000
shares of Preferred Stock, which may be issued from time to time in one or more
classes or series or both upon authorization by the Company's Board of
Directors. The Board of Directors, without further approval of the stockholders,
is authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each class or
series of the Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company, discourage bids for Common
Stock at a premium or otherwise adversely affect the market price of Common
Stock. The Company is not aware of any plans by a third party to seek control of
the Company.
Upon the redemption of the Holdings Preferred Stock, which will be
substantially concurrent with the completion of the Offering, no shares of
Preferred Stock will be outstanding and the Company has no current plans to
issue any shares of Preferred Stock. See "Use of Proceeds."
DELAWARE LAW
Upon the consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging under certain circumstances in
a "business combination" (as defined below) with an "interested stockholder" (as
defined below) for a period of three years after the date of the transaction in
which such stockholder became an interested stockholder, unless (i) prior to the
date at which the stockholder became an interested stockholder the Board of
Directors approved either the business combination or the transaction which
resulted in the person becoming an interested stockholder, (ii) the stockholder
owned more than 85% of the outstanding voting stock of the corporation
(excluding shares held by directors who are officers or held in certain employee
stock plans) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, or (iii) the business
combination is approved by the Board of Directors and by two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent) held on or subsequent to the date of the business combination. An
"interested stockholder" is a person who (a) owns 15% or more of the
corporation's voting stock or (b) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the prior three years. Section 203 defines a
"business combination" to include, without limitation, mergers, consolidations,
stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
13,620,000 shares of Common Stock assuming no stock options will have been
exercised. Of these shares, all of the 4,800,000 shares sold in the Offering
will be freely transferable by persons other than "affiliates" of the Company,
without restriction or further registration under the Securities Act. The
remaining 8,820,000 shares of Common Stock will be
51
<PAGE>
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemptions
contained in Rule 144 or 701. The Stockholder Parties will have rights to demand
or participate in future registration shares of Common Stock under the
Securities Act initially with respect to 8,820,000 shares of Common Stock. See
"Certain Transactions--The Recapitalization."
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including an "affiliate" of the Company (as that term is
defined under the Securities Act), is entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the then outstanding shares during the four calendar weeks preceding
each such sale. A person (or persons whose shares are aggregated) who is not
deemed an "affiliate" of the Company and who has beneficially owned shares for
at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. Affiliates, including members
of the Board of Directors and senior management, continue to be subject to such
limitations.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors before the date the Company becomes
subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
pursuant to written compensatory benefit plans or written contracts relating to
the compensation of such persons, including the Stock Plan. Securities issued in
reliance on Rule 701 are restricted securities and, beginning 90 days after the
date of this Prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its two-year minimum holding period requirements.
Such securities will be subject, however, to any lock-up agreements related to
such securities.
The Company and all stockholders and executive officers of the Company have
agreed, subject to certain exceptions, not to sell, offer to sell, grant any
option (other than pursuant to the Stock Plan) for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (except for shares offered in the
Offering) for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. See
"Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that public sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock in
the public market (including shares issued upon the exercise of options that may
be granted pursuant to any employee stock option or other equity plan of the
Company), or the perception that such sales could occur, could have an adverse
effect on the market price. If such sales reduce the market price of Common
Stock, the Company's ability to raise additional capital in the equity markets
could be adversely affected. See "Risk Factors--No Prior Public Market and
Possible Volatility of Stock Price" and "--Future Sales of Common Stock; Shares
Eligible for Future Sale."
The Company intends to file a registration statement under the Securities
Act covering 979,020 shares of Common Stock available for issuance under the
Stock Plan. See "Management--1996 Stock Plan." Such registration statement
relating to the Stock Plan is expected to be filed soon after the date of this
Prospectus and will automatically become effective upon filing. As of the date
of this Prospectus, 596,320 shares are subject to outstanding options under the
Stock Plan.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robertson, Stephens &
Company LLC and Jefferies & Company, Inc. are acting as representatives (the
"Representatives"), severally has agreed to purchase the aggregate number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................
Robertson, Stephens & Company LLC..........................................................
Jefferies & Company, Inc...................................................................
----------
Total..................................................................................
----------
----------
</TABLE>
In the Purchase Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock being sold pursuant to such agreement if any of the shares of Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock, and that the Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
At the request of the Company, the Underwriters have reserved up to 480,000
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby. Such persons will be required to agree, subject to certain exceptions,
not to sell or otherwise dispose of any shares of Common Stock, or securities
convertible into or exchangeable or exercisable for Common Stock, without the
prior written consent of the Company, for a period of 60 days (or, in the case
of employees of the Company, 30 days) after the consummation of the Offering.
The Selling Stockholders have granted to the Underwriters an option to
purchase up to an aggregate of 720,000 shares of Common Stock at the initial
public offering price, less the underwriting discount. Such option, which will
expire 30 days after the date of this Prospectus, may be exercised solely to
cover over-allotments. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the option shares
that the number of shares to be purchased initially by that Underwriter is of
the 4,800,000 shares of Common Stock purchased by the Underwriters.
The Company and all stockholders and executive officers of the Company have
agreed, subject to certain exceptions, not to sell, offer to sell, grant any
option (other than pursuant to the Stock Plan) for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or
53
<PAGE>
exchangeable for Common Stock (except for shares offered in the Offering) for a
period of 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives. Among the factors considered in such negotiations, in addition
to prevailing market conditions, will be current market valuations of publicly
traded companies that the Company, the Selling Stockholders and the Underwriters
believe to be reasonably comparable to the Company, an assessment of the
Company's results of operations in recent periods, estimates of the business
potential and earnings prospects of the Company, the current state of the
Company's industry and the economies of the Company's principal markets as a
whole. The initial public offering price set forth on the cover of the
Prospectus should not, however, be considered an indication of the actual value
of the Common Stock. Such price is subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade in
the public market subsequent to the Offering at or above the initial public
offering price. See "Risk Factors--Future Sales of Common Stock; Shares Eligible
for Future Sale" and "-- No Prior Public Market and Possible Volatility of Stock
Price." Application has been made to have the Common Stock approved for
quotation on The Nasdaq Stock Market under the symbol "RSHX."
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company and the Selling Stockholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California, and have been passed upon for the Underwriters by Latham & Watkins,
San Francisco, California. Skadden, Arps, Slate, Meagher & Flom has from time to
time represented certain of the Underwriters in connection with unrelated legal
matters.
EXPERTS
The consolidated financial statements of RSx Holdings, Inc. and Subsidiaries
as of December 31, 1994 and March 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 1993 and 1994, the three month period
ended March 31, 1995 and the year ended March 31, 1996 that appear in this
Prospectus, and the related financial statement schedule that is included in the
Registration Statement, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their reports appearing herein and in the
Registration Statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company or the
Common Stock, reference is made to the Registration Statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such Registration Statement.
The Registration Statement, including exhibits thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024,
54
<PAGE>
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will be also
be available for inspection and copying at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and at
Northwest Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including, without limita-tion, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: international, national and local general economic
and market conditions; demographic changes; the size and growth of the overall
bicycle market or the mountain bike segment thereof; the ability of the Company
to sustain, manage or forecast its growth; the popularity of mountain biking and
suspension products; the size, timing and mix of purchases of the Company's
products; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; dependence on OEMs; liability and other claims
asserted against the Company; competition; the loss of significant customers or
suppliers; fluctuations and difficulty in forecasting operating results; changes
in business strategy or development plans; business disruptions; product
recalls; warranty costs; the ability to attract and retain qualified personnel;
the ability to protect technology; ownership of Common Stock; volatility of
stock price; the use of proceeds from the Offering; retention of earnings; and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Risk Factors," "Use of Proceeds," "Dividend
Policy," "Capitalization," "Dilution," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and "Principal and Selling Stockholders." GIVEN THESE UNCERTAINTIES,
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-
LOOKING STATEMENTS. The Company disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
55
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................................................ F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Pro Forma Condensed Consolidated Balance Sheet............................................................. F-21
Pro Forma Condensed Consolidated Statement of Operations................................................... F-22
Pro Forma Condensed Consolidated Statement of Operations................................................... F-23
Notes to Pro Forma Condensed Consolidated Balance Sheet and Statements of Operations....................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
RSx Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of RSx
Holdings, Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1993 and 1994,
the three month period ended March 31, 1995 and the year ended March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of RSx Holdings,
Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and 1996, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1993 and 1994, the three month period ended March 31, 1995
and the year ended March 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 21, 1996, except for Note 14,
as to which the date is August 23, 1996
F-2
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ------------------
1994 1995 1996
------------ -------- -------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 1,208 $ 1,310 $ 1,808 $ 2,914
Trade accounts receivable, net of allowance for
doubtful accounts of $16 in 1994, $41 in 1995,
$1,432 in 1996 and $1,421 at June 30, 1996..... 6,039 5,390 5,571 5,736
Inventories..................................... 4,059 4,350 8,436 7,762
Prepaid expenses and other current assets....... 415 483 397 779
Deferred income taxes........................... 538 1,507 3,805 3,805
------------ -------- -------- -----------
Total current assets.......................... 12,259 13,040 20,017 20,996
Property and equipment, net....................... 1,116 1,295 4,313 5,211
Capitalized financing costs, net.................. 3,203 2,513 2,353
Other assets, net................................. 118 141 89 105
------------ -------- -------- -----------
Total assets................................ $13,493 $ 17,679 $ 26,932 $ 28,665
------------ -------- -------- -----------
------------ -------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable.......................... $ 3,908 $ 3,069 $ 1,769 $ 5,590
Accounts payable to related party............... 418 733 494 254
Accrued incentive compensation payable to
officers....................................... -- -- 2,125 750
Accrued liabilities............................. 940 3,299 10,302 9,230
Bank line of credit............................. -- 1,250 -- --
Current portion of notes payable to related
parties........................................ 998 250 -- --
Current portion of long-term bank debt.......... -- 2,500 3,000 3,375
------------ -------- -------- -----------
Total current liabilities..................... 6,264 11,101 17,690 19,199
Deferred income taxes............................. 41 -- --
Long-term bank debt, net of current portion....... -- 27,500 24,500 23,375
Notes payable to related parties, net of current
portion.......................................... -- 17,000 17,000 17,000
------------ -------- -------- -----------
Total liabilities............................. 6,305 55,601 59,190 59,574
------------ -------- -------- -----------
Commitments and contingencies (Notes 5 and 8).
Mandatorily redeemable preferred stock issued to
stockholders, $1.00 par value:
Authorized: no shares in 1994 and 9,132 shares
in 1995 and 1996;
Issued and outstanding: no shares in 1994 and
7,000 shares in 1995 and 1996; Redemption and
liquidation value of $7,000 in 1995 and $7,357
in 1996........................................ -- 7,000 7,357 7,449
------------ -------- -------- -----------
Common stock, $0.01 par value:
Authorized: 8,820,000 shares in 1994, 1995 and
1996
and 9,799,020 shares at June 30, 1996;
Issued and outstanding: 8,820,000 shares in
1994, 1995, 1996 and at June 30, 1996.......... 1 88 88 88
Additional paid-in capital........................ -- 412 412 412
Distributions in excess of net book value......... -- (45,422) (45,422) (45,422)
Retained earnings................................. 7,187 5,307 6,564
------------ -------- -------- -----------
Total stockholders' equity (deficit).......... 7,188 (44,922) (39,615) (38,358)
------------ -------- -------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity
(deficit).................................. $13,493 $ 17,679 $ 26,932 $ 28,665
------------ -------- -------- -----------
------------ -------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS YEAR THREE MONTHS
DECEMBER 31, ENDED MARCH 31, ENDED ENDED JUNE 30,
---------------- ---------------- MARCH 31, ----------------
1993 1994 1994 1995 1996 1995 1996
------- ------- ------- ------- --------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................................... $30,941 $37,900 $ 9,936 $14,279 $83,509 $18,784 $21,378
Cost of sales..................................... 20,113 24,477 6,142 9,590 54,110 12,285 13,733
------- ------- ------- ------- --------- ------- -------
Gross profit.................................. 10,828 13,423 3,794 4,689 29,399 6,499 7,645
------- ------- ------- ------- --------- ------- -------
Selling, general and administrative expense....... 5,098 4,210 887 5,404 11,220 2,634 2,916
Research, development and engineering expense..... 1,536 2,073 405 2,223 3,401 777 1,243
------- ------- ------- ------- --------- ------- -------
6,634 6,283 1,292 7,627 14,621 3,411 4,159
------- ------- ------- ------- --------- ------- -------
Income (loss) from operations................. 4,194 7,140 2,502 (2,938) 14,778 3,088 3,486
Interest income................................... 20 15 7 136 -- 49
Interest expense.................................. (36) (21) (9) (58) (5,786) (1,484) (1,341)
------- ------- ------- ------- --------- ------- -------
Income (loss) before income taxes............. 4,178 7,134 2,493 (2,989) 9,128 1,604 2,194
Provision for (benefit from) income taxes......... 1,521 2,420 845 (653) 3,464 610 845
------- ------- ------- ------- --------- ------- -------
Net income (loss)........................... $ 2,657 $ 4,714 $ 1,648 $(2,336) $ 5,664 $ 994 $ 1,349
------- ------- ------- ------- --------- ------- -------
------- ------- ------- ------- --------- ------- -------
Net income (loss)................................. $ 2,657 $ 4,714 $ 1,648 $(2,336) $ 5,664 994 1,349
Accretion for dividends on mandatorily redeemable
preferred stock.................................. -- -- -- -- 357 94 92
------- ------- ------- ------- --------- ------- -------
Net income (loss) available to common
stockholders..................................... $ 2,657 $ 4,714 $ 1,648 $(2,336) $ 5,307 $ 900 $ 1,257
------- ------- ------- ------- --------- ------- -------
------- ------- ------- ------- --------- ------- -------
Net income (loss) per share....................... $ 0.29 $ 0.51 $ 0.18 $ (0.25) $ 0.57 $ 0.10 $ 0.14
------- ------- ------- ------- --------- ------- -------
------- ------- ------- ------- --------- ------- -------
Shares used in per share calculations............. 9,240 9,240 9,240 9,240 9,240 9,240 9,240
------- ------- ------- ------- --------- ------- -------
------- ------- ------- ------- --------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DISTRIBUTIONS
COMMON STOCK ADDITIONAL IN EXCESS OF
-------------- PAID-IN NET BOOK RETAINED
SHARES AMOUNT CAPITAL VALUE EARNINGS TOTAL
------ ------ ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993............... 8,820 $ 1 -- -- $ 166 $ 167
Dividends declared.................... -- -- -- -- (50) (50)
Net income............................ -- -- -- -- 2,657 2,657
------ ------ ----- ------------- -------- --------
Balances, December 31, 1993............. 8,820 1 -- -- 2,773 2,774
Dividends declared.................... -- -- -- -- (300) (300)
Net income............................ -- -- -- -- 4,714 4,714
------ ------ ----- ------------- -------- --------
Balances, December 31, 1994............. 8,820 1 -- -- 7,187 7,188
Net loss.............................. -- -- -- -- (2,336) (2,336)
Issuance of common stock.............. 8,820 1 $499 -- -- 500
Recapitalization and distributions to
stockholders......................... (8,820) 86 (87) $(45,422) (4,851) (50,274)
------ ------ ----- ------------- -------- --------
Balances, March 31, 1995................ 8,820 88 412 (45,422) -- (44,922)
Accretion for dividends on mandatorily
redeemable preferred stock........... -- -- -- -- (357) (357)
Net income............................ -- -- -- -- 5,664 5,664
------ ------ ----- ------------- -------- --------
Balances, March 31, 1996................ 8,820 88 412 (45,422) 5,307 (39,615)
Accretion for dividends on mandatorily
redeemable preferred stock........... -- -- -- -- (92) (92)
Net income............................ -- -- -- -- 1,349 1,349
------ ------ ----- ------------- -------- --------
Balances, June 30, 1996 (unaudited)..... 8,820 $88 $412 $(45,422) $ 6,564 $(38,358)
------ ------ ----- ------------- -------- --------
------ ------ ----- ------------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS YEAR THREE MONTHS ENDED
DECEMBER 31, ENDED MARCH 31, ENDED JUNE 30,
-------------------- -------------------- MARCH 31, --------------------
1993 1994 1994 1995 1996 1995 1996
--------- --------- --------- --------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 2,657 $ 4,714 $ 1,648 $ (2,336) $ 5,664 $ 994 $ 1,349
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 127 193 34 78 1,746 287 616
Provision for doubtful accounts............ -- -- -- 32 1,518 901 --
Provision for excess and obsolete
inventories............................... -- 69 -- -- 2,009 920 --
Deferred income taxes...................... (57) (388) -- (1,010) (2,298) (41) --
Changes in operating assets and
liabilities:
Trade accounts receivable................ (1,927) (2,874) 13 617 (1,699) (1,179) (164)
Inventories.............................. (1,237) (803) 849 (291) (6,095) (1,848) 674
Prepaid expenses and other current
assets.................................. (60) (268) (490) (68) 86 238 (382)
Trade accounts payable and accrued
liabilities............................. 793 1,738 (484) 1,835 7,589 2,846 1,133
--------- --------- --------- --------- ----------- --------- ---------
Net cash provided by (used in)
operating activities.................. 296 2,381 1,570 (1,143) 8,520 3,118 3,226
--------- --------- --------- --------- ----------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment........... (275) (890) (135) (409) (4,074) (586) (1,354)
Other........................................ 2 (1) 1 129 52 -- (16)
--------- --------- --------- --------- ----------- --------- ---------
Net cash used in investing
activities............................ (273) (891) (134) (280) (4,022) (586) (1,370)
--------- --------- --------- --------- ----------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of bank debt.......... -- -- -- 31,250 -- -- --
Repayment of short-term borrowings and
bank debt................................... (20) -- -- -- (3,750) (1,875) (750)
Payment of financing costs................... -- -- -- (3,203) -- -- --
Repayment of notes payable to related
parties..................................... (1,581) (1,345) (170) (998) (250) (250) --
Issuance of notes payable to related
parties..................................... 1,770 998 -- 11,250 -- -- --
Proceeds from issuance of mandatorily
redeemable preferred stock.................. -- -- -- 3,000 -- -- --
Payment of dividends......................... (20) (300) -- -- -- -- --
Proceeds from issuance of common stock....... -- -- -- 500 -- -- --
Distributions related to reorganization...... -- -- -- (40,274) -- -- --
--------- --------- --------- --------- ----------- --------- ---------
Net cash provided by (used in)
financing activities.................. 149 (647) (170) 1,525 (4,000) (2,125) (750)
--------- --------- --------- --------- ----------- --------- ---------
Net increase in cash and cash equivalents...... 172 843 1,266 102 498 407 1,106
Cash and cash equivalents, beginning of
period........................................ 193 365 365 1,208 1,310 1,310 1,808
--------- --------- --------- --------- ----------- --------- ---------
Cash and cash equivalents, end of period....... $ 365 $ 1,208 $ 1,631 $ 1,310 $ 1,808 $ 1,717 $ 2,914
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Supplemental disclosure of cash flow
information:
Income taxes paid............................ $ 1,298 $ 3,232 -- -- $ 4,180 $ 25 $ 1,292
Interest paid................................ 5 21 -- $ 21 4,939 588 1,741
Dividends declared but not paid.............. 30 -- -- -- -- -- --
Noncash distributions in excess of net book
value--Mandatorily redeemable preferred
stock....................................... -- -- -- 4,000 -- -- --
Noncash distributions in excess of net book
value--Junior subordinated notes............ -- -- -- 6,000 -- -- --
Accretion for dividends on mandatorily
redeemable preferred stock.................. -- -- -- -- 357 94 92
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. RECAPITALIZATION AND NATURE OF OPERATIONS:
RECAPITALIZATION:
RSx Holdings, Inc. (the Company) was formed in March 1995 as a holding
company which acquired all of the outstanding shares of capital stock of
RockShox, Inc., a California corporation (Old RockShox) and the predecessor of
ROCKSHOX, INC., a Delaware corporation (RockShox), in a series of transactions
that occurred on March 24, 1995. On March 24, 1995, the stockholders of Old
RockShox transferred all of the outstanding shares of capital stock of Old
RockShox to the Company and RSx Acquisition, Inc. (Acquisition). In exchange
therefor, the stockholders of Old RockShox received consideration of
$50,274,000, which consisted of $39,049,000 of cash, $6,000,000 aggregate
principal amount of junior subordinated notes payable of the Company (junior
notes), $4,000,000 of non-convertible mandatorily redeemable Series B preferred
stock of the Company (Series B Preferred Stock), 50% of the common stock of the
Company and $1,225,000 paid to third parties for fees and expenses on behalf of
the Old RockShox stockholders. The Company then acquired all of the capital
stock of Acquisition and contributed to Acquisition all of the Company's shares
of capital stock of Old RockShox, whereupon Old RockShox became a wholly owned
subsidiary of Acquisition. Old RockShox was then merged into Acquisition and
Acquisition changed its name to ROCKSHOX, INC. The transactions described in
this paragraph are collectively referred to as the Recapitalization.
As part of the Recapitalization, MCIT PLC and other persons and entities
affiliated with The Jordan Company (Jordan) purchased the remaining 50% of the
common stock of the Company, $11,000,000 aggregate principal amount of senior
subordinated notes payable of the Company (senior notes and, together with the
junior notes, subordinated notes) and $3,000,000 of non-convertible mandatorily
redeemable Series A preferred stock of the Company (Series A Preferred Stock)
for an aggregate purchase price of approximately $14,500,000. Acquisition also
entered into a $36,000,000 bank credit facility in connection with the
Recapitalization pursuant to which Acquisition borrowed $30,000,000 under a term
loan, and was permitted to borrow up to $6,000,000 under a bank line of credit.
The transaction has been accounted for as a recapitalization and
accordingly, no change in the accounting basis of Old RockShox assets has been
made in the accompanying consolidated financial statements. The amount of
consideration paid and securities issued to the stockholders of Old RockShox of
$50,274,000 exceeded Old RockShox's net assets of $4,852,000 on the date of the
Recapitalization by $45,422,000. This amount has been recorded within the equity
section as distributions in excess of net book value.
NATURE OF OPERATIONS:
The Company designs, manufactures and markets high performance bicycle
suspension products. The Company currently markets ten front suspension forks
and three rear shocks under its JUDY, INDY, QUADRA, MAG and DELUXE product
lines. The Company's products are primarily sold to bicycle manufacturers
(OEMs), who incorporate ROCKSHOX branded components as part of new, fully
assembled mountain bikes sold worldwide, and directly to independent bicycle
dealers (IBDs) and through distributors (together with IBDs, the retail
accessory market). For the years ended December 31, 1993 and 1994, the three
months ended March 31, 1995, the year ended March 31, 1996 and the three months
ended June 30, 1996, approximately 63%, 65%, 62%, 68% and 62%, respectively, of
the Company's total net sales were to OEMs. For the years ended December 31,
1993 and 1994, the three months ended March 31, 1995, the year ended March 31,
1996 and the three months ended June 30, 1996, approximately 37%, 35%, 38%, 32%
and 38%, respectively, of the Company's total net sales were to the retail
accessory market.
F-7
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions and amounts
have been eliminated.
FISCAL YEAR END:
Effective March 31, 1995, the Company changed its fiscal year end from
December 31 to March 31 to more closely correspond with the Company's product
model year and business cycle.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES:
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks and, therefore,
any material decline or prolonged lack of growth in the popularity of, or market
demand for, mountain bike suspension forks, in general, or the Company's
products, in particular, could have a material adverse effect on the Company or
its prospects. The markets for bicycle components, in general, and bicycle
suspension products, in particular, are highly competitive. In order to build or
retain its market share, the Company must continue to successfully compete in
the areas that influence the purchasing decisions of OEMs, distributors, IBDs
and consumers, including design, price, quality, technology, distribution,
marketing, style, brand image and customer service.
The Company does not currently have long-term contracts with any of its
vendors, nor does the Company currently have multiple vendors for all parts,
tooling, supplies or services critical to the Company's manufacturing processes.
Failure of a key supplier to meet the Company's product needs on a timely basis,
loss of a key supplier or significant disruption in the Company's production or
distribution activities for any other reason, including an earthquake or other
catastrophic event, could have a material adverse effect on the Company or its
prospects.
While the Company is currently manufacturing its products only in the United
States, the bicycle industry is, and many of the Company's OEM customers are,
highly dependent on manufacturing in overseas locations. Changes in economic
conditions, currency exchange rates, tariff regulations, local content laws or
other trade restrictions or political instability (International Conditions)
could adversely affect the cost or availability of products sold by or to the
bicycle industry as a whole and the Company's OEM customers in particular, any
of which could have a material adverse effect on the Company or its prospects.
In addition, insufficient international consumer demand for mountain bikes and
related products, including the Company's products, whether due to changes in
International Conditions, consumer preferences or other factors, could have a
material adverse effect on the Company or its prospects.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to concentrations
of credit risk consist principally of trade accounts receivable and cash and
cash equivalents.
F-8
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company performs ongoing credit evaluations, generally does not require
collateral of its customers and maintains allowances for potential credit
losses. At March 31, 1996, three OEM customers accounted for 32.3%, 16.3% and
12.9% of accounts receivable. At March 31, 1995, two OEM customers accounted for
16.1% and 9.8% of accounts receivable. At December 31, 1994, two OEM customers
accounted for 21.3% and 14.3% of accounts receivable. (See Note 13 for
concentrations of revenue.)
Substantially all cash balances are held in two financial institutions
domiciled in the United States.
CASH EQUIVALENTS:
The Company considers all investments purchased with original or remaining
maturities of less than three months at the date of purchase to be cash
equivalents.
INVENTORIES:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of one to seven years using the straight line method.
Leasehold improvements are amortized over the length of the lease or estimated
useful life, whichever is less. Major additions and betterments are capitalized,
while replacements, maintenance and repairs that do not improve or extend the
life of the assets are charged to expense. In the period assets are retired or
otherwise disposed of, the costs and related accumulated depreciation and
amortization are removed from the accounts, and any gain or loss on disposal is
included in results of operations.
CAPITALIZED FINANCING COSTS:
Capitalized financing costs associated with the issuance of the bank debt
and subordinated notes are being amortized over the terms of the related debt
using the straight-line method for the line of credit and the interest method
for the term loan and subordinated notes. Amortization expense for the year
ended March 31, 1996 was $690,000. There was no amortization expense for the
years ended December 31, 1993 and 1994 and the amount was immaterial for the
three month period ended March 31, 1995.
REVENUE RECOGNITION:
The Company recognizes revenue, net of allowances for estimated returns,
upon shipment of product.
RESEARCH, DEVELOPMENT AND ENGINEERING:
Research, development and engineering expenses are charged to operations as
incurred.
WARRANTY:
All of the Company's suspension products are covered by a one-year limited
warranty. Estimated future costs of repair, replacement or customer accomodation
are accrued and charged to cost of sales based upon estimates of future product
returns and repair costs derived from historical product sales information and
analyses of historical data. In estimating the level of accrual, the Company's
management makes assumptions relating to the level of product returns and costs
of repair. Management reviews the adequacy of these assumptions based on
historical experience.
ADVERTISING COSTS:
Advertising costs are charged to operations as incurred. Advertising costs
were $523,000, $594,000, $342,000 and $1,089,000 for the years ended December
31, 1993 and 1994, the three months ended March 31, 1995 and the year ended
March 31, 1996, respectively.
F-9
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES:
The Company's provision for (benefit from) income taxes comprises its
estimated tax liability currently payable and the change in its deferred income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the period in which the differences are expected
to affect taxable income.
RECENT ACCOUNTING PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" (SFAS 121), which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 will
become effective for the Company's 1997 fiscal year. The Company has studied the
implications of SFAS No. 121 and, based on its initial evaluation, does not
expect SFAS 121 to have a material impact on the Company's financial condition
or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
established a fair value based method of accounting for stock-based compensation
plans. The Company is currently following the requirements of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company plans to adopt SFAS 123 during fiscal 1997 utilizing the disclosure
alternative.
COMPUTATION OF NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed using the weighted average number of
common shares outstanding during the period and, pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve months preceding the filing date of
RockShox's initial public offering (the Offering) have been included in the
calculation of the number of shares used to determine net income (loss) per
share as if the shares had been outstanding for all periods presented using the
treasury stock method.
INTERIM FINANCIAL DATA (UNAUDITED):
The unaudited financial statements for the three months ended March 31,
1994, June 30, 1995 and June 30, 1996 have been prepared on the same basis as
the audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and results of operations in accordance with
generally accepted accounting principles.
RECLASSIFICATIONS:
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the fiscal 1996 presentation. These reclassifications
did not change previously reported stockholders' equity (deficit) or net income
(loss).
F-10
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
3. INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials............................................ $ 3,493 $ 2,719 $ 5,320 $ 5,889
Finished goods........................................... 566 1,631 3,116 1,873
------ --------- --------- -----------
$ 4,059 $ 4,350 $ 8,436 $ 7,762
------ --------- --------- -----------
------ --------- --------- -----------
</TABLE>
Any misjudgment by the Company or any of its OEM customers of the demand for
any of its respective products may cause the Company's excess and obsolete
inventory to exceed estimated allowances for such inventory.
4. PROPERTY AND EQUIPMENT, NET (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures.................................. $ 708 $ 777 $ 1,553 $ 2,049
Machinery and equipment................................. 493 669 2,870 3,425
Leasehold improvements.................................. 121 141 251 230
------ --------- --------- -----------
1,322 1,587 4,674 5,704
Less accumulated depreciation and amortization.......... (359) (437) (1,493) (1,672)
------ --------- --------- -----------
963 1,150 3,181 4,032
Construction in progress................................ 153 145 1,132 1,179
------ --------- --------- -----------
$ 1,116 $ 1,295 $ 4,313 $ 5,211
------ --------- --------- -----------
------ --------- --------- -----------
</TABLE>
Depreciation and amortization expense on property and equipment for the
years ended December 31, 1993 and 1994, the three months ended March 31, 1995
and the year ended March 31, 1996 was $127,000, $193,000, $78,000 and
$1,056,000, respectively.
5. ACCRUED LIABILITIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accrued payroll and benefits........................... $ 524 $ 396 $ 1,401 $ 1,169
Accrued income taxes payable........................... 507 1,823 1,357
Accrued warranty....................................... 50 300 4,231 4,731
Accrued interest payable............................... 55 902 321
Accrued reorganization costs........................... 995
Other.................................................. 366 1,046 1,945 1,652
------ --------- --------- -----------
$ 940 $ 3,299 $ 10,302 $ 9,230
------ --------- --------- -----------
------ --------- --------- -----------
</TABLE>
F-11
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
5. ACCRUED LIABILITIES (IN THOUSANDS): (CONTINUED)
The Company had $4,231,000 and $4,731,000 in accrued warranty costs at March
31 and June 30, 1996, respectively. There can be no assurance that such accrued
liabilities may not change in the future or that future warranty costs for sales
made through such dates will not be greater than the amounts accrued by the
Company on its consolidated financial statements, either of which could have a
material adverse effect on the Company or its prospects. No provision for these
possible excess warranty costs has been recorded in the accompanying financial
statements.
6. RELATED PARTY TRANSACTIONS:
CONSULTING AND EMPLOYMENT AGREEMENTS:
In connection with the Recapitalization on March 24, 1995 (see Note 1), the
Company entered into annual employment agreements (the Employment Agreements)
with the Company's President and Vice President of Advanced Research, and a
management consulting agreement (the Consulting Agreement) with an affiliate of
Jordan.
The Employment Agreements are dated as of March 24, 1995, were initially for
one-year terms and automatically renew for additional one-year terms, not to
exceed four one-year renewal terms in total, at the election of the applicable
officer. Under the terms of the Employment Agreements, initial payments of an
aggregate of $4,700,000 were made, of which $2,820,000 was charged to selling,
general and administrative expense and $1,880,000 was charged to research and
development expense in the statement of operations for the three month period
ended March 31, 1995. The Employment Agreements provide for aggregate annual
salaries of $500,000 plus certain additional incentive compensation pursuant to
a bonus plan (the Bonus Plan). The payments under the Bonus Plan are based upon
the Company's operating results up to maximum aggregate payments of $3,000,000
for any one fiscal year during the period commencing April 1, 1995 and ending
March 31, 2000, but not to exceed an aggregate of $10,000,000 during such
period, for the Company's President and Vice President of Advanced Research.
Aggregate incentive compensation earned under the Bonus Plan was $2,125,000 for
the fiscal year ended March 31, 1996, of which $1,062,500 was charged to
selling, general and administrative expense and $1,062,500 was charged to
research and development expense in the statement of operations.
The Consulting Agreement is dated as of March 24, 1995 and generally
continues until April 1, 2000. Under the terms of the Consulting Agreement, an
affiliate of Jordan is entitled to a quarterly consulting fee of $62,500,
potential fees relating to certain future transactions and reimbursement for any
reasonable expenses.
NOTES PAYABLE:
In connection with the Recapitalization, the Company issued $11,000,000
aggregate principal amount of senior notes to MCIT PLC and $6,000,000 aggregate
principal amount of junior notes to certain stockholders of the Company (see
Note 1). Each of the subordinated notes bear interest at 13.5% per annum, with
the interest payable semi-annually. Principal payments begin in 2003, with the
final installments on the senior notes and the junior notes due in 2005 and
2006, respectively.
The senior notes include provisions to accelerate payment based upon default
or violation of restrictive covenants contained in the Company's bank debt
agreement (see Note 7). The agreement pursuant to which the senior notes were
issued contains a covenant that requires the Company to maintain a certain
financial ratio and prohibits the payment of any dividend or distribution on
account of any class of the Company's capital stock, except a dividend payable
solely in shares of that class of stock, or a dividend payable to holders of
Series A and B Preferred Stock provided sufficient funds are available.
F-12
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
The Company and MCIT PLC entered into a pledge agreement pursuant to which
the Company pledged to MCIT PLC, as agent for all holders of senior notes, a
continuing security interest in and to all issued and outstanding shares of
capital stock of Acquisition, including all payments and rights with respect
thereto and all proceeds thereof.
At March 31, 1995, the Company had a noncollateralized note payable of
$250,000 to a stockholder due June 24, 1995. The Company repaid this note during
fiscal 1996.
INVENTORY PURCHASES:
For the years ended December 31, 1993 and 1994, the three months ended March
31, 1995 and the year ended March 31, 1996, the Company paid $3,595,000,
$3,118,000, $1,271,000 and $8,529,000, respectively, to a supplier of raw
materials. Prior to March 18, 1994, the President of the Company owned 50% of
the common stock of this supplier. The President sold such stock on March 18,
1994. The President provides consulting services to this supplier, in
consideration of which the President receives payments of approximately 3% of
this supplier's net sales (as defined), generally through 2002.
STOCKHOLDERS AGREEMENT:
The Company, Stephen Simons, Debra Simons, Paul Turner, MCIT PLC and certain
other persons and entities affiliated with Jordan (collectively, the Stockholder
Parties) have entered into a subscription and stockholders agreement, dated
March 24, 1995 (the Stockholders Agreement), pursuant to which each Stockholder
Party agreed to vote all shares of common stock of the Company owned by such
Stockholder Party to maintain a Board of Directors consisting of four members,
two nominated by Stephen Simons and Paul Turner and two nominated by the
Stockholder Parties other than Messrs. Simons and Turner and Debra Simons. The
Stockholders Agreement also imposes certain restrictions on transferability of
the shares of common stock of the Company owned by the Stockholder Parties. Such
voting provisions and restrictions on transfer will terminate upon the
consummation of the Offering. The Stockholders Agreement also provides MCIT PLC
with the right, subject to certain exceptions, to include its shares of common
stock of the Company in a registration statement proposed to be filed by
RockShox in connection with any public offering. Such provision will terminate
upon the consummation of the Offering.
7. BANK DEBT:
The Company's wholly owned subsidiary, RockShox, has a bank line of credit,
subject to renewal on March 31, 2001, under which it may borrow up to
$6,000,000. At March 31, 1996, no borrowings were outstanding under the bank
line of credit. Borrowings under the bank line of credit are guaranteed by the
Company.
In connection with the Recapitalization (see Note 1), Acquisition entered
into a bank term loan of $30,000,000, pursuant to which escalating quarterly
installment payments began on June 30, 1995 with the final installment due on
March 31, 2001. The annual principal maturities during the years ending March
31, are as follows (IN THOUSANDS):
<TABLE>
<S> <C>
1997....................................................................... $ 3,000
1998....................................................................... 4,500
1999....................................................................... 5,600
2000....................................................................... 6,800
2001....................................................................... 7,600
---------
$ 27,500
---------
---------
</TABLE>
F-13
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
7. BANK DEBT: (CONTINUED)
Both the bank line of credit and the term loan are collateralized by the
assets of the Company and bear interest at a floating rate that changes
depending on the Company's leverage ratio, subject to a maximum annual borrowing
rate, as defined in the agreement (8.56% at March 31, 1996). Interest is payable
quarterly. The credit agreement contains covenants, the more restrictive of
which requires the maintenance of various financial ratios and, among other
things, restricts additional borrowings and the sale of assets. In addition, the
credit agreement restricts the ability of RockShox to pay a dividend or other
distribution on account of any shares of any class of capital stock of Rockshox,
except a dividend payable solely in shares of that class of stock or in any
junior class of stock to the holders of that class.
The credit agreement contains certain prepayment requirements relating to
the cash flows of RockShox, sale of certain assets and additional issuance of
debt. The Company is required to make a mandatory prepayment on June 30
following the end of the fiscal year, beginning June 30, 1996, based on a
percentage of excess cash flow, as defined in the agreement. At March 31, 1996,
the Company was not required to make any prepayment under the excess cash flow
requirements.
8. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS:
The Company leases its plant and sales facilities and certain of its
equipment under noncancelable operating leases that expire at various times
through 2001. Certain of these leases require escalating monthly payments and,
therefore, periodic rent expense is being recognized on a straight-line basis.
Under these leases, the Company is responsible for maintenance costs, including
real property taxes, utilities and other costs. Also, certain of these leases
contain renewal options.
Total rent expense for these leases for the years ended December 31, 1993
and 1994, the three months ended March 31, 1995, the year ended March 31, 1996
and the three months ended June 30, 1996 was $163,000, $292,000, $97,000,
$520,000 and $229,000, respectively. Following is a summary, by fiscal year, of
future minimum lease payments under operating leases at June 30, 1996 (IN
THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR EQUIPMENT BUILDING TOTAL
- ------------------------------------------------------------------------ ------------- ----------- ---------
<S> <C> <C> <C>
1997.................................................................... $ 64 $ 904 $ 968
1998.................................................................... 64 863 927
1999.................................................................... 64 862 926
2000.................................................................... 64 878 942
2001.................................................................... 64 633 697
----- ----------- ---------
Total minimum lease payments............................................ $ 320 $ 4,140 $ 4,460
----- ----------- ---------
----- ----------- ---------
</TABLE>
CONTINGENCIES:
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. Management believes that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
F-14
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
9. MANDATORILY REDEEMABLE PREFERRED STOCK ISSUED TO STOCKHOLDERS:
In connection with the Recapitalization, the Company issued 3,000 shares of
Series A Preferred Stock and 4,000 shares of Series B Preferred Stock, both at a
price of $1,000 per share. The rights, preferences and privileges of holders of
the Series A Preferred Stock and Series B Preferred Stock are as follows:
DIVIDENDS:
Holders of Series A Preferred Stock are entitled to receive, at the option
of the Board of Directors, either stock dividends at an annual rate of 5% per
share or cash dividends at an annual rate of $50 per share. Stock dividends
accrue if no cash dividends are declared. Holders of Series B Preferred Stock
are entitled to receive cash dividends at an annual rate of $50 per share.
Dividends are cumulative and accrue from the date of issuance whether or not
earned or declared.
REDEMPTION:
The Company has the option to redeem the Series A Preferred Stock and the
Series B Preferred Stock at any time for $1,000 per share plus accrued but
unpaid dividends thereon (the Redemption Price). All shares of Series A
Preferred Stock and Series B Preferred Stock must be redeemed by the Company by
payment of the Redemption Price on July 31, 2006 or earlier, in connection with
a merger, consolidation or sale of substantially all the Company's assets, in
each case if the Company's common stockholders hold a minority of the voting
stock of the corporation that survived the merger or consolidation or that
purchased substantially all of the Company's assets. Payment of any optional or
mandatory redemption amounts cannot be made if such payment results in any
default under the Company's debt obligations. Holders of Series A Preferred
Stock will receive payment of the Redemption Price before any redemption of
Series B Preferred Stock.
F-15
<PAGE>
RSx HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information as of June 30, 1996 and for the three months ended
March 31, 1994, June 30, 1995 and 1996 is unaudited)
9. MANDATORILY REDEEMABLE PREFERRED STOCK ISSUED TO STOCKHOLDERS: (CONTINUED)
The mandatory redemption requirements include cumulative unpaid dividends.
Assuming no liquidity event, and no payment of dividends, the mandatory
redemption requirements total $12,184,000, all payable in 2006.
LIQUIDATION:
In the event of any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, holders of Series A Preferred Stock have a
liquidation preference over holders of Series B Preferred Stock and common stock
of $1,000 per share plus all accrued but unpaid dividends thereon. Holders of
Series B Preferred Stock have a liquidation preference over holders of common
stock of $1,000 per share plus all accrued but unpaid dividends thereon.
10. INCOME TAXES:
The components of the provision for (benefit from) income taxes, all of
which arise from domestic income, are summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED THREE
DECEMBER 31, MONTHS YEAR ENDED
-------------------- ENDED MARCH MARCH 31,
1993 1994 31, 1995 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
State...................................................... $ 378 $ 558 $ 45 $ 1,127
Federal.................................................... 1,200 2,250 312 4,635
--------- --------- ----------- -----------
1,578 2,808 357 5,762
--------- --------- ----------- -----------
Deferred:
State...................................................... (10) (48) (150) (281)
Federal.................................................... (47) (340) (860) (2,017)
--------- --------- ----------- -----------
(57) (388) (1,010) (2,298)
--------- --------- ----------- -----------
$ 1,521 $ 2,420 $ (653) $ 3,464
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provision for (benefit from) income
taxes reflected in the statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS YEAR ENDED
------------------------ ENDED MARCH MARCH 31,
1993 1994 31, 1995 1996
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
United States statutory rate............................... 34.0% 34.0% (34.0)% 35.0%
States taxes, net of federal benefit....................... 6.1 4.6 (5.0) 5.1
Other...................................................... (3.7) (4.7) 17.2 (2.2)
----- ----- ----- -----
36.4% 33.9% (21.8)% 37.9%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-16
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
10. INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and liability are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
Net operating losses.................................................. $ 1,350
Allowance for doubtful accounts....................................... $ 6 9 $ 681
Allowance for excess and obsolete inventory........................... 19 685
Accrued liabilities................................................... 128 73 1,650
Other................................................................. 344 75 789
----- --------- ---------
Net deferred tax asset............................................ $ 497 $ 1,507 $ 3,805
----- --------- ---------
----- --------- ---------
</TABLE>
No valuation allowance has been recorded as management believes the net
deferred tax asset will be realized in future periods through carryback to prior
years when the Company paid income taxes or through estimated future taxable
income. The amount of the deferred tax asset that is realizable could be reduced
in the near term if actual results differ significantly from estimates of future
taxable income.
11. EMPLOYEE BENEFIT PLAN:
The Company has established a defined contribution plan that is intended to
qualify under Section 401 of the Internal Revenue Code (the Plan). The Plan
covers substantially all officers and employees of the Company. Company
contributions to the Plan are determined at the discretion of the Board of
Directors. No Company contributions were made to the Plan for the years ended
December 31, 1993 and 1994, the three months ended March 31, 1995 or the year
ended March 31, 1996.
12. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE:
The following methods and assumptions were used in estimating the fair
values of financial instruments:
CASH AND CASH EQUIVALENTS:
The carrying amounts for cash and cash equivalents approximate their
estimated fair values because of the short maturity of those financial
instruments.
MANDATORILY REDEEMABLE PREFERRED STOCK AND NOTES PAYABLE TO RELATED
PARTIES:
No estimates of the fair values of these financial instruments with
related parties could be made without incurring excessive costs (see Note
6).
LONG-TERM DEBT:
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the carrying amounts for long-term debt
approximate their estimated fair value.
F-17
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company currently operates in one industry segment, the suspension class
of the bicycle industry, for financial reporting purposes. Summarized below are
the Company's export sales (including sales to domestic OEM's of products
shipped to their overseas manufacturing subcontractors), all of which are
denominated in U.S. dollars: (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, THREE MONTHS
-------------------- ENDED YEAR ENDED
1993 1994 MARCH 31, 1995 MARCH 31, 1996
--------- --------- --------------- --------------
<S> <C> <C> <C> <C>
Asia........................................ $ 7,234 $ 10,563 $ 2,800 $ 22,813
Europe...................................... 4,698 6,096 1,961 13,708
Other....................................... 1,838 2,072 964 4,091
--------- --------- ------ -------
$ 13,770 $ 18,731 $ 5,725 $ 40,612
--------- --------- ------ -------
--------- --------- ------ -------
</TABLE>
Revenues from individual customers in excess of 10% of net sales were as
follows (IN THOUSANDS, EXCEPT PERCENT DATA):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------- THREE MONTHS ENDED
YEAR ENDED
1993 1994 MARCH 31, 1995 MARCH 31, 1996
---------------------- ---------------------- ---------------------- ----------------------
CUSTOMER PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
- ------------------------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A........................ 10.7% $ 4,061 14.5% $ 2,073 17.9% $ 14,950
B........................ 17.5% $ 5,419 12.2% $ 1,737
</TABLE>
14. SUBSEQUENT EVENTS:
In May 1996, the Company's Board of Directors adopted and the Company's
stockholders approved the 1996 Stock Plan (the Stock Plan). The Stock Plan
provides for the issuance of up to a maximum of 979,020 shares of common stock
pursuant to awards under the Stock Plan. The Company has reserved 979,020 shares
of common stock for issuance under the Stock Plan. Under the Stock Plan,
incentive stock options may be granted to employees of the Company or any parent
or subsidiary thereof, and nonstatutory stock options and stock purchase rights
may be granted to employees and directors of the Company or any parent or
subsidiary thereof.
The exercise price of options will be determined by the compensation
committee of the Board of Directors of RockShox upon the establishment thereof,
provided that (i) incentive stock options may not be granted with option
exercise prices less than the fair market value (as defined in the Stock Plan)
of the common stock on the date of grant, (ii) options granted to an employee
who, at the time of such grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent,
subsidiary or predecessor of the Company may not have an exercise price less
than 110% of the fair market value of the common stock as of the date of grant
and (iii) nonstatutory stock options may not be granted with option prices less
than 85% of the fair market value of the common stock on the date of grant.
Unless otherwise provided in the option agreement, each option will become
exercisable for 20% of the shares of common stock underlying such option each
year. Options expire no more than ten years after the date of grant, other than
incentive stock options granted to an optionee who, at the time of such grant,
owns stock representing more than 10% of the voting power of all classes of
stock of the Company or any parent or subsidiary of the Company, which will
expire no more than five years from the date of grant.
F-18
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1994, JUNE 30, 1995 AND 1996 IS UNAUDITED)
14. SUBSEQUENT EVENTS: (CONTINUED)
During May 1996, certain employees were granted stock options to purchase an
aggregate of 596,320 shares of common stock pursuant to the Stock Plan at
exercise prices of $4.39 and $4.69 per share. At June 30, 1996, options to
purchase 94,780 shares of common stock were exercisable.
In June 1996, the Board of Directors approved an increase in the number of
authorized shares of common stock to 9,799,020.
During August 1996, the Board of Directors and stockholders of the Company
approved the transactions contemplated by the Agreement and Plan of Merger
between the Company and RockShox pursuant to which, among other things, the
Company will be merged with and into RockShox (the Merger) and each share of
common stock of the Company will be converted into 88.2 shares of common stock
of RockShox (the Exchange Ratio). All share and per share data in the
accompanying financial statements have been retroactively restated to reflect
the Merger and the Exchange Ratio.
F-19
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENTS OF OPERATIONS
(UNAUDITED)
The accompanying unaudited pro forma condensed consolidated balance sheet as
of June 30, 1996 and statements of operations for the year ended March 31, 1996
and the three month period ended June 30, 1996 give effect to certain
transactions which will take place upon the closing of the Offering as if the
transactions had taken place as of June 30, 1996 in the case of the pro forma
condensed consolidated balance sheet and, April 1, 1995 and April 1, 1996 in the
case of the respective pro forma condensed consolidated statement of operations.
The pro forma condensed consolidated balance sheet and statements of
operations are not necessarily indicative of future operations or the actual
results that would have occurred had the transactions occurred on the date of
such balance sheet or at the beginning of the period presented in such
statements of operations. The pro forma information and related adjustments are
based upon available information and upon certain assumptions which the Company
believes are reasonable. The pro forma condensed consolidated balance sheet and
statements of operations should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto contained elsewhere herein.
F-20
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
JUNE 30, ADJUSTMENTS JUNE 30,
1996 (NOTE 1) 1996
---------- ---------------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 2,914 $ 2,914
Trade accounts receivable, net................................. 5,736 5,736
Inventories.................................................... 7,762 7,762
Prepaid expenses and other current assets...................... 779 779
Deferred income taxes.......................................... 3,805 $ 3,606(e) 7,411
---------- -------- ----------
Total current assets......................................... 20,996 3,606 24,602
Property and equipment, net.................................... 5,211 5,211
Capitalized financing costs, net............................... 2,353 $ (2,353)(c) --
Other assets, net.............................................. 105 105
---------- -------- ----------
Total assets............................................. $ 28,665 $ 1,253 $ 29,918
---------- -------- ----------
---------- -------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable......................................... $ 5,590 -- $ 5,590
Accounts payable to related party.............................. 254 -- 254
Accrued incentive compensation payable to officers............. 750 (656)(d) 94
Accrued liabilities............................................ 9,230 -- 9,230
Current portion of long-term bank debt......................... 3,375 $ (3,375)(b) --
---------- -------- ----------
Total current liabilities.................................... 19,199 (4,031) 15,168
Long-term bank debt, net of current portion...................... 23,375 (23,375)(b) --
Notes payable to related parties, net of current portion......... 17,000 (17,000)(b) --
---------- -------- ----------
Total liabilities.......................................... 59,574 (44,406) 15,168
---------- -------- ----------
Mandatorily redeemable preferred stock........................... 7,449 (7,449)(b) --
---------- -------- ----------
Common stock, $0.01 par value,
Authorized: 9,799,020 shares actual,
50,000,000 shares pro forma;
Issued and outstanding: 8,820,000 shares actual,
13,479,000 shares pro forma................................... 88 47(a) 135
Additional paid-in capital....................................... 412 58,469(a) 58,881
Distributions in excess of net book value........................ (45,422) -- (45,422)
Retained earnings................................................ 6,564 (5,408)(c)(d)(e) 1,156
---------- -------- ----------
Total stockholders' equity (deficit)....................... (38,358) 53,108 14,750
---------- -------- ----------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit)...................... $ 28,665 $ 1,253 $ 29,918
---------- -------- ----------
---------- -------- ----------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated balance sheet and statements of operations.
F-21
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS PRO FORMA THREE MONTHS
ENDED JUNE ADJUSTMENTS ENDED JUNE
30, 1996 (NOTE 2) 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales............................................................ $ 21,378 -- $ 21,378
Cost of sales........................................................ 13,733 -- 13,733
------------- -------------
Gross profit..................................................... 7,645 -- 7,645
------------- -------------
Selling, general and administrative expense.......................... 2,916 (312)(f) 2,604
Research, development and engineering expense........................ 1,243 (344)(f) 899
------------- ------ -------------
4,159 (656) 3,503
------------- ------ -------------
Income from operations........................................... 3,486 656 4,142
Interest income...................................................... 49 -- 49
Interest expense..................................................... (1,341) 1,341(g) --
------------- ------ -------------
Income before income taxes....................................... 2,194 1,997 4,191
Provision for income taxes........................................... 845 799(i) 1,644
------------- ------ -------------
Net income....................................................... $ 1,349 $ 1,198 $ 2,547
------------- ------ -------------
------------- ------ -------------
Net income........................................................... $ 1,349 $ 1,198 $ 2,547
Accretion for dividends on mandatorily redeemable preferred stock.... 92 (92)(h) --
------------- ------ -------------
Net income available to common stockholders.......................... $ 1,257 $ 1,290 $ 2,547
------------- ------ -------------
------------- ------ -------------
Net income per share................................................. $ 0.14 $ 0.18
------------- -------------
------------- -------------
Shares used in per share computation................................. 9,240 4,659 (j) 13,899
------------- ------ -------------
------------- ------ -------------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated balance sheet and statements of operations.
F-22
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR PRO FORMA
ENDED PRO FORMA YEAR ENDED
MARCH 31, ADJUSTMENTS MARCH 31,
1996 (NOTE 2) 1996
------------ ----------------- ------------
<S> <C> <C> <C>
Net sales.......................................................... $ 83,509 -- $ 83,509
Cost of sales...................................................... 54,110 -- 54,110
------------ ------------
Gross profit................................................... 29,399 -- 29,399
------------ ------------
Selling, general and administrative expense........................ 11,220 (812)(f) 10,408
Research, development and engineering expense...................... 3,401 (938)(f) 2,463
------------ ----------------- ------------
14,621 (1,750) 12,871
------------ ----------------- ------------
Income from operations......................................... 14,778 1,750 16,528
Interest income.................................................... 136 -- 136
Interest expense................................................... (5,786) 5,786(g) --
------------ ----------------- ------------
Income before income taxes..................................... 9,128 7,536 16,664
Provision for income taxes......................................... 3,464 3,014(i) 6,478
------------ ----------------- ------------
Net income..................................................... $ 5,664 $ 4,522 $ 10,186
------------ ----------------- ------------
------------ ----------------- ------------
Net income......................................................... $ 5,664 $ 4,522 $ 10,186
Accretion for dividends on mandatorily redeemable preferred
stock............................................................ 357 (357)(h) --
------------ ----------------- ------------
Net income available to common stockholders........................ $ 5,307 $ 4,879 $ 10,186
------------ ----------------- ------------
------------ ----------------- ------------
Net income per share............................................... $ 0.57 $ 0.73
------------ ------------
------------ ------------
Shares used in per share computation............................... 9,240 4,659 (j) 13,899
------------ ----------------- ------------
------------ ----------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated balance sheet and statements of operations.
F-23
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AND STATEMENTS OF OPERATIONS
(UNAUDITED)
1. PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEET:
To reflect (i) the estimated net proceeds from the Offering, (ii) payment
with the proceeds from the Offering of the Company's borrowings of long-term
bank debt and subordinated notes, (iii) the redemption of the Series A and
Series B Preferred Stock, (iv) the payment of an aggregate of $7,317,000 to the
Company's President and Vice President of Advanced Research to terminate the
Bonus Plan, (v) the reduction in accrued compensation payable under the Bonus
Plan, (vi) the charge-off of capitalized financing costs related to the bank
debt (vii) the income tax effect of the forgoing, and (viii) the effect of the
Merger on the number of authorized shares of common stock, certain pro forma
adjustments have been made to the accompanying pro forma condensed consolidated
balance sheet, as if the Offering was consummated on June 30, 1996, as follows:
(a) Issuance of 4,658,571 shares of common stock at $14 per share
pursuant to the Offering, net of expenses, to fund payments of $26,750,000
and $17,000,000 to repay bank debt and subordinated notes, respectively,
$7,449,000 to redeem the Series A and Series B Preferred Stock and
$7,317,000 to terminate the Bonus Plan.
(b) Use of proceeds to repay bank debt and subordinated notes to related
parties of $26,750,000 and $17,000,000, respectively, and to redeem the
Series A and Series B Preferred Stock of $7,449,000. (See Note 6 of Notes to
Consolidated Financial Statements.)
(c) Charge-off of capitalized financing costs of $2,353,000 related to
the bank debt.
(d) Charge of $6,661,000, representing a payment of $7,317,000 less a
reduction in accrued incentive compensation payable of $656,000 as described
in adjustment (f) to terminate the Bonus Plan with the Company's President
and Vice President of Advanced Research.
(e) Records the tax impact of the tax benefit realized from the
deductible portion of adjustments (c) and (d) at a 40% incremental tax rate.
2. PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS:
To reflect (i) the elimination of interest expense from the repayment of the
bank debt and subordinated notes, (ii) the elimination of dividends payable to
the holders of the Series A and Series B Preferred Stock (iii) the reduction in
selling, general and administrative expenses, and research, development and
engineering expenses, in each case resulting from the termination of the Bonus
Plan, and (iv) the income tax effect of the forgoing, certain pro forma
adjustments have been made to the accompanying pro forma condensed consolidated
statements of operations, as if the Offering was consummated on the first day of
the period presented, as follows:
(f) Reduces the bonus expense recorded and payable pursuant to the Bonus
Plan under the Employment Agreements with the Company's President and Vice
President of Advanced Research, in excess of the maximum of $250,000 and
$125,000, per year respectively, that will be payable to each of these
individuals under the employment agreements that will become effective upon
consummation of the Offering.
(g) Records the elimination of interest expense resulting from repaying
the long-term bank debt and
subordinated notes, and from the elimination of amortization of the deferred
financing costs.
(h) Records the elimination of dividends resulting from the redemption
of Series A and Series B Preferred Stock.
(i) Records the tax impact of the increase in the provision for income
taxes resulting from the decrease in tax deductible expenses in adjustments
(f) and (g) at a 40% incremental tax rate.
(j) Records the effect on shares used in per share computation as a
result of 4,658,571 shares of common stock issued, net of expenses, to repay
bank debt and subordinated notes, redeem Series A and Series B Preferred
Stock and to terminate the Bonus Plan.
The pro forma condensed consolidated statements of operations do not reflect
the charge of $2,353,000 related to the deferred financing cost or the expense
of $6,661,000 related to the termination of the Bonus Plan, both of which will
reduce net income in the quarter the Offering is consummated because of the
nonrecurring nature of each of these items.
F-24
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
The Recapitalization and the Merger............ 13
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business....................................... 25
Management..................................... 41
Certain Transactions........................... 45
Principal and Selling Stockholders............. 49
Description of Capital Stock................... 50
Shares Eligible for Future Sale................ 51
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Special Note Regarding Forward-Looking
Statements.................................... 55
Index to Consolidated Financial Statements and
Pro Forma Condensed Consolidated Balance Sheet
and Statements of Operations.................. F-1
</TABLE>
-------------------
UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,800,000 SHARES
[LOGO]
ROCKSHOX, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses (other than underwriting discounts and commissions)
payable by the Company in connection with the issuance and distribution of the
Common Stock to be registered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 26,768
NASD fees............................................................... 8,263
NASDAQ Listing Fee...................................................... 50,000
Printing and engraving expenses......................................... 150,000
Management fees......................................................... 1,000,000
Legal fees and expenses................................................. 500,000
Accounting fees and expenses............................................ 200,000
Blue Sky expenses (including legal fees)................................ 15,000
Transfer agent fees and expenses........................................ 15,000
Miscellaneous expenses.................................................. 34,969
---------
Total................................................................. $2,000,000
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors, officers,
employees and agents against expenses and liabilities incurred by them in
connection with any action, suit or proceeding to which they are, or are
threatened to be made, a party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the company, and with respect to
any criminal action or proceeding, so long as they had no reasonable cause to
believe their conduct was unlawful. The statute expressly provides that the
power to indemnify authorized thereby is not exclusive of any rights granted
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Certificate of Incorporation of the Company and Bylaws of the
Company provide for indemnification of present and former directors and officers
of the Company and persons serving as directors, officers, employees or agents
of other corporations or entities at the request of the Company, each to the
fullest extent permitted by the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the DGCL, or (iv) for any transactions from which the director derived an
improper personal benefit. The Certificate of Incorporation of the Company
contains such a provision.
The Company intends to obtain insurance for the protection of its directors
and officers against claims asserted against them in their official capacities.
The Company also intends to enter into indemnification agreements with certain
of its directors and officers providing for the foregoing.
The purchase agreement among the Company and each of the underwriters (the
"Underwriters") and the selling stockholders named in this Registration
Statement (the "Purchase Agreement") will provide for
II-1
<PAGE>
indemnification by the Underwriters of directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"), under certain
circumstances.
The preceding discussion of the Certificate of Incorporation of the Company,
the Bylaws of the Company, the Purchase Agreement and the DGCL is not intended
to be exhaustive and is qualified in its entirety by reference to the complete
texts of the Certificate of Incorporation of the Company, the Bylaws of the
Company and the Purchase Agreement, which are included in this Registration
Statement at Exhibits 3.1, 3.2 and 1.1, respectively, and to the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 24, 1995, Stephen Simons, Debra Simons and Paul Turner transferred
all of the outstanding shares in the Company's predecessor to RSx Holdings Inc.,
a Delaware corporation ("Holdings"), and RSx Acquisition, Inc., a Delaware
corporation that later became a wholly owned subsidiary of Holdings, for 50% of
the outstanding common stock of Holdings ("Holdings Common Stock"), $6 million
aggregate principal amount of 13.5% junior subordinated notes of Holdings, 4,000
shares of Series B Preferred Stock of Holdings and approximately $39 million in
cash. Also on March 24, 1995, MCIT PLC and certain persons and entities
affiliated with The Jordan Company purchased the remaining 50% of Holdings
Common Stock and 3,000 shares of Series A Preferred Stock of Holdings in
consideration of approximately $3.5 million. Holdings also issued $11 aggregate
million principal amount of 13.5% senior subordinated notes to MCIT PLC on such
date. All of such issuances of securities by Holdings were made in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
on the basis that no public offering was involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1 Form of Purchase Agreement among RockShox, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, on behalf of the several underwriters, and the selling
stockholders named therein.
2 Form of Agreement and Plan of Merger between RSx Holdings, Inc. and RockShox,
Inc.
3.1 Form of Amended and Restated Certificate of Incorporation of RockShox, Inc.
3.2 Form of Amended and Restated Bylaws of RockShox, Inc.
4 Form of Common Stock Certificate of RockShox, Inc.
5 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Stock Purchase Agreement, dated March 24, 1995, among Stephen Simons, Debra
Simons, Paul Turner, RSx Holdings, Inc. and RSx Acquisition, Inc.*
10.2 Management Consulting Agreement, dated as of March 24, 1995, between TJC
Management Corporation and RSx Holdings, Inc.*
10.3 Purchase Agreement, dated as of March 23, 1995, between RSx Holdings, Inc. and
MCIT PLC.*
10.4 Subscription and Stockholders Agreement, dated as of March 24, 1995, among RSx
Holdings, Inc., Stephen Simons, Debra Simons, Paul Turner and other stockholders
named therein.*
10.5 Form of Registration Rights Agreement among RockShox, Inc., Stephen Simons, Debra
Simons, Paul Turner and other stockholders named therein.
10.6 RSx Holdings, Inc. 1996 Stock Plan*
10.7 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.8 Form of Amended and Restated Employment Agreement between RockShox, Inc. and
Stephen Simons.**
10.9 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Paul Turner.*
10.10 Form of Amended and Restated Employment Agreement between RockShox, Inc. and Paul
Turner.**
10.11 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.*
10.12 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Debra W. Simons.*
10.13 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Paul Turner.*
10.14 Consultant Agreement, dated as of January 1, 1994, by and between Simons &
Susslin, Inc. and Stephen Simons.*
10.15 Form of Lease, dated as of May 1, 1994, between Charcot Center Joint Venture and
RockShox, Inc.*
10.16 Form of First Amendment to Lease, dated as of August 15, 1994, between Charcot
Center Joint Venture and RockShox, Inc.*
10.17 Lease, dated as of October 1, 1995, between Whitecliffe I Apartments, Ltd. and
RockShox, Inc.*
10.18 Form of Indemnity Agreement.
10.19 Form of side letter between RockShox, Inc. and Merrill Lynch, Pierce, Fenner and
Smith Incorporated.
11 Statement regarding computation of net income (loss) per share.*
21 List of Subsidiaries of RockShox, Inc.*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of the opinion
submitted as Exhibit 5).
24 Power of attorney.*
27 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful
II-3
<PAGE>
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on September 3, 1996.
ROCKSHOX, INC.
By: /S/ CHARLES E. NOREEN JR.
-----------------------------------
Name: Charles E. Noreen Jr.
Title: Chief Financial Officer
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
- --------------------------------------------- ------------------------- -----------------
<C> <S> <C>
*
------------------------------------------- Chairman of the Board of September 3, 1996
John W. Jordan II Directors
*
------------------------------------------- President (Chief September 3, 1996
Stephen W. Simons Executive Officer)
/S/ CHARLES E. NOREEN JR. Chief Financial Officer
------------------------------------------- (principal accounting September 3, 1996
Charles E. Noreen Jr. officer)
* Vice President of
------------------------------------------- Advanced Research and September 3, 1996
Paul Turner Director
*
------------------------------------------- Director and Vice September 3, 1996
Adam E. Max President
*By: /S/ CHARLES E. NOREEN JR.
--------------------------------------
Charles E. Noreen Jr.
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of RSx Holdings,
Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and 1996, and
for the years ended December 31, 1993 and 1994, the three month period ended
March 31, 1995 and the year ended March 31, 1996, which financial statements are
included in the Registration Statement, we have also audited the financial
statement schedule listed in Item (16)(b) herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 21, 1996
S-1
<PAGE>
SCHEDULE II
RSX HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS WRITE-OFF BALANCE
BEGINNING AND OF AT END
OF PERIOD EXPENSES ACCOUNTS OF PERIOD
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts.................................... $ 40 $ 40
Allowance for excess and obsolete inventories......................
Year ended December 31, 1994
Allowance for doubtful accounts.................................... 40 $ 24 16
Allowance for excess and obsolete inventories...................... $ 69 69
Three months ended March 31, 1995
Allowance for doubtful accounts.................................... 16 32 7 41
Allowance for excess and obsolete inventories...................... 69 24 45
Year ended March 31, 1996
Allowance for doubtful accounts.................................... 41 1,518 127 1,432
Allowance for excess and obsolete inventories...................... 45 2,009 45 2,009
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- ----------- -----------------
<C> <S> <C>
1 Form of Purchase Agreement among RockShox, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, on behalf of the several underwriters, and the selling
stockholders named therein.
2 Form of Agreement and Plan of Merger between RSx Holdings, Inc. and RockShox, Inc.
3.1 Form of Amended and Restated Certificate of Incorporation of RockShox, Inc.
3.2 Form of Amended and Restated Bylaws of RockShox, Inc.
4 Form of Common Stock Certificate of RockShox, Inc.
5 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Stock Purchase Agreement, dated March 24, 1995, among Stephen Simons, Debra Simons,
Paul Turner, RSx Holdings, Inc. and RSx Acquisition, Inc.*
10.2 Management Consulting Agreement, dated as of March 24, 1995, between TJC Management
Corporation and RSx Holdings, Inc.*
10.3 Purchase Agreement, dated as of March 23, 1995, between RSx Holdings, Inc. and MCIT
PLC.*
10.4 Subscription and Stockholders Agreement, dated as of March 24, 1995, among RSx
Holdings, Inc., Stephen Simons, Debra Simons, Paul Turner and other stockholders
named therein.*
10.5 Form of Registration Rights Agreement among RockShox, Inc., Stephen Simons, Debra
Simons, Paul Turner and other stockholders named therein.
10.6 RSx Holdings, Inc. 1996 Stock Plan.*
10.7 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.*
10.8 Form of Amended and Restated Employment Agreement between RockShox, Inc. and Stephen
Simons.**
10.9 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and Paul
Turner.*
10.10 Form of Amended and Restated Employment Agreement between RockShox, Inc. and Paul
Turner.**
10.11 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.*
10.12 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and Debra
W. Simons.*
10.13 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and Paul
Turner.*
10.14 Consultant Agreement, dated as of January 1, 1994, by and between Simons & Susslin,
Inc. and Stephen Simons.*
10.15 Form of Lease, dated as of May 1, 1994, between Charcot Center Joint Venture and
RockShox, Inc.*
10.16 Form of First Amendment to Lease, dated as of August 15, 1994, between Charcot Center
Joint Venture and RockShox, Inc.*
10.17 Lease, dated as of October 1, 1995, between Whitecliffe I Apartments, Ltd. and
RockShox, Inc.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- ----------- -----------------
<C> <S> <C>
10.18 Form of Indemnity Agreement.
10.19 Form of side letter between RockShox, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
11 Statement regarding computation of net income (loss) per share.*
21 List of Subsidiaries of RockShox, Inc.*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of the opinion
submitted as Exhibit 5).
24 Power of attorney.*
27 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
<PAGE>
DRAFT OF AUGUST 29, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ROCKSHOX, INC.
(A DELAWARE CORPORATION)
4,800,000 SHARES
COMMON STOCK
PURCHASE AGREEMENT
Dated: September -, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES......................................2
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY.........................2
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS........................2
(ii) INDEPENDENT ACCOUNTANTS.........................................3
(iii) FINANCIAL STATEMENTS...........................................3
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS..........................4
(v) GOOD STANDING OF THE COMPANY.....................................4
(vi) GOOD STANDING OF SUBSIDIARIES...................................4
(vii) CAPITALIZATION.................................................4
(viii) AUTHORIZATION OF AGREEMENT....................................5
(ix) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK...................5
(x) AUTHORIZATION AND DESCRIPTION OF SECURITIES......................5
(xi) ABSENCE OF DEFAULTS AND CONFLICTS...............................5
(xii) ABSENCE OF LABOR DISPUTE.......................................5
(xiii) ABSENCE OF PROCEEDINGS........................................6
(xiv) ACCURACY OF EXHIBITS...........................................6
(xv) POSSESSION OF INTELLECTUAL PROPERTY.............................6
(xvi) ABSENCE OF FURTHER REQUIREMENTS................................6
(xvii) POSSESSION OF LICENSES AND PERMITS............................6
(xviii) TITLE TO PROPERTY............................................7
(xix) COMPLIANCE WITH CUBA ACT.......................................7
(xx) INVESTMENT COMPANY ACT..........................................7
(xxi) ENVIRONMENTAL LAWS.............................................7
(xxii) REGISTRATION RIGHTS...........................................8
(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING STOCKHOLDERS............8
(i) AUTHORIZATION OF AGREEMENTS......................................8
(ii) GOOD TITLE......................................................8
(iii) DUE EXECUTION OF POWER OF ATTORNEY AND CUSTODY AGREEMENT.......9
(iv) ABSENCE OF MANIPULATION.........................................9
(v) ABSENCE OF FURTHER REQUIREMENTS..................................9
(vi) RESTRICTION ON SALE OF SECURITIES...............................9
(vii) CERTIFICATES SUITABLE FOR TRANSFER.............................9
(viii) NO ASSOCIATION WITH NASD.....................................10
<PAGE>
(c) ADDITIONAL REPRESENTATION AND WARRANTY BY THE FOUNDING SELLING
STOCKHOLDERS.........................................................10
(d) OFFICERS' CERTIFICATES...............................................10
(e) LIMITATION OF LIABILITY..............................................10
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.........................10
(a) INITIAL SECURITIES...................................................10
(b) OPTION SECURITIES....................................................11
(c) PAYMENT..............................................................11
(d) DENOMINATIONS; REGISTRATION..........................................11
SECTION 3. COVENANTS OF THE COMPANY...........................................12
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.......12
(b) FILING OF AMENDMENTS.................................................12
(c) DELIVERY OF REGISTRATION STATEMENTS..................................12
(d) DELIVERY OF PROSPECTUSES.............................................12
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS............................13
(f) BLUE SKY QUALIFICATIONS..............................................13
(g) RULE 158.............................................................13
(h) USE OF PROCEEDS......................................................13
(i) LISTING..............................................................13
(j) RESTRICTION ON SALE OF SECURITIES....................................14
(k) REPORTING REQUIREMENTS...............................................14
SECTION 4. PAYMENT OF EXPENSES................................................14
(a) EXPENSES.............................................................14
(b) EXPENSES OF THE SELLING STOCKHOLDERS.................................14
(c) TERMINATION OF AGREEMENT.............................................15
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS............................15
(a) EFFECTIVENESS OF REGISTRATION STATEMENT..............................15
(b) OPINION OF CORPORATE COUNSEL FOR COMPANY.............................15
(c) OPINION OF SPECIAL SECURITIES COUNSEL FOR COMPANY....................15
(d) OPINION OF COUNSEL FOR THE FOUNDING SELLING STOCKHOLDERS.............15
(e) OPINION OF COUNSEL FOR THE INVESTOR SELLING STOCKHOLDER..............15
(f) OPINION OF COUNSEL FOR UNDERWRITERS..................................16
(g) OFFICERS' CERTIFICATE................................................16
(h) ACCOUNTANTS' COMFORT LETTER..........................................16
(i) BRING-DOWN COMFORT LETTER............................................16
(j) CERTIFICATE OF SELLING STOCKHOLDERS..................................16
(k) APPROVAL OF LISTING..................................................17
<PAGE>
(l) NO OBJECTION.........................................................17
(m) LOCK-UP AGREEMENTS...................................................17
(n) OPINION OF PATENT COUNSEL FOR THE COMPANY............................17
(o) REMOVAL OF SECURITY INTERESTS IN COMMON STOCK; EFFECTIVENESS OF THE
MERGER...............................................................17
(p) SUBSEQUENT EVENTS....................................................17
(q) CONDITIONS TO PURCHASE OF OPTION SECURITIES..........................18
(i) OFFICERS' CERTIFICATE...........................................18
(ii) CERTIFICATE OF SELLING STOCKHOLDERS............................18
(iii) OPINION OF CORPORATE COUNSEL FOR COMPANY......................18
(iv) OPINION OF SPECIAL SECURITIES COUNSEL FOR COMPANY..............18
(V) OPINION OF COUNSEL FOR THE FOUNDING SELLING STOCKHOLDERS........18
(vi) OPINION OF COUNSEL FOR THE INVESTOR SELLING STOCKHOLDER........18
(vii) OPINION OF COUNSEL FOR UNDERWRITERS...........................18
(viii) BRING-DOWN COMFORT LETTER....................................19
(ix) OPINION OF PATENT COUNSEL FOR THE COMPANY......................19
(r) ADDITIONAL DOCUMENTS.................................................19
(s) TERMINATION OF AGREEMENT.............................................19
SECTION 6. INDEMNIFICATION....................................................19
(a) INDEMNIFICATION OF UNDERWRITERS BY THE COMPANY.......................19
(b) INDEMNIFICATION OF UNDERWRITERS BY THE SELLING STOCKHOLDERS..........20
(c) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND SELLING
STOCKHOLDERS.........................................................22
(d) ACTIONS AGAINST PARTIES; NOTIFICATION................................22
(e) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE...................23
(f) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION.....................23
SECTION 7. CONTRIBUTION.......................................................23
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.....24
SECTION 9. TERMINATION OF AGREEMENT...........................................24
(a) TERMINATION; GENERAL.................................................24
(b) LIABILITIES..........................................................25
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS........................25
SECTION 11. NOTICES...........................................................25
SECTION 12. PARTIES...........................................................26
SECTION 13. GOVERNING LAW.....................................................26
SECTION 14. EFFECT OF HEADINGS................................................26
SECTION 15. REPRESENTATION OF UNDERWRITERS....................................26
<PAGE>
ROCKSHOX, INC.
(A DELAWARE CORPORATION)
4,800,000 SHARES
COMMON STOCK
PURCHASE AGREEMENT
September -, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robertson, Stephens & Company LLC
Jefferies & Company, Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, N.Y. 10281-1209
Ladies and Gentlemen:
Each of RockShox, Inc., a Delaware corporation (the "Company", which
term, as used herein, includes RSx Holdings, Inc., a Delaware corporation, as
predecessor company ("Holdings")), and the stockholders of the Company named in
Schedule B hereto (collectively, the "Selling Stockholders") confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Robertson, Stephens & Company LLC and Jefferies
& Company, Inc. are acting as representatives (in such capacity, the
"Representatives"), with respect to the issue and sale by the Company and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), set forth in said Schedule A, and with respect to
the grant by the Selling Stockholders, acting severally and not jointly, to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 720,000 additional shares of
Common Stock to cover over-allotments, if any. The aforesaid 4,800,000 shares
of Common Stock (the "Initial Securities") to be purchased by the Underwriters
and all or any part of the 720,000 shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities".
Merrill Lynch has advised the Company and the Selling Stockholders
that the Underwriters, acting severally and not jointly, desire to purchase the
Initial Securities and, if the Underwriters so elect, the Option Securities, and
that Merrill Lynch has been authorized by the other Underwriters to execute this
Agreement on their behalf.
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
<PAGE>
The Company, the Selling Stockholders and the Underwriters agree that
up to 480,000 shares of the Securities to be purchased by the Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible employees and persons having business relationships with the Company,
as part of the distribution of the Securities by the Underwriters, subject to
the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. (the
"NASD") and all other applicable laws, rules and regulations. To the extent
that such Reserved Securities are not so purchased by such eligible employees
and persons having business relationships with the Company, such Reserved
Securities may be offered to the public as part of the public offering
contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-08069) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto, as amended, at
the time it became effective and including the Rule 430A Information and the
Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the offering
of the Securities is herein called the "Prospectus." If Rule 434 is relied on,
the term "Prospectus" shall refer to the preliminary prospectus dated September
- -, 1996 together with the Term Sheet and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR")
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
The Company represents and warrants to each Underwriter and agrees
with each Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS.
Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act and no stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.
2
<PAGE>
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time referred to in Section 2(c) hereof
(and, if any Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time (and, if any
Option Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of Rule
434 and the Prospectus shall not be "materially different", as such term is
used in Rule 434, from the prospectus included in the Registration
Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or omissions
from the Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and, if
applicable, each preliminary prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS.
The accountants who certified the financial statements and
supporting schedules included in the Registration Statement are independent
public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iii) FINANCIAL STATEMENTS.
The consolidated financial statements included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly in all material respects the
consolidated financial position of the Company and its subsidiaries at the
dates indicated and the consolidated statement of operations, stockholders'
equity and cash flows of the Company and its subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in all material
respects in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial information
included in the Prospectus present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with
that of the audited consolidated financial statements included in the
Registration Statement. The pro forma selected financial data, financial
statements and the related notes thereto included in the Registration
Statement and the Prospectus present fairly in all material respects the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein,
and, in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
3
<PAGE>
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS.
Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course
of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) except for regular
dividends on the Company's Class A Preferred Stock, par value $1.00 per
share, and its Class B Preferred Stock, par value $1.00 per share
(collectively, the "Preferred Stock"), there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(v) GOOD STANDING OF THE COMPANY.
The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and
has corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and to enter
into and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business and is in good
standing in the State of California and in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions (other than the State of California) where the failure so to
qualify or to be in good standing would not reasonably be expected to
result in a Material Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES.
Each subsidiary of the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not reasonably be expected to
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any subsidiary was issued in violation of the preemptive
or similar rights of any securityholder of such subsidiary. The only
subsidiaries of the Company are the subsidiaries listed on Exhibit 21 to
the Registration Statement.
(vii) CAPITALIZATION.
The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization" (except as contemplated by the Agreement
of Merger, dated September -, 1996, between the Company and Holdings (the
"Merger Agreement") and except for subsequent issuances, if any, pursuant
to this Agreement, pursuant to reservations, agreements or employee benefit
plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus). The
shares of issued and outstanding capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable;
none of the outstanding shares of capital stock of the Company was issued
in violation of the preemptive or other similar rights of any
securityholder of the Company.
4
<PAGE>
(viii) AUTHORIZATION OF AGREEMENT.
This Agreement has been duly authorized, executed and delivered
by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK.
The Common Stock conforms in all material respects to the
statements relating thereto contained in the Prospectus and such
description conforms to the rights set forth in the instruments defining
the same.
(x) AUTHORIZATION AND DESCRIPTION OF SECURITIES.
The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid and
non-assessable; the Securities conform in all material respects to the
statements relating thereto contained in the Prospectus and such
description conforms in all material respects to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS.
Neither the Company nor any of its subsidiaries is in violation
of its charter or by-laws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any subsidiary is
subject (collectively, "Agreements and Instruments") except for such
defaults that would not reasonably be expected to result in a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein and
in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Initial
Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company
or any subsidiary pursuant to, the Agreements and Instruments (except for
such conflicts, breaches or defaults or liens, charges or encumbrances that
would not reasonably be expected to result in a Material Adverse Effect),
nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary or any existing
applicable law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of
their assets, properties or operations. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
subsidiary.
(xii) ABSENCE OF LABOR DISPUTE.
No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
would reasonably be expected to result in a Material Adverse Effect, and
the Company is not aware of any existing or imminent labor disturbance by
the employees of
5
<PAGE>
any of its or any subsidiary's principal suppliers, manufacturers,
customers or contractors that would reasonably be expected to result in a
Material Adverse Effect.
(xiii) ABSENCE OF PROCEEDINGS.
Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any subsidiary, which is required to be disclosed in the Registration
Statement or that would reasonably be expected to result in a Material
Adverse Effect, or that would reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of
the transactions contemplated in this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, would not reasonably be expected to
result in a Material Adverse Effect.
(xiv) ACCURACY OF EXHIBITS.
There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(xv) POSSESSION OF INTELLECTUAL PROPERTY.
Except as disclosed in the Prospectus, the Company and its
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated by
them, and neither the Company nor any of its subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity, singly or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect.
(xvi) ABSENCE OF FURTHER REQUIREMENTS.
No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency is necessary or required for the performance by the
Company of its obligations hereunder, in connection with the offering,
issuance or sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as will have been
obtained on or prior to the Closing Time and other than or as may be
required under the 1933 Act or the 1933 Act Regulations or state securities
or blue sky laws, or any applicable foreign jurisdiction (as to which no
representation or warranty is made).
(xvii) POSSESSION OF LICENSES AND PERMITS.
The Company and its subsidiaries possess such permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licensees") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them except as would not reasonably be expected to result in a
Material Adverse Effect; the Company and its subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except
where the
6
<PAGE>
failure so to comply would not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the invalidity
of such Governmental Licenses or the failure of such Governmental Licenses
to be in full force and effect would not reasonably be expected to have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, would reasonably be expected to result in a Material
Adverse Effect.
(xviii) TITLE TO PROPERTY.
The Company and its subsidiaries have good and marketable title
to all real property owned by the Company and its subsidiaries and good
title to all other properties (other than intangible personal properties)
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) would not, singly
or in the aggregate, reasonably be expected to have a Material Adverse
Effect or otherwise are not, singly or in the aggregate, materially
significant to the business of the Company and its subsidiaries considered
as one enterprise; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor any subsidiary has any notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of the Company or
any subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease.
(xix) COMPLIANCE WITH CUBA ACT.
The Company has complied with, and is and will be in compliance
with, the provisions of that certain Florida act relating to disclosure of
doing business with Cuba, codified as Section 517.075 of the Florida
statutes, and the rules and regulations thereunder (collectively, the "Cuba
Act") or is exempt therefrom.
(xx) INVESTMENT COMPANY ACT.
The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus will not be, an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xxi) ENVIRONMENTAL LAWS.
Except as described in the Registration Statement or except as
would not, singly or in the aggregate, reasonably be expected to result in
a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) including, without limitation, laws and regulations
relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, (C) there are no
pending or, to the knowledge of the Company, threatened administrative,
7
<PAGE>
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that would
reasonably be expected to result in an order for clean-up or remediation,
or an action, suit or proceeding by any private party or governmental body
or agency, against or affecting the Company or any of its subsidiaries
pursuant to any Environmental Laws.
(xxii) REGISTRATION RIGHTS.
Except as disclosed in the Prospectus, there are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered
by the Company under the 1933 Act.
(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING STOCKHOLDERS.
Each Selling Stockholder severally represents and warrants to each
Underwriter as of the date hereof and agrees with each Underwriter, as follows:
(i) AUTHORIZATION OF AGREEMENTS.
Such Selling Stockholder has the full right, power and authority
to enter into this Agreement and a Power of Attorney and Custody Agreement
(the "Power of Attorney and Custody Agreement") and to sell, transfer and
deliver the Securities to be sold by such Selling Stockholder hereunder.
The execution and delivery of this Agreement and the Power of Attorney and
Custody Agreement and the sale and delivery of the Securities to be sold by
such Selling Stockholder and the consummation by such Selling Stockholder
of the transactions contemplated herein and compliance by such Selling
Stockholder with its obligations hereunder have been duly authorized by
such Selling Stockholder and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any tax, lien, charge or encumbrance upon the Securities to
be sold by such Selling Stockholder or any property or assets of such
Selling Stockholder pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other agreement or
instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder may be bound, or to which any of the property or assets
of such Selling Stockholder is subject (except for such conflicts,
breaches, defaults, taxes, liens, charges or encumbrances that would not
reasonably be expected to result in a Material Adverse Effect and that
would not reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated hereby), nor will such action
result in any violation of the provisions of the charter or by-laws or
other organizational instrument of such Selling Stockholder, if applicable,
or any applicable treaty, law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over such Selling Stockholder or
any of its respective properties.
(ii) GOOD TITLE.
Such Selling Stockholder has and will at the Closing Time and on
the Date of Delivery have good title to the Securities to be sold by such
Selling Stockholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind,
other than pursuant to this Agreement; and upon delivery of such Securities
and payment of the purchase price therefor as herein contemplated, assuming
each such Underwriter has no notice of any adverse claim, each of the
Underwriters will receive good title to the Securities purchased by it from
such Selling Stockholder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any
8
<PAGE>
kind, other than any such security interest, mortgage, pledge, lien,
charge, claim, equity or encumbrance created by such Underwriter or
resulting from actions taken by such Underwriter.
DUE EXECUTION OF POWER OF ATTORNEY AND CUSTODY AGREEMENT
Such Selling Stockholder has duly executed and delivered, in the
form heretofore furnished to the Representatives, the Power of Attorney and
Custody Agreement with - [, or any of them,] as attorney-in-fact (the
"Attorney-in-Fact") and -, as custodian (the "Custodian"); the Custodian is
authorized to deliver the Securities to be sold by such Selling Stockholder
hereunder and to accept payment therefor; and each Attorney-in-Fact is
authorized to execute and deliver this Agreement and the certificate
referred to in Section 5(i) or that may be required pursuant to Sections
5(o) or 5(p) on behalf of such Selling Stockholder, to sell, assign and
transfer to the Underwriters the Securities to be sold by such Selling
Stockholder hereunder, to determine the purchase price to be paid by the
Underwriters to such Selling Stockholder, as provided in Section 2(a)
hereof, to authorize the delivery of the Securities to be sold by such
Selling Stockholder hereunder, to accept payment therefor, and otherwise to
act on behalf of such Selling Stockholder in connection with this
Agreement.
(iv) ABSENCE OF MANIPULATION.
Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action which is designed to or which might
reasonably be expected to cause or result in stabilization or manipulation
of the price of the Common Stock.
(v) ABSENCE OF FURTHER REQUIREMENTS.
No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, is necessary or required for the
performance by such Selling Stockholder of its obligations hereunder or in
the Power of Attorney and Custody Agreement, or in connection with the sale
and delivery of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as may have
previously been made or obtained or as may be required under the 1933 Act
or the 1933 Act Regulations or state securities laws.
(vi) RESTRICTION ON SALE OF SECURITIES.
During a period of 180 days from the date of the Prospectus, such
Selling Stockholder will not, without the prior written consent of Merrill
Lynch, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock (other than pursuant to
the Stock Plan (as defined in the Prospectus)) or any securities
convertible into or exercisable or exchangeable for Common Stock, whether
now owned or hereafter acquired by such Selling Stockholder or with respect
to which such Selling Stockholder has or hereafter acquires the power of
disposition, or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to the
Securities to be sold hereunder.
(vii) CERTIFICATES SUITABLE FOR TRANSFER.
Certificates for all of the Securities to be sold by such Selling
Stockholder pursuant to this Agreement, in suitable form for transfer by
delivery or accompanied by duly executed instruments of
9
<PAGE>
transfer or assignment in blank with signatures guaranteed, have been
placed in custody with the Custodian with irrevocable conditional
instructions to deliver such Securities to the Underwriters pursuant to
this Agreement.
(viii) NO ASSOCIATION WITH NASD.
Neither such Selling Stockholder nor any of his or its affiliates
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, or has any other
association with (within the meaning of Article I of the By-laws of the
NASD), any member firm of the NASD.
(c) ADDITIONAL REPRESENTATION AND WARRANTY BY THE FOUNDING SELLING
STOCKHOLDERS.
Each of Stephen Simons and Paul Turner, as Selling Stockholders
(together, the "Founding Selling Stockholders"), severally represents and
warrants to each Underwriter as of the date hereof and agrees with each
Underwriter, that, to the best knowledge of such Founding Selling Stockholder,
the representations and warranties of the Company contained in Section 1(a)
hereof are true and correct; such Founding Selling Stockholder has reviewed and
is familiar with the Registration Statement and the Prospectus and the
Prospectus does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; such
Founding Selling Stockholder is not prompted to sell the Securities to be sold
by such Selling Stockholder hereunder by any information concerning the Company
or any subsidiary of the Company which is not set forth in the Prospectus. (It
is understood that this additional representation and warranty shall not be
deemed to have been given by MCIT PLC, as a Selling Stockholder (the "Investor
Selling Stockholder"; the term "Selling Stockholders" shall herein mean the
Investor Selling Stockholder together with the Founding Selling Stockholders.)
(d) OFFICERS' CERTIFICATES.
Any certificate signed by any officer of the Company or any of its
subsidiaries delivered to the Representatives or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company to each Underwriter
as to the matters covered thereby; and any certificate signed by or on behalf of
the Selling Stockholders as such and delivered to the Representatives or to
counsel for the Underwriters pursuant to the terms of this Agreement shall be
deemed a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
(e) LIMITATION OF LIABILITY.
The liability of each Founding Selling Stockholder for breach of
the representation and warranty set forth in clause (c) above is as set
forth in Section 6(b).
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company agrees to
sell to each Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Company, at the price per
share set forth in Schedule C, the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter, plus any additional number of
Initial Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
10
<PAGE>
(b) OPTION SECURITIES.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, each Selling
Stockholder, severally and not jointly, hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to the number of shares
of Common Stock set forth in Schedule B opposite the name of such Selling
Stockholder at the price per share set forth in Schedule C. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company and the
Selling Stockholders setting forth the number of Option Securities as to which
the several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) PAYMENT.
Payment of the purchase price for, and delivery of certificates for,
the Initial Securities shall be made at the offices of Latham & Watkins, 505
Montgomery Street, Suite 1900, San Francisco, California 94111, or at such other
place as shall be agreed upon by the Representatives and the Company, at
7:00 A.M. (California time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives and the Company (such time and date of payment and
delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Selling Stockholders, on each Date of Delivery as specified in the
notice from the Representatives to the Company and the Selling Stockholders.
Payment for the Initial Securities shall be made to the Company by
wire transfer of immediately available funds to a bank account designated by the
Company, against delivery to the Representatives for the respective accounts of
the Underwriters of certificates for the Initial Securities to be purchased by
them. Payment for the Option Securities purchased by the Underwriters shall be
made to the Custodians by wire transfer of immediately available funds to a bank
account designated by the Custodian, against delivery to the Representatives for
the respective accounts of the Underwriters of certificates for the Option
Securities purchased by them. It is understood that each Underwriter has
authorized the Representatives, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial Securities and the
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities
or the Option Securities, if any, to be purchased by any Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such Underwriter from its
obligations hereunder.
(d) DENOMINATIONS; REGISTRATION.
Certificates for the Initial Securities and the Option Securities, if
any, shall be in such denominations and registered in such names as the
Representatives may request in writing at least one full
11
<PAGE>
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. COVENANTS OF THE COMPANY.
The Company covenants with each Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Representatives immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS.
The Company will give the Representatives notice of its intention to
file or prepare any amendment to the Registration Statement (including any
filing under Rule 462(b)), any Term Sheet or any amendment, supplement or
revision to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, will furnish the Representatives
with copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use any such
document to which the Representatives or counsel for the Underwriters shall
object.
(c) DELIVERY OF REGISTRATION STATEMENTS.
The Company has furnished or will deliver to the Representatives and
counsel for the Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including exhibits
filed therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters. If applicable, the copies of the Registration Statement and
each amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES.
The Company has delivered to each Underwriter, without charge, as many
copies of each preliminary prospectus as such Underwriter reasonably requested,
and the Company hereby consents to the use of such copies for purposes permitted
by the 1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under the 1933
Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of
copies of the Prospectus (as amended or supplemented)
12
<PAGE>
as such Underwriter may reasonably request. If applicable, the Prospectus and
any amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS.
The Company will comply with the 1933 Act and the 1933 Act Regulations
so as to permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the reasonable opinion of counsel for the Underwriters
or for the Company, to amend the Registration Statement or amend or supplement
the Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of such counsel, at any such time
to amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS.
The Company will use its reasonable best efforts, in cooperation with
the Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other United States jurisdictions
as the Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the effective
date of the Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each United States jurisdiction in
which the Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of not less than one year
from the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) RULE 158.
The Company will timely file such reports pursuant to the 1934 Act as
are necessary in order to make generally available to its securityholders as
soon as practicable an earnings statement for the purposes of, and to provide
the benefits contemplated by, the last paragraph of Section 11(a) of the 1933
Act.
(h) USE OF PROCEEDS.
The Company will use the net proceeds received by it from the sale of
the Initial Securities in the manner specified in the Prospectus under "Use of
Proceeds".
(i) LISTING.
The Company will use its reasonable best efforts to have the
Securities approved for quotation on The Nasdaq Stock Market, and will file with
the Nasdaq Stock Market all documents and notices required by The Nasdaq Stock
Market of companies that have securities that are traded in the over-the-counter
market and quotations for which are reported by The Nasdaq Stock Market.
13
<PAGE>
(j) RESTRICTION ON SALE OF SECURITIES.
During a period of 180 days from the date of the Prospectus, the
Company will not, without the prior written consent of Merrill Lynch, (i)
directly or indirectly, offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock (other than options granted or exercised pursuant to the
Stock Plan (as defined in the Prospectus)) or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
Securities to be sold hereunder.
(k) REPORTING REQUIREMENTS.
The Company, during the period when the Prospectus is required to be
delivered under the 1933 Act or the 1934 Act, will file all documents required
to be filed with the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the rules and regulations of the Commission
thereunder.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES
The Company will pay all expenses incident to the performance of its
obligations under this Agreement, including (i) the printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the printing and delivery
to the Underwriters of this Agreement and any Agreement among Underwriters,
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the Underwriters, including any stock or other transfer taxes and
any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities, (ix) the filing fees
incident to the review by the NASD of the terms of the sale of the Securities,
(x) the fees and expenses incurred in connection with the inclusion of the
Securities in The Nasdaq Stock Market and (xi) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to employees and others having a
business relationship with the Company.
(b) EXPENSES OF THE SELLING STOCKHOLDERS.
The Selling Stockholders, jointly and severally, agree to pay all
expenses incident to the performance of their respective obligations under, and
the consummation of the transactions contemplated by this Agreement, including
(i) any stamp duties, capital duties and stock transfer taxes, if any, payable
upon the sale of the Option Securities to the Underwriters, and their transfer
between the Underwriters pursuant to an agreement between such Underwriters, and
(ii) the fees and disbursements of their respective counsel and accountants.
14
<PAGE>
(c) TERMINATION OF AGREEMENT.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 5 (other than by reason of clause (k) thereof, or
Section 9(a)(i) or Section 10 hereof, the Company shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters hereunder are subject to
the accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement.
The Registration Statement, including any Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or, to the knowledge of the Company,
threatened by the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing the Rule
430A Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements of Rule
430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall
have been filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF CORPORATE COUNSEL FOR COMPANY.
At Closing Time, the Representatives shall have received the signed
opinion, dated as of Closing Time, of McCutchen, Doyle, Brown & Enersen, LLP,
corporate counsel for the Company, in form and substance reasonably satisfactory
to counsel for the Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect set forth in
Exhibit A hereto.
(c) OPINION OF SPECIAL SECURITIES COUNSEL FOR COMPANY.
At Closing Time, the Representatives shall have received the signed
opinion, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom,
special securities counsel for the Company, in form and substance reasonably
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit B hereto.
(d) OPINION OF COUNSEL FOR THE FOUNDING SELLING STOCKHOLDERS.
At Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Parcel, Mauro, Hultin & Spaanstra, P.C.,
counsel for the Founding Selling Stockholders, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit C.
(e) OPINION OF COUNSEL FOR THE INVESTOR SELLING STOCKHOLDER.
At Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Mayer, Brown & Platt, counsel for the
Investor Selling Stockholder, in form and substance satisfactory to counsel for
the Underwriters, together with signed or reproduced copies of such letter for
each of the other Underwriters to the effect set forth in Exhibit D.
15
<PAGE>
(f) OPINION OF COUNSEL FOR UNDERWRITERS.
At Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Latham & Watkins, counsel for the
Underwriters, together with signed or reproduced copies of such letter for each
of the other Underwriters with respect to the matters set forth in clauses (i)
through (vi), inclusive (solely, with respect to clause (iii), as to preemptive
or other similar rights arising by operation of law or under the charter or by-
laws of the Company), and the last paragraph of Exhibit B hereto. Such counsel
may also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(g) OFFICERS' CERTIFICATE.
At Closing Time, there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, and the Representatives shall have received a
certificate of the President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect that
(i) there has been no such material adverse change, (ii) the other
representations and warranties in Section 1(a) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and
(iv) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated by the Commission.
(h) ACCOUNTANTS' COMFORT LETTER.
At the time of the execution of this Agreement, the Representatives
shall have received from Coopers & Lybrand a letter dated such date, in form and
substance reasonably satisfactory to the Representatives, together with signed
or reproduced copies of such letter for each of the other Underwriters, in the
form contemplated for "comfort letters addressed to underwriters" by Statement
of Auditing Standards No. 72 ("SAS 72"), and in form and substance previously
provided to for review and agreed to as satisfactory to the Representatives and
to counsel for the Underwriters. Such letter shall specify therein, inter alia,
the amounts described as being set forth therein in paragraph (o) of this
Section 5 as of the dates contemplated by SAS 72.
(i) BRING-DOWN COMFORT LETTER.
At Closing Time, the Representatives shall have received from Coopers
& Lybrand a letter, dated as of Closing Time, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (g) of this
Section, except that the specified date referred to shall be a date not more
than three business days prior to Closing Time.
(j) CERTIFICATE OF SELLING STOCKHOLDERS.
At Closing Time, the Representatives shall have received a certificate
of an Attorney-in-Fact on behalf of each Selling Stockholder, dated as of
Closing Time, to the effect that (i) the representations and warranties of each
Selling Stockholder contained in Section 1(b) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time and
(ii) each Selling Stockholder has complied in all material respects with all
agreements and all conditions on its part to be performed under this Agreement
at or prior to Closing Time.
16
<PAGE>
(k) APPROVAL OF LISTING.
At Closing Time, the Securities shall have been approved for quotation
on the Nasdaq Stock Market, subject only to official notice of issuance.
(l) NO OBJECTION.
The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
(m) LOCK-UP AGREEMENTS.
At the date of this Agreement, the Representatives shall have received
an agreement substantially in the form of Exhibit E hereto signed by the persons
listed on Schedule D hereto.
(n) OPINION OF PATENT COUNSEL FOR THE COMPANY.
At Closing Time, the Representatives shall have received a signed
opinion of Sixbey, Friedman, Leedom and Ferguson, P.C., special patent and
trademark counsel for the Company, dated as of Closing Time, together with
signed or reproduced copies of such opinion for each of the other Underwriters,
in form and substance reasonably satisfactory to counsel of the Underwriters, to
the effect set forth in Exhibit F hereto.
(o) REMOVAL OF SECURITY INTERESTS IN COMMON STOCK; EFFECTIVENESS OF THE
MERGER.
Concurrently with the Closing Time, the Stockholders Agreement will
have been terminated and superseded in its entirety and the MCIT Pledge
Agreement (as such terms are defined in the Prospectus) will have been
terminated in their respective entireties (except for certain rights of
indemnification surviving thereunder); [and the security interest created in the
favor of MCIT PLC, as agent for all holders of the Senior Notes (as such term is
defined in the Prospectus), under the pledge agreement pursuant to which
Holdings pledged to MCIT PLC all issued and outstanding shares of capital stock
(including all payments and rights with respect thereto and all proceeds
thereof) of RSx Acquisition, Inc., a Delaware corporation, shall have been
released and terminated in its entirety,] and the Company shall have furnished
or made available for review by the Representatives and counsel for the
Underwriters copies of the instruments, documents or agreements providing for
such release. Prior to Closing Time, (i) Holdings will have been merged with
and into the Company, with the Company as the surviving corporation, and each
share of common stock of Holdings shall have been converted into [88.2] shares
of Common Stock of the Company, and (ii) the Company shall have filed a
Certificate of Merger with the Secretary of State of the State of Delaware and
recorded the same with the appropriate county recorder of the State of Delaware.
(p) SUBSEQUENT EVENTS.
Except as contemplated by the Merger Agreement or disclosed in the
Prospectus, subsequent to the time of the execution of this Agreement or, if
earlier, the dates as of which information is given in the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been any material increases in the
Company's (including its consolidated subsidiaries) long-term debt (including
current maturities), or material changes in the Company's (including its
consolidated subsidiaries) capital stock or stockholders' equity, or material
decreases in the Company's (including its consolidated subsidiaries) working
capital, total net sales, net income (or increases in net loss) or per share
amounts, in each case from the amounts specified in the Accountants' Comfort
Letter delivered pursuant to in paragraph (g) of this Section 5.
17
<PAGE>
(q) CONDITIONS TO PURCHASE OF OPTION SECURITIES.
In the event that the Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company and the Selling Stockholders
contained herein and the statements in any certificates furnished by the Company
or any subsidiary of the Company and each Selling Stockholder hereunder shall be
true and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(i) OFFICERS' CERTIFICATE.
A certificate, dated such Date of Delivery, of the President of
the Company and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at the Closing Time
pursuant to Section 5(g) hereof remains true and correct as of such Date of
Delivery.
(ii) CERTIFICATE OF SELLING STOCKHOLDERS.
A certificate, dated such Date of Delivery, of an Attorney-in-
Fact on behalf of each Selling Stockholder confirming that the certificate
delivered at Closing Time pursuant to Section 5(j) remains true and correct
as of such Date of Delivery.
(iii) OPINION OF CORPORATE COUNSEL FOR COMPANY.
The signed opinion of McCutchen, Doyle, Brown & Enersen, LLP,
corporate counsel for the Company, in form and substance reasonably
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(b)
hereof.
(iv) OPINION OF SPECIAL SECURITIES COUNSEL FOR COMPANY.
The signed opinion of Skadden, Arps, Slate, Meagher & Flom,
special securities counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(c) hereof.
(v) OPINION OF COUNSEL FOR THE FOUNDING SELLING STOCKHOLDERS.
The signed opinion of Parcel, Mauro, Hultin & Spaanstra, P.C.,
counsel for the Founding Selling Stockholders, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(d)
hereof.
(vi) OPINION OF COUNSEL FOR THE INVESTOR SELLING STOCKHOLDER.
The signed opinion of Mayer, Brown & Platt, counsel for the
Investor Selling Stockholder, in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(e) hereof.
(vii) OPINION OF COUNSEL FOR UNDERWRITERS.
The signed opinion of Latham & Watkins, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(f) hereof.
18
<PAGE>
(viii) BRING-DOWN COMFORT LETTER.
A letter from Coopers & Lybrand, in form and substance reasonably
satisfactory to the Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter furnished to the
Representatives pursuant to Section 5(h) hereof, except that the "specified
date" in the letter furnished pursuant to this paragraph shall be a date
not more than five days prior to such Date of Delivery.
(ix) OPINION OF PATENT COUNSEL FOR THE COMPANY.
The signed opinion of Sixbey, Friedman, Leedom & Ferguson, P.C.,
special patent and trademark counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
to the same effect as the opinion required by Section 5(n) hereof.
(r) ADDITIONAL DOCUMENTS.
At Closing Time and at each Date of Delivery, counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Stockholders in connection with the
issuance and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters.
(s) TERMINATION OF AGREEMENT.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement, or, in the case
of any condition to the purchase of Option Securities on a Date of Delivery
which is after the Closing Time, the obligations of the several Underwriters to
purchase the relevant Option Securities, may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time at or prior to Closing Time or such Date of Delivery, as the case may be,
and such termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 6, 7 and 8 shall
survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS BY THE COMPANY.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
19
<PAGE>
(ii) against any and all loss, liability, claim damage and
expense whatsoever, as incurred, arising out of the failure of eligible
employees and others having a business relationship with the Company to pay
for and accept delivery of Reserved Securities which were subject to a
properly confirmed agreement to purchase;
(iii)against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i), (ii)
or (iii) above;
PROVIDED, HOWEVER, that (x) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) and (y) if
the Company has complied with its obligations under Section 3(e) hereof, the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such loss, claim, damage or liability purchased Securities (or any person who
controls such Underwriter within the meaning of Section 15 of the 1933 Act) if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of any Underwriter to such person, if such is required by law, at
or prior to the written confirmation of the sale of such Securities to such
person and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
(b) INDEMNIFICATION OF UNDERWRITERS BY THE SELLING STOCKHOLDERS.
Subject to the aggregate limit set forth in the proviso below and the
last paragraph of this paragraph (b), each Selling Stockholder also agrees to
indemnify and hold harmless each Underwriter, its directors, officers and
employees, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever
20
<PAGE>
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of such Selling
Stockholder; and
(iii)against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that (w) each Selling Stockholder's aggregate
liability under this Section 6 and, in the case of the Founding Selling
Stockholders only, for any breach of the representation and warranty of such
Selling Stockholder set forth in Section 1(c) of this Agreement (to the extent
such breach does not also constitute a breach of any other representation and
warranty of such Selling Stockholder), shall be limited to an amount equal to
the net proceeds (after deducting the aggregate Underwriters' discount, but
before deducting expenses) received by such Selling Stockholder from the sale of
his or its Securities pursuant to this Agreement and shall not include any
proceeds received by the Company from the sale of Securities by the Company
(including any such proceeds received by the Company and transferred to such
Selling Stockholder as a repayment of indebtedness, redemption of preferred
stock or other distribution from the Company to such Selling Stockholder
relatively contemporaneously with the sale of the Securities); (x) the foregoing
indemnity agreement by such Selling Stockholder shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); (y) that the Investor
Selling Stockholder shall only be liable under the foregoing indemnity agreement
with respect to information pertaining to the Investor Selling Stockholder
furnished by or on behalf of the Investor Selling Stockholder expressly for use
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and (z)
if the Company has complied with its obligations under Section 3(e) hereof, the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such loss, claim, damage or liability purchased Securities (or any person who
controls such Underwriter within the meaning of Section 15 of the 1933 Act) if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of any Underwriter to such person, if such is required by law, at
or prior to the written confirmation of the sale of such Securities to such
person and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
In making a claim for indemnification under this Section 6 (other than
pursuant to clause (a)(iii) or (b)(iii) of this Section 6) or contribution under
Section 7 hereof by the Company or the Selling Stockholders, the indemnified
parties may proceed against either (i) both the Company and the Selling
Stockholders jointly or (ii) the Company only, but may not proceed solely
against the Selling Stockholders. In the event that the indemnified parties are
entitled to seek indemnity or contribution hereunder against any loss,
liability, claim, damage and expense incurred with respect to a final judgment
from a trial court then, as a precondition to any indemnified party obtaining
indemnification or contribution from any Selling Stockholder, the indemnified
parties shall first obtain a final judgment from a trial court that such
indemnified parties are entitled to indemnify or contribution under this
Agreement with respect to such loss, liability, claim, damage or expense (the
"Final Judgment") from the Company and the Selling Stockholders and shall seek
to satisfy such Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the event such Final
Judgment shall remain unsatisfied in whole or in part 45 days following the date
of receipt by the Company of such demand shall any indemnified party have the
right to take action to satisfy such Final Judgment by making
21
<PAGE>
demand directly on the Selling Stockholders (but only if and to the extent the
Company has not already satisfied such Final Judgment, whether by settlement,
release or otherwise). The indemnified parties may exercise this right to first
seek to obtain payment from the Company and thereafter obtain payment from the
Selling Stockholders without regard to the pursuit by any party of its rights to
the appeal of such Final Judgment. The indemnified parties shall, however, be
relieved of their obligation to first obtain a Final Judgment, to seek to obtain
payment from the Company with respect to such Final Judgment or, having sought
such payment, to wait such 45 days after failure by the Company to immediately
satisfy any such Final Judgment if (i) the Company files a petition for relief
under the United States Bankruptcy Code (the "Bankruptcy Code"), (ii) an order
for relief is entered against the Company in an involuntary case under the
Bankruptcy Code, (iii) the Company makes an assignment for the benefit of its
creditors, or (iv) any court orders or approves the appointment of a receiver or
custodian for the Company or a substantial portion of its assets. The foregoing
provisions of this paragraph are not intended to require any indemnified party
to obtain a Final Judgment against the Company or the Selling Stockholders
before obtaining reimbursement of expenses pursuant to clause (a)(iv) or
(b)(iii) of this Section 6. However, the indemnified parties shall first seek
to obtain such reimbursement in full from the Company by making a written demand
upon the Company for such reimbursement. Only in the event such expenses shall
remain unreimbursed in whole or in part 45 days following the date of receipt by
the Company of such demand shall any indemnified party have the right to receive
reimbursement of such expenses from the Selling Stockholders by making written
demand directly on the Selling Stockholders (but only if and to the extent the
Company has not already satisfied he demand for reimbursement, whether by
settlement, release or otherwise). The indemnified parties shall, however, be
relieved of their obligation to first seek to obtain such reimbursement in full
from the Company or, having made written demand therefor, to wait such 45 days
after failure by the Company to immediately reimburse such expenses if (i) the
Company files a petition for relief under the Bankruptcy Code, (ii) an order for
relief is entered against the Company in an involuntary case under the
Bankruptcy Code, (iii) the Company makes an assignment for the benefit of its
creditors, or (iv) any court orders or approves the appointment of a receiver or
custodian for the Company or a substantial portion of its assets.
(c) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND SELLING
STOCKHOLDERS.
Each Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Stockholder and each person, if any, who controls any Selling Stockholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) or (b) of this Section 6, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Merrill Lynch expressly for
use in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(d) ACTIONS AGAINST PARTIES; NOTIFICATION
Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to subsection (a) or (b) of this Section 6, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 6 above, counsel to the indemnified parties
shall be selected by the indemnifying party or parties. An indemnifying party
may participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not
22
<PAGE>
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(e) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE.
If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) or 6(b)(ii) effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(f) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION.
The provisions of this Section shall not affect any agreement among
the Company and the Selling Stockholders with respect to indemnification.
SECTION 7. CONTRIBUTION.
If the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Selling
Stockholders on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
in connection with the offering of the Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Securities pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Stockholders and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet bear to the
aggregate initial public offering price of the Securities as set forth on
such cover.
The relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to
23
<PAGE>
information supplied by the Company or the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by PRO RATA allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls
the Company or any Selling Stockholder within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company or such Selling Stockholder, as the case may be.
The Underwriters' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.
The provisions of this Section shall not affect any
agreement among the Company and the Selling Stockholders with respect to
contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY
All representations, warranties and agreements contained
in this Agreement or in certificates of officers of the Company or the
Selling Stockholders submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or controlling person, or by or on behalf of the Company
or the Selling Stockholders, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL.
The Representatives may terminate this Agreement, by
notice to the Company and the Selling Stockholders, at any time at or prior
to Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States,
24
<PAGE>
any outbreak of hostilities or escalation thereof or other calamity or crisis
or any change or development involving a prospective change in national or
international political, financial or economic conditions in each case the
effect of which is such as to make it, in the judgment of the
Representatives, impracticable to market the Securities or to enforce
contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq Stock Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq Stock
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required,
by any of said exchanges or by such system or by order of the Commission, the
NASD or any other governmental authority, or (iv) if a banking moratorium has
been declared by either federal, California or New York authorities.
(b) LIABILITIES.
If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 6,
7 and 8 shall survive such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS.
If one or more of the Underwriters shall fail at Closing
Time or a Date of Delivery to purchase the Securities which it or they are
obligated to purchase under this Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein
set forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery, shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve
any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in
a termination of this Agreement or, in the case of a Date of Delivery which
is after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Selling Stockholders to
sell the relevant Option Securities, as the case may be, either the
Representatives or the Company shall have the right to postpone Closing Time
or the relevant Date of Delivery, as the case may be, for a period not
exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
SECTION 11. NOTICES.
All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters
25
<PAGE>
shall be directed to the Representatives at 10900 Wilshire Boulevard, Suite 900,
Los Angeles, California 90024, attention of Robert J. Woolway (with a copy,
which shall not constitute notice, to Latham & Watkins, 505 Montgomery Street,
Suite 1900, San Francisco, California 94111, attention of Gregory K. Miller,
Esq.). Notices to the Company shall be directed to it at 401 Charcot Avenue,
San Jose, California 95131, attention of Steve Simons, President (with copies,
which shall not constitute notice, to McCutchen, Doyle, Brown & Enersen, LLP,
Three Embarcadero Center, San Francisco, California 94111, attention of Sandra
A. Golze, Esq. and to Skadden, Arps, Slate, Meagher & Flom, 300 South Grand
Avenue, Suite 3400, Los Angeles, California 90071, attention of Michael A.
Woronoff, Esq.). Notices to the Selling Stockholders shall be directed, in the
case of Messrs. Simons and Turner, to them c/o the Company (with a copy, which
shall not constitute notice, to Parcel, Mauro, Hultin & Spaansta, P.C., 1801
California Street, Suite 3600, Denver, Colorado 80202, attention of Steven A.
Cohen, Esq.), and in the case of all other Selling Stockholders, to them c/o The
Jordan Company, Nine West 57th Street, Suite 4000, New York, N.Y. 10019,
attention of Adam E. Max (with a copy, which shall not constitute notice, to
Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los
Angeles, California 90071, attention of Michael A. Woronoff, Esq.)
SECTION 12. PARTIES
This agreement shall each inure to the benefit of and be
binding upon the underwriters, the company and the selling stockholders and
their respective successors. Nothing expressed or mentioned in this
agreement is intended or shall be construed to give any person, firm or
corporation, other than the underwriters, the company and the selling
stockholders and their respective successors and the controlling persons and
officers and directors referred to in sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this agreement or any provision herein contained. This
agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the underwriters and the company and their
respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and, subject to the
provisions of section 10, for the benefit of no other person, firm or
corporation. No purchaser of securities from any underwriter shall be deemed
to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 14. EFFECT OF HEADINGS
The article and section headings herein and the table of
contents are for convenience only and shall not affect the construction
hereof.
SECTION 15. REPRESENTATION OF UNDERWRITERS.
The Representatives will act for the several Underwriters
in connection with the transactions contemplated by this Agreement, and,
except as otherwise provided herein, any action under or in respect of this
Agreement taken by the Representatives will be binding on all of the
Underwriters.
26
<PAGE>
If the foregoing is in accordance with your understanding
of our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters, the Company and the Selling Stockholders
in accordance with its terms.
Very truly yours,
ROCKSHOX, INC.
By:
---------------------------
Stephen W. Simons
President
[CUSTODIAN]
By:
--------------------------
Attorney-in-Fact
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
--------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
27
<PAGE>
SCHEDULE A
NUMBER OF
INITIAL
NAME OF UNDERWRITER SECURITIES
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .......................................
Robertson, Stephens & Company LLC ......................
Jefferies & Company, Inc. ...............................
---------------
---------------
Total .................................................. 4,800,000
-------------
-------------
Sch A - 1
<PAGE>
SCHEDULE B
NAME OF SELLING STOCKHOLDER MAXIMUM
--------------------------- NUMBER OF
OPTION
SECURITIES
----------
MCIT PLC ................................................. 360,000
Stephen W. Simons ........................................ 180,000
Paul Turner .............................................. 180,000
------------
------------
Total 720,000
------------
------------
Sch B - 1
<PAGE>
SCHEDULE C
ROCKSHOX, INC.
4,800,000 SHARES
COMMON STOCK
The initial public offering price per share for the Securities, determined
as provided in said Section 2, shall be $- .
The purchase price per share for the Securities to be paid by the several
Underwriters shall be $- , being an amount equal to the initial public offering
price set forth above less $- per share.
Sch C - 1
<PAGE>
SCHEDULE D
List of persons and entities
subject to lock-up
Jonathan F. Boucher
Elizabeth Bradley
John M. Camp III
A. Richard Caputo
Robert Kaswen
Charles E. Noreen, Jr.
James E. Jordan, Jr.
John W. Jordan II
John W. Jordan II Revocable Trust
Leucadia Investors Inc.
John R. Lowden
Adam E. Max
Thomas H. Quinn
Paul A. Rodzevik
David W. Zalaznick
Sch D - 1
<PAGE>
EXHIBIT A
FORM OF OPINION OF COMPANY'S CORPORATE COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in the State of California. The Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect. The Company has no subsidiaries except
RockShox Foreign Sales Corporation, a subsidiary of the Company incorporated
under the laws of Barbados.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except as contemplated by the Merger Agreement and
except for subsequent issuances, if any, pursuant to the Purchase Agreement or
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.
(v) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company under the charter or
by-laws of the Company or pursuant to any contract to which the Company is a
party.
(vi) The information in the Prospectus under "Risk Factors--Product
Liability", "Risk Factors--Government Regulation; Adverse Publicity", "Risk
Factors--Product Recall; Warranty Costs" "Risk Factors--Futures Sales of Common
Stock; Shares Eligible for Future Sale", "The Recapitalization and the Merger",
"Dilution", "Business--Legal Proceedings", "Business--Government Regulation",
"Business--Product Recall", "Management--Employment Agreements", "Management--
1996 Stock Plan", "Certain Transactions", "Description of Capital Stock" and
"Shares Eligible for Future Sale", to the extent that it constitutes
descriptions of statutes and regulations, descriptions of the Company's charter
and bylaws or descriptions of legal proceedings, has been reviewed by us and is
correct in all material respects.
(vii) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(viii) All descriptions in the Registration Statement of contracts to which
the Company or its subsidiaries are a party are accurate in all material
respects; to the best of our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed or incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.
(ix) To the best of our knowledge, the Company is not in violation of its
charter or by-laws and no default by the Company exists in the due performance
or observance of any material obligation, agreement, covenant or condition
A-1
<PAGE>
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.
(x) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any federal or California court or
governmental authority or agency is necessary or required in connection with the
due authorization, execution and delivery of the Purchase Agreement or for the
offering, issuance, sale or delivery of the Securities by the Company.
(xi) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreement and
in the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xi) of the Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or any subsidiary is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiary is subject (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, or any federal or
Califonria law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, having
jurisdiction over the Company or any subsidiary or any of their respective
properties, assets or operations.
(xii) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act.
(xiii)Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable) (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
A-2
<PAGE>
EXHIBIT B
FORM OF OPINION OF COMPANY'S SPECIAL SECURITIES COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) The Company is validly existing and in good standing under the laws
of the State of Delaware.
(ii) The Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to the Purchase Agreement and, when issued and delivered
by the Company pursuant to the Purchase Agreement against payment of the
consideration set forth in the Purchase Agreement, will be validly issued and
fully paid and non-assessable; and no holder of the Securities is or will be
personally liable for the payment of the Company's debts except as they may be
liable by reason of their own conduct or acts.
(iii) The information in the Registration Statement under item 14,
"Indemnification of Officers and Directors", to the extent that it constitutes
matters of law, summaries of legal matters, the Company's charter or bylaws, or
legal conclusions, has been reviewed by us and is correct in all material
respects.
(iv) The Purchase Agreement has been duly authorized, executed and
delivered by the Company [and by or on behalf of the Selling Stockholders].
(v) The Registration Statement, [including any Rule 462(b) Registration
Statement], has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(vi) The Registration Statement, [including any Rule 462(b) Registration
Statement, the Rule 434 Information, as applicable], the Prospectus and each
amendment or supplement to the Registration Statement and the Prospectus as of
their respective effective or issue dates (other than the financial statements
and financial and statistical data and supporting schedules included therein or
omitted therefrom or the exhibits to the Registration Statement, as to which we
express no opinion) appeared on their face to be appropriately responsive in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(vii) If Rule 434 has been relied upon, the Prospectus was not "materially
different," as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective.
(viii)The form of certificate used to evidence the Common Stock complies in
all material respects with the applicable statutory requirements of the DGCL,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of The Nasdaq Stock Market.
(ix) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any Federal or California court or
governmental authority or agency (other than under the 1933 Act, the 1934 Act
and the rules and regulations under such Acts or as may be required under the
securities or blue sky laws of the various states, as to which we express no
opinion) is required under any Applicable Law for the offering, issuance, sale
or delivery of the Securities, except as such have been obtained on or prior to
the Closing Time.
(x) To the best of our knowledge, there are no persons with registration
rights or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933
Act.
B-1
<PAGE>
(xi) We are advised by the Commission that the Registration Statement was
declared effective under the Act at - p.m. (Washington, D.C. time), on -, 1996,
and, to the best of our knowledge, no stop order suspending its effectiveness
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened by the Commission.
(xii) Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable) (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we express no opinion or belief), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included therein or
omitted therefrom, as to which we express no opinion or belief), as of their
respective dates or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
B-2
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL FOR THE FOUNDING SELLING STOCKHOLDERS
TO BE DELIVERED PURSUANT TO SECTION 5(d)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Founding Selling Stockholders for the performance by each
Founding Selling Stockholder of its obligations under the Purchase Agreement or
in the Power of Attorney and Custody Agreement, or in connection with the offer,
sale or delivery of the Securities.
(ii) Each Power of Attorney and Custody Agreement has been duly executed
and delivered by the respective Founding Selling Stockholders named therein and
constitutes the legal, valid and binding agreement of such Founding Selling
Stockholder.
(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of each Founding Selling Stockholder.
(iv) Each Attorney-in-Fact has been duly authorized by the Founding
Selling Stockholders to deliver the Securities on behalf of the Founding Selling
Stockholders in accordance with the terms of the Purchase Agreement.
(v) The execution, delivery and performance of the Purchase Agreement and
the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Founding
Selling Stockholders with its obligations under the Purchase Agreement have been
duly authorized by all necessary action on the part of the Founding Selling
Stockholders and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Securities or any property or assets of the Founding
Selling Stockholders pursuant to, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other instrument or
agreement to which any Founding Selling Stockholder is a party or by which it
may be bound, or to which any of the property or assets of the Selling
Stockholders may be subject nor will such action result in any violation of the
provisions of the charter or by-laws of the Founding Selling Stockholders, if
applicable, or any law, administrative regulation, judgment or order of any
governmental agency or body or any administrative or court decree having
jurisdiction over such Founding Selling Stockholder or any of its properties.
(vi) To the best of our knowledge, each Founding Selling Stockholder has
valid and marketable title to the Securities to be sold by such Founding Selling
Stockholder pursuant to the Purchase Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind, and
has full right, power and authority to sell, transfer and deliver such
Securities pursuant to the Purchase Agreement. By delivery of a certificate or
certificates therefor such Founding Selling Stockholder will transfer to the
Underwriters who have purchased such Securities pursuant to the Purchase
Agreement (without notice of any defect in the title of such Founding Selling
Stockholder and who are otherwise bona fide purchasers for purposes of the
Uniform Commercial Code) valid and marketable title to such Securities, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
C-1
<PAGE>
EXHIBIT D
FORM OF OPINION OF COUNSEL FOR THE INVESTOR SELLING STOCKHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(e)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Investor Selling Stockholder for the performance by the Investor
Selling Stockholder of its obligations under the Purchase Agreement or in the
Power of Attorney and Custody Agreement, or in connection with the offer, sale
or delivery of the Securities.
(ii) The Power of Attorney and Custody Agreement has been duly executed
and delivered by the Investor Selling Stockholders named therein and constitutes
the legal, valid and binding agreement of the Investor Selling Stockholder.
(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of the Investor Selling Stockholder.
(iv) The Attorney-in-Fact has been duly authorized by the Investor Selling
Stockholder to deliver the Securities on behalf of the Investor Selling
Stockholder in accordance with the terms of the Purchase Agreement.
(v) The execution, delivery and performance of the Purchase Agreement and
the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Investor
Selling Stockholder with its obligations under the Purchase Agreement have been
duly authorized by all necessary action on the part of the Investor Selling
Stockholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Securities or any property or assets of the Investor
Selling Stockholder pursuant to, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other instrument or
agreement to which the Investor Selling Stockholder is a party or by which it
may be bound, or to which any of the property or assets of the Investor Selling
Stockholder may be subject nor will such action result in any violation of the
provisions of the charter or by-laws of the Investor Selling Stockholder, if
applicable, or any law, administrative regulation, judgment or order of any
governmental agency or body or any administrative or court decree having
jurisdiction over the Investor Selling Stockholder or any of its properties.
(vi) To the best of our knowledge, the Investor Selling Stockholder has
valid and marketable title to the Securities to be sold by the Investor Selling
Stockholder pursuant to the Purchase Agreement, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind, and
has full right, power and authority to sell, transfer and deliver such
Securities pursuant to the Purchase Agreement. By delivery of a certificate or
certificates therefor the Investor Selling Stockholder will transfer to the
Underwriters who have purchased such Securities pursuant to the Purchase
Agreement (without notice of any defect in the title of the Investor Selling
Stockholder and who are otherwise bona fide purchasers for purposes of the
Uniform Commercial Code) valid and marketable title to such Securities, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
D-1
<PAGE>
EXHIBIT E
[Form of lock-up from officers pursuant to Section 5(m)]
-, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robertson, Stephens & Company LLC
Jefferies & Company, Inc.
as Representatives of the several Underwriters
to be named in the within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, N.Y. 10281-1209
RE: PROPOSED PUBLIC OFFERING BY ROCKSHOX, INC.
Ladies and Gentlemen:
The undersigned, an [officer/stockholder] of RockShox, Inc., a
Delaware corporation (the "Company"), understands that Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") ,
Robertson, Stephens & Company LLC and Jefferies & Company, Inc. propose to enter
into a Purchase Agreement (the "Purchase Agreement") with the Company providing
for the public offering of shares (the "Securities") of the Company's Common
Stock, per value $.01 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as an
[officer/stockholder] of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
that, during a period of 180 days from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge (other than a pledge to secure payment
of a bona fide personal loan), sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of Common Stock (other than pursuant to the Stock Plan (as defined in the
Purchase Agreement)) or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.
E-1
<PAGE>
Very truly yours,
Signature:
-----------------------------
Print Name:
----------------------------
E-2
<PAGE>
EXHIBIT F
FORM OF OPINION OF PATENT COUNSEL FOR THE COMPANY
TO BE DELIVERED PURSUANT TO SECTION 5(m)
(i) The Company is listed in the records of the Patent and Trademark
Office as the sole holder of record of each of the patents listed under the
heading "U.S. Patents Held by the Company" on Schedule A to this opinion (the
"U.S. Patents") and each of the patent applications listed under the heading
"U.S. Patent Applications Submitted by the Company" on Schedule A to this
opinion (the "U.S. Applications"). To the best of knowledge of such counsel,
the Company owns issued U.S. Patents and pending U.S.
Applications. Such counsel knows of no claims of third parties to any ownership
interest or lien with respect to any of the U.S. Patents or U.S. Applications.
To such counsel's knowledge, none of the U.S. Applications has been rejected.
(ii) The Company is listed in the records of the appropriate foreign
office as the sole holder of record of each of the foreign patents listed under
the heading "Non-U.S. Patents Held by the Company" on Schedule B to this opinion
(the "Non-U.S. Patents") (collectively, the U.S. Patents and Non-U.S. Patents
are referred to herein as the "Patents") and each of the foreign patent
applications listed under the heading "Non-U.S. Patent Applications Submitted by
the Company" on Schedule B to this opinion (the "Non-U.S. Applications")
(collectively, the U.S. Applications and the Non-U.S. Applications are referred
to herein as the "Applications"). Such counsel knows of no claims of third
parties to any of such Non-U.S. Patents or Non-U.S. Applications.
(iii) The statements under the Prospectus captions "Risk Factors --Limited
Protection of Technology", "Business-Intellectual Property" (collectively, the
"Intellectual Property Portion") in the Registration Statement and the
Prospectus and any amendment or supplement thereto, insofar as such statements
constitute a summary of the Company's Patents and Applications, fairly,
accurately and completely summarize in all material respects the legal matters,
documents and proceedings relating to such Patents and Applications described
therein.
(iv) Such counsel has no knowledge of any facts that the Company lacks or
will be unable to obtain any rights to use all Intellectual Property necessary
to the conduct of its business as now or proposed to be conducted by the Company
as described in the Prospectus. Such counsel is not aware of any facts that (i)
would preclude the Company from having clear title to the Patents and
Applications or (ii) would lead such counsel to conclude that any of the Patents
are invalid or unenforceable or that any patent issued in respect of an
Application would be invalid or unenforceable.
(v) Such counsel is not aware that any valid patent is infringed by the
activities of the Company described in the Prospectus or by the manufacture, use
or sale of any product, device or other material made and used according to the
Applications or the Patents.
(vi) Such counsel is not aware of any material defects of form in the
preparation or filing of the Applications on behalf of the Company. To the best
of such counsel's knowledge, the Company has complied with the United States
Patent and Trademark Office duty of candor and disclosure for each of the U.S.
Patents. Such counsel is unaware of any facts which would preclude the grant of
a patent from each of the Applications. The Applications are being diligently
pursued by the Company.
F-1
<PAGE>
(vii)Such counsel knows of no pending or threatened action, suit,
proceeding or claim by governmental authorities or others that the Company is
infringing or otherwise violating any patents or trade secrets.
(viii)Such counsel is not aware of any pending or threatened actions,
suits, proceedings or claim by governmental authorities or others challenging
the validity or scope of the Applications or the Patents.
(ix) Such counsel is not aware of any infringement on the part of any
third party of the Patents, Applications, trade secrets, know-how or other
proprietary rights of the Company.
(x) Such counsel has no knowledge of any patent rights of others which
are or would be infringed by the Company's products or applications of the
Company's products referred to in the Prospectus.
(xi) Nothing has come to the attention of such counsel that would cause
such counsel to believe that the information contained in the Intellectual
Property Portion of (a) the Registration Statement, or any amendments thereof,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein no misleading, or of (b) the Prospectus, or any amendments
thereof, contained or contains an untrue statement of a material fact or omitted
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
F-2
<PAGE>
EXHIBIT 2
FORM OF AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated _____, 1996, by and between RSx Holdings,
Inc., a Delaware corporation ("Holdings"), and ROCKSHOX, INC., a Delaware
corporation ("RockShox").
WHEREAS, the Boards of Directors of Holdings and RockShox have
approved an initial public offering (the "Offering") of the common stock, par
value $.01 per share, of RockShox ("RockShox Common Stock"); and
WHEREAS, the Boards of Directors of Holdings and RockShox have
approved the merger of Holdings with and into RockShox and the consummation of
the transactions contemplated hereby, upon the terms set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms of this Agreement, at the
Effective Time (as hereinafter defined) in accordance with the Delaware General
Corporation Law (the "DGCL"), Holdings shall be merged with and into RockShox
and the separate existence of Holdings shall thereupon cease (the "Merger").
RockShox shall be the surviving corporation in the Merger (hereinafter sometimes
referred to as the "Surviving Corporation").
SECTION 1.2 FILING OF MERGER AGREEMENT AND RELATED CERTIFICATE.
Immediately prior to the consummation of the Offering, a copy of this Agreement
pursuant to Section 251 of the DGCL and any other documents necessary to effect
the Merger in accordance with the DGCL shall be filed with the Secretary of
State of the State of Delaware and the Merger shall become effective (such time
and date are referred to herein as the "Effective Time").
SECTION 1.3 EFFECTS OF MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
ARTICLE II
<PAGE>
THE SURVIVING CORPORATION
SECTION 2.1 CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of RockShox, as in effect immediately prior to the
Effective Time, shall be amended and restated to read in the form set forth in
Exhibit I hereto.
SECTION 2.2 BYLAWS. At the Effective Time, the by-laws of RockShox,
as in effect immediately prior to the Effective Time, shall be amended and
restated to read in the form set forth in Exhibit II hereto.
SECTION 2.3 DIRECTORS AND OFFICERS. At and after the Effective Time,
the board of directors of the Surviving Corporation shall be comprised of the
persons comprising the Board of Directors of Holdings immediately prior to the
Effective Time and the officers of the Surviving Corporation shall be the
officers of Holdings prior to the Effective Time, in each case until their
respective successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's certificate of incorporation and by-laws.
SECTION 2.4 STOCK PLAN. At the Effective Time, RSx Holdings, Inc.
1996 Stock Plan shall be assumed by RockShox. In connection therewith, at
the Effective Time, to the extent permitted by the terms of the relevant
governing instruments, each option ("Holdings Stock Option") to purchase
common stock, par value $.01 per share ("Holdings Common Stock"), of
Holdings, whether vested or unvested, shall be assumed by RockShox, and each
such Holdings Stock Option shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such
option, the same number of shares of RockShox Common Stock as the holder of
such Holdings Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded up to the nearest whole share in the case of
Holding Stock Options that are non-qualified stock options and rounded down
to the nearest whole share in the case of incentive stock options (as defined
below)), at a price per share equal to (i) the aggregate exercise price for
the shares of Holdings Common Stock purchasable pursuant to such Holding
Stock Option divided by (ii) 88.2 shares of RockShox Common Stock; PROVIDED,
HOWEVER, that in the case of any option to which section 421 of the Internal
Revenue Code of 1986, as amended (the "Code"), applies by reason of its
qualification under any of sections 422-424 of the Code ("incentive stock
options"), the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of
2
<PAGE>
such option shall be determined in order to comply with section 424(a) of the
Code, subject to the terms and conditions of the relevant governing instruments.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF SHARES. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder of any capital
stock of RockShox or Holdings:
(a) each share of Holdings Common Stock (other than any shares
of Holdings Common Stock that are held in the treasury of Holdings and any
shares of Holdings Common Stock that are owned by any of Holdings' direct or
indirect Subsidiaries (as hereinafter defined)) issued and outstanding
immediately prior to the Effective Time shall, subject to Section 3.3 hereof,
be converted into, and become exchangeable for, 88.2 shares of RockShox
Common Stock;
(b) each share of Holdings Common Stock that is held in the
treasury of Holdings or that is issued and outstanding immediately prior to the
Effective Time and owned by any direct or indirect Subsidiary of Holdings shall
be cancelled and cease to exist at and after the Effective Time and no
consideration shall be delivered with respect thereto; and
(c) each share of RockShox Common Stock issued and outstanding
immediately prior to the Effective Time and owned by Holdings shall be cancelled
and cease to exist at and after the Effective Time and no consideration shall be
delivered with respect thereto.
SECTION 3.2 EXCHANGE OF ROCKSHOX CERTIFICATES.
(a) From and after the Effective Time, each holder of a
certificate that immediately prior to the Effective Time represented shares of
Holdings Common Stock shall be entitled to receive in exchange therefor (or upon
the provision of an appropriate affidavit of lost certificate and an indemnity
bond), upon surrender thereof, a certificate or certificates representing the
number of whole shares of RockShox Common Stock into which such holder's shares
of Holdings Common Stock. From and after the Effective Time, RockShox shall be
entitled to treat each certificate formerly representing shares of
3
<PAGE>
Holdings Common Stock (each, a "Holdings Certificate"), that have not yet been
surrendered for exchange, as evidencing the ownership of the number of full
shares of RockShox Common Stock into which the shares represented by such
Holdings Certificates shall have been converted pursuant to Section 3.1 hereof,
notwithstanding the failure to surrender such Holdings Certificate. If any
certificate for shares of RockShox Common Stock is to be issued in a name other
than that in which the Holdings Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for such shares of RockShox Common Stock in a name
other than that of the registered holder of the Holdings Certificate
surrendered, or shall establish to the satisfaction of RockShox that such tax
has been paid or is not applicable.
(b) The shares of RockShox Common Stock into which shares of
Holdings Common Stock shall be converted in the Merger shall be deemed to have
been issued at the Effective Time.
SECTION 3.3 NO FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement, no certificates or scrip for fractional shares of
RockShox Common Stock shall be issued upon the surrender for exchange of a
Holdings Certificate pursuant to this Article III and no dividend or other
distribution, stock split or interest with respect to shares of RockShox Common
Stock, if any, shall relate to any fractional share, and such fractional
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder. In lieu of any such fractional shares, each holder of shares of
Holdings Common Stock who would otherwise have been entitled to a fraction of a
share of RockShox Common Stock upon surrender of a Holdings Certificate for
exchange pursuant to this Article III shall be entitled to receive from RockShox
a cash payment (without interest) in lieu of such fractional share equal to such
fraction multiplied by the initial public offering price per share of RockShox
Common Stock.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 AMENDMENT. This Agreement may be amended by the parties
hereto, at any time before or after approval hereof by the stockholders of
Holdings, provided that after any such approval, no amendment shall be made that
(a) changes the ratio at which shares of Holdings Common Stock are to be
4
<PAGE>
converted into shares of RockShox Common Stock pursuant to Section 3.1 hereof,
(b) in any way materially adversely affects the rights of holders of Holdings
Common Stock or (c) changes any of the principal terms of this Agreement without
the further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 4.2 INTERPRETATION. As used in this Agreement, "Subsidiary"
means, with respect to any party, any corporation or other entity of which
outstanding securities having ordinary voting power to elect a majority of the
board of directors of such corporation or a majority of the voting power of the
voting equity interest of such other entity is owned, directly or indirectly, by
such party. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, shall be deemed to be followed by the words "without
limitation."
SECTION 4.3 MISCELLANEOUS. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to confer upon any other person any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise without
the prior written consent of the other parties hereto; and (d) shall be governed
in all respects, including validity, interpretation and effect, by the laws of
the State of Delaware (without giving effect to the provisions thereof relating
to conflicts of law).
SECTION 4.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 4.5 PARTIES IN INTEREST. Subject to the provisions of
Section 4.3(c) hereof, this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
5
<PAGE>
SECTION 4.6 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
RSx HOLDINGS, INC.
By:
--------------------------
Name:
Title:
ROCKSHOX, INC.
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROCKSHOX, INC.
FIRST: The name of the Corporation is ROCKSHOX, INC. (hereinafter the
"Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is fifty million (50,000,000) shares of Common
Stock, each having a par value of one penny ($.01), and ten million (10,000,000)
shares of Preferred Stock, each having a par value of one penny ($.01)
("Preferred Stock").
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that any such
class or series may be (i) subject to
<PAGE>
redemption at such time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
Bylaws of the Corporation.
(3) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the Bylaws of the
Corporation. Election of directors need not be by written ballot
unless the Bylaws so provide.
(4) No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
2
<PAGE>
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any Bylaws adopted by the stockholders; provided, however, that no
Bylaws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such Bylaws
had not been adopted.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
3
<PAGE>
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
ROCKSHOX, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at
<PAGE>
which meetings the stockholders shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting. Written notice of the Annual Meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of
the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
(ii) the Chief Executive Officer, if there be one, (iii) the President, (iv) any
Vice President, if there be one, (v) the Secretary or (vi) any Assistant
Secretary, if there be one, and shall be called by any such officer at the
request in writing of a majority of the Board of Directors or at the request in
writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each
stockholder represented at a meeting of stockholders shall be entitled to
cast one vote for each share of the
2
<PAGE>
capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
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.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
3
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed by the Incorporator and thereafter from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the Chief Executive Officer, if there be one, the
President, or any directors. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than forty-
eight (48) hours before the date of the meeting, by telephone or telegram on
twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
4
<PAGE>
SECTION 5. QUORUM. Except as may be otherwise specifically provided
by law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
5
<PAGE>
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee
shall keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and each
director who is not an employee of the Corporation may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
6
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Chief
Financial Officer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director), a Chief Executive
Officer and one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation or
these Bylaws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of Directors,
need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chief Executive Officer, the President
or any Vice President and any such officer may, in the name of and on behalf of
the Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
7
<PAGE>
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature
of the President is required, the Chairman of the Board of Directors shall
possess the same power as the President to sign all contracts, certificates and
other instruments of the Corporation which may be authorized by the Board of
Directors. The Chairman of the Board of Directors shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by these Bylaws or by the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if
there be one, shall be chief executive officer of the Corporation and, except
where by law the signature of the President is required, the Chief Executive
Officer shall possess the same power as the President to sign all contracts,
certificates and other instruments of the Corporation which may be authorized by
the Board of Directors. In the absence or disability of the Chairman of the
Board of Directors, or if there be none, the Chief Executive Officer shall
preside at all meetings of the stockholders and the Board of Directors. During
the absence or disability of the President, the Chief Executive Officer shall
exercise all the powers and discharge all the duties of the President. The
Chief Executive Officer shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors and the Chief Executive Officer, shall have general supervision of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board of Directors or the President. In the absence or disability of the
Chairman of the Board of Directors and the Chief Executive Officer, or if there
be none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chief Executive Officer, the President shall
be the Chief Executive Officer of the Corporation. The President shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
8
<PAGE>
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act, the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Each Vice President shall perform such other
duties and have such other powers as the Board of Directors from time to time
may prescribe. If there be no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Chief Financial Officer shall disburse the funds
of
9
<PAGE>
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chief Executive
Officer, if there be one, the President and the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Chief Financial Officer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the Chief Executive Officer, if there be one, the
President, any Vice President, if there be one, or the Secretary, and in the
absence of the Secretary or in the event of his disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chief Executive Officer, if
there be one, the President, any Vice President, if there be one, or the Chief
Financial Officer, and in the absence of the Chief Financial Officer or in the
event of his disability or refusal to act, shall perform the duties of the Chief
Financial Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Financial Officer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
10
<PAGE>
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
11
<PAGE>
SECTION 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by facsimile, telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by
12
<PAGE>
the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
13
<PAGE>
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
14
<PAGE>
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer, employee or agent. The provisions of
this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware
15
<PAGE>
for indemnification to the extent otherwise permissible under Sections 1 and
2 of this Article VIII. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this Article VIII, as
the case may be. Neither a contrary determination in the specific case under
Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption
that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
16
<PAGE>
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
17
<PAGE>
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
18
<PAGE>
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These Bylaws may be altered, amended or
repealed, in whole or in part, or new Bylaws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new Bylaws be contained in
the notice of such meeting of stockholders or Board of Directors as the case
may be. All such amendments must be approved by either the holders of a
majority of the outstanding capital stock entitled to vote thereon or by a
majority of the entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX
and in these Bylaws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
19
<PAGE>
FORM OF STOCK CERTIFICATE
ROCKSHOX, INC.
INCORPORATED UNDER THE LAWS ---------------------------
OF THE STATE OF DELAWARE ---------------------------
This Certifies that
is the record holder of
FULLY PAID AND NON ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE, BEING THE SHARES REPRESENTED HEREBY.
of ROCKSHOX, INC., hereinafter designated the "Corporation," transferable on the
share register of the Corporation upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers. Dated
SEAL
President Secretary
[BACK]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
Custodian
------- -------
TEN COM - as tenants in common UNIF GIFT MIN ACT--
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ____________________ HEREBY SELL, ASSIGN AND TRANSFOR UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN
- --------------------------------------------------------------------------------
____________________ SHARES OF THE STOCK REPRESENTED BY THE WITHIN CERTIFICATE
AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT _______________________________
ATTORNEY TO TRANSFER THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED
CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED: _________________________________ ___________________________________
SIGNATURE
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE RODNEY SQUARE
BOX 636
WILMINGTON, DELAWARE 19899-0636
September 3, 1996
RockShox, Inc.
401 Charcot Avenue
San Jose, California 95131
Ladies and Gentlemen:
We have acted as special counsel to RockShox, Inc., a Delaware
corporation (the "Company"), in connection with the public offering by the
Company of up to 5,520,000 shares (including 720,000 shares subject to the
Underwriters' (as defined below) over-allotment option) (the "Shares") of the
Company's common stock, par value $.01 per share (the "Common Stock").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-8069) as filed with the Securities and
Exchange Commission (the "Commission") on July 12, 1996 under the Act,
Amendment No. 1 to the Registration Statement as filed with the Commission on
August 23, 1996 under the Act and Amendment No. 2 to the Registration Statement
as filed with the Commission on September 3, 1996 under the Act (such
Registration Statement, as amended, the "Registration Statement"); (ii) the
form of Purchase Agreement (the "Purchase Agreement") proposed to be entered
into between the Company, as issuer, and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated on behalf of the several underwriters named therein (the
"Underwriters"), filed as an exhibit to the Registration Statement, (iii) the
form of Amended and Restated Certificate of Incorporation of the Company, filed
as an exhibit to the Registration Statement (the "Certificate"), (iv) the form
of Amend-
<PAGE>
RockShox, Inc.
September 3, 1996
Page 2
ed and Restated Bylaws of the Company, filed as an exhibit to the Registration
Statement; (v) certain resolutions adopted by the Board of Directors of the
Company and drafts of certain resolutions (the "Draft Resolutions") of the
Pricing Committee of the Board of Directors of the Company (the "Pricing
Committee"), in each case relating to the issuance and sale of the Shares and
related matters; (vi) a specimen certificate representing the Common Stock; and
(vii) such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such records of the
Company and such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others and such other
documents certificates and records as we have deemed necessary or appropriate as
a basis for the opinion set forth herein.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to this opinion that we did
not independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
We are admitted to the Bar in the State of Delaware, and we express no
opinion as to the laws of any other jurisdiction other than the laws of the
United States of America to the extent specified herein.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Draft Resolutions have been adopted by the Pricing Committee; (ii)
<PAGE>
RockShox, Inc.
September 3, 1996
Page 3
the price at which the Shares are to be sold to the Underwriters pursuant to the
Purchase Agreement and other matters relating to the issuance and sale of the
Shares have been approved by the Pricing Committee in accordance with the Draft
Resolutions; (iii) the Purchase Agreement has been duly executed and delivered;
(iv) the Certificate has been duly executed and filed with the Secretary of
State of the State of Delaware; and (v) certificates representing the Shares in
the form of the specimen certificate examined by us have been manually signed by
an authorized officer of the transfer agent and registrar for the Common Stock
and registered by such transfer agent and registrar, and delivered to and paid
for by the Underwriters at the price set forth in the Purchase Agreement and
approved by the Pricing Committee (which shall be not less than the per share
par value of the Common Stock), the issuance and sale of the Shares will have
been duly authorized, and the Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our firm under
the caption "Legal Matters" in the Registration Statement. In giving this
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission.
Very truly yours,
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
<PAGE>
FORM OF
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of
_________, 1996, by and among (i) RockShox, Inc., a Delaware corporation (the
"Company"); (ii) Stephen W. Simons, Debra W. Simons, The Simons Revocable Trust,
the Debra W. Simons Grantor Retained Annuity Trust, the Stephen W. Simons
Grantor Retained Annuity Trust, and The Simons Children Irrevocable Trusts
(collectively, together with their Permitted Transferees (defined below), the
"Simons Parties"); (iii) Paul Turner and the Turner Family LP (collectively,
together with their Permitted Transferees, the "Turner Parties"); (iv) MCIT PLC
(together with its Permitted Transferees, the "MCIT Parties"), and (v) Leucadia
Investors, Inc., John W. Jordan Revocable Trust, David W. Zalaznick, Adam E.
Max, Jonathan F. Boucher, John R. Lowden, Thomas H. Quinn, A. Richard Caputo
Jr., Paul A. Rodzevik and James E. Jordan Jr. Profit Sharing Plan & Trust
(collectively, together with their Permitted Transferees, the "Jordan Parties"
and, together with the Simons Parties, the Turner Parties, and the MCIT Parties,
the "Stockholders").
WHEREAS, the Company's predecessor, RSx Holdings, Inc. ("Holdings"),
and certain of the Stockholders have entered into a Subscription and
Stockholders Agreement, dated as of March 24, 1995 (the "Stockholders
Agreement"), pursuant to which, among other things, Holdings granted the
Stockholders certain registration rights with respect to their shares of common
stock, par value $1.00 per share ("Holdings Common Stock"), of Holdings; and
WHEREAS, the Company has filed with the Securities and Exchange
Commission (the "SEC") a registration statement relating to an initial public
offering (the "Offering") of its common stock, par value $.01 per share ("Common
Stock"); and
WHEREAS, immediately prior to the consummation of the Offering,
Holdings will be merged with and into the Company (the "Merger") and each share
of Holdings Common Stock will be converted into 88.2 shares of Common Stock; and
WHEREAS, the parties hereto desire to enter into this Agreement, which
will replace and supersede the Stockholders Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
<PAGE>
As used in this Agreement, the following terms shall have the
following meanings:
DEMANDING HOLDERS: Stockholders who have initiated a registration
request in compliance with Section 3(a) hereof. Such request may be initiated
by not less than two of the Simons Parties, the Turner Parties, the MCIT Parties
and the Jordan Parties. Any action required or permitted to be taken hereunder
by any of the Simons Parties, the Turner Parties, the MCIT Parties or the Jordan
Parties shall be taken by action of the holders of a majority of Registrable
Securities held by the applicable Stockholders.
EFFECTIVE DATE: The date of the consummation of the Merger.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
PERSON: Any individual, partnership, corporation, limited liability
company, trust, unit trust, unincorporated organization, government or agency or
political subdivision thereof, or any other entity.
PROCEEDING: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
REGISTRABLE SECURITIES: The shares of Common Stock received by the
Stockholders upon conversion of shares of Holdings Common Stock in the Merger,
and at all times subsequent thereto, until such time as such shares of Common
Stock (i) are effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering such shares, (ii) are
saleable by the holder thereof pursuant to Rule 144(k) or (iii) are distributed
for resale pursuant to Rule 144.
REGISTRATION STATEMENT: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
2
<PAGE>
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SECURITIES ACT: The Securities Act of 1933, as amended.
SPECIAL COUNSEL: Any special counsel to any of the Stockholders.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. EFFECTIVENESS; SUPERSEDING AGREEMENT.
This Agreement shall become effective on the Effective Date. Upon the
Effective Date, this Agreement shall supersede any and all agreements,
arrangements or understandings among any of the parties hereto concerning the
subject matter hereof, including, without limitation, the Stockholders
Agreement.
3. DEMAND REGISTRATION
(a) REQUESTS FOR REGISTRATION. The Demanding Holders shall have
the right by written notice delivered to the Company (the "Demand Notice") to
require the Company to register (a "Demand Registration") under and in
accordance with the provisions of the Securities Act the number of Registrable
Securities requested to be so registered pursuant to the terms of this
Agreement.
In no event shall the number of Demand Registrations pursuant to this
Section 3(a) exceed two for all Demanding Holders unless any Demand Registration
does not become effective or is not maintained effective for the period required
pursuant to this Section 3(a), or the amount of Registrable Securities to be
registered on behalf of the holders requesting such Demand Registration is
reduced by more than 50% pursuant to Section 3(b) hereof, then the Demanding
Holders shall be entitled to an additional Demand Registration in lieu thereof
until such Demand Registration is declared and maintained effective for such
period.
3
<PAGE>
Within 10 days after receipt by the Company of a Demand Notice, the
Company shall give written notice of such Demand Notice to all other holders of
Registrable Securities and shall,subject to the provisions of Section 3(b)
hereof, include in such registration all Registrable Securities with respect to
which the Company received written requests for inclusion therein within 10 days
after such notice is given by the Company to such holders.
All requests made pursuant to this Section 3 will specify the number
of Registrable Securities to be registered and the intended methods of
disposition thereof.
If the Demanding Holders request that such Demand Registration be a
"shelf" registration pursuant to Rule 415 under the Securities Act, the Company
shall file such Demand Registration under Rule 415 and shall keep the
Registration Statement filed in respect thereof effective for a period that
shall terminate on the earlier of (i) 180 days from the date on which the SEC
declares such Registration Statement effective and (ii) the date on which all
Registrable Securities covered by such Registration Statement have been sold
pursuant to such Registration Statement.
(b) PRIORITY ON DEMAND REGISTRATION. If any of the Registrable
Securities registered pursuant to a Demand Registration are to be sold in a firm
commitment underwritten offering, and the managing underwriter or underwriters
advise the holders of such securities in writing that in its opinion the total
number or dollar amount of Registrable Securities proposed to be sold in such
offering is such as to materially and adversely affect the success of such
offering, then there shall be included in such firm commitment underwritten
offering the number or dollar amount of Registrable Securities that in the
opinion of such managing underwriter can be sold, and such Registrable
Securities shall be allocated pro rata among the holders of Registrable
Securities on the basis of the number or dollar amount of securities owned by
each such holder participating in such offering.
(c) POSTPONEMENT OF DEMAND REGISTRATION. The Company shall be
entitled to postpone, for a reasonable period of time not in excess of 90
days, the filing of a Registration Statement if the Company determines, in good
faith exercise of its reasonable business judgment, that such registration and
offering could materially adversely affect BONA FIDE financing plans of the
Company or would require disclosure of information, the premature disclosure of
which could materially adversely affect the Company or any transaction under
consideration by the Company.
4
<PAGE>
4. PIGGYBACK REGISTRATION
(a) RIGHT TO PIGGYBACK. If at any time the Company proposes to
file a registration statement under the Securities Act with respect to an
offering of Common Stock (other than a registration statement (i) on Form S-4 or
Form S-8 or any successor forms thereto or (ii) filed solely in connection with
an exchange offer or an offering made solely to employees of the Company),
whether or not for its own account, then the Company shall give written notice
of such proposed filing to the holders of Registrable Securities at least 30
days before the anticipated filing date. Such notice shall offer such holders
the opportunity to register such amount of Registrable Securities as each such
holder may request (a "Piggyback Registration"). Subject to Section 4(b)
hereof, the Company shall include in each such Piggyback Registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 10 days after notice has been given to the
applicable holder (which request shall specify the intended method of
distribution). The holders of Registrable Securities shall be permitted to
withdraw all or part of the Registrable Securities from a Piggyback Registration
at any time prior to the effective date of such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company shall
cause the managing underwriter of a proposed underwritten offering to permit
holders of Registrable Securities requested to be included in the registration
for such offering to include all such Registrable Securities on the same terms
and conditions as any other shares of Common Stock, if any, of the Company
included therein. Notwithstanding the foregoing, if the managing underwriter of
such underwritten offering delivers an opinion to the holders of Registrable
Securities that the total number or dollar amount of securities that such
holders, the Company and any other Persons having rights to participate in such
registration, propose to include in such offering is such as to materially and
adversely affect the success of such offering, then the amount of Common Stock
to be offered (i) for the account of holders of Registrable Securities and (ii)
for the account of all such other Persons (other than the Company) shall be
reduced or limited pro rata in proportion to the respective dollar amounts of
Common Stock requested by such persons to be included in such offering.
(c) REGISTRATION OF SECURITIES OTHER THAN REGISTRABLE
SECURITIES. Without the written consent of the holders of a majority of the
then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted, if exercised,
would not otherwise conflict or be inconsistent with the provisions of, this
Agreement.
5
<PAGE>
5. HOLD-BACK AGREEMENTS
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE
SECURITIES. Each holder of Registrable Securities agrees, in connection with
any sale of securities by the Company and in connection with any Registration
Statement filed pursuant to Section 3 or Section 4 hereof, if requested
(pursuant to a timely written notice) by the Company or the managing underwriter
or underwriters in an underwritten offering, not to effect any public sale or
distribution of any of the Company's securities, including a sale pursuant to
Rule 144 (except as part of such underwritten offering), during the period
beginning 10 days prior to, and ending 90 days after, the closing date of each
underwritten offering made by the Company or pursuant to such Registration
Statement.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement; provided, however, that any such holder shall
undertake in its request to participate in any such underwritten offering, not
to effect any public sale or distribution of the class of securities covered by
such Registration Statement (except as part of such underwritten offering)
during such period unless it has provided 45 days' prior written notice of
such sale or distribution to the managing underwriter or underwriters.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company
agrees that without the written consent of the managing underwriter in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 3 or Section 4 hereof, it will not effect
any public or private sale or distribution of any of its equity securities,
including a sale pursuant to Regulation D under the Securities Act, during the
10-day period prior to, and during the 90-day period beginning on, the closing
date of each underwritten offering made pursuant to such Registration Statement
(except (i) as part of such underwritten registration, (ii) pursuant to
registrations on Form S-4 or Form S-8 or any successor forms thereto or filed
solely in connection with an offering made solely to employees of the Company,
(iii) in connection with an exchange offer or (iv) in connection with the
acquisition of assets by the Company or its subsidiaries).
6. REGISTRATION PROCEDURES
In connection with the Company's registration obligations pursuant to
Section 3 or Section 4 hereof, the Company shall effect such registrations to
permit the sale of such Registrable Securities in accordance with the intended
method or methods of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
6
<PAGE>
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act that
shall be available for the sale of the Registrable Securities by the holders
thereof in accordance with the intended method or methods of distribution
thereof, and use its best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein. Before filing any
Registration Statement or Prospectus or any amendments or supplements thereto
(including documents that would be incorporated or deemed to be incorporated
therein by reference), the Company shall furnish or otherwise make available to
the holders of the Registrable Securities covered by such Registration
Statement, the Special Counsel and the managing underwriters, if any, copies of
all such documents proposed to be filed, which documents will be subject to the
review of such holders, the Special Counsel and such underwriters, if any;
PROVIDED, HOWEVER, that the Company shall not be required to deliver to such
holders a copy of any such document that has not been materially changed from a
copy of such document that was previously delivered to such holders. The
Company shall not file any such Registration Statement or amendment thereto or
any Prospectus or any supplement thereto (including such documents which, upon
filing, would or would be incorporated or deemed to be incorporated by reference
therein) to which the holders of a majority of the Registrable Securities
covered by such Registration Statement, the Special Counsel or the managing
underwriter, if any, shall reasonably object, in writing, on a timely basis
unless, in the opinion of the Company, such filing is necessary to comply with
applicable law.
(b) Prepare and file with the SEC such amendments and post-
effective amendments to each Registration Statement as may be necessary to keep
such Registration Statement continuously effective during the period provided
herein with respect to the disposition of the Registrable Securities covered
thereby; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement as so amended or to such Prospectus as
so supplemented.
(c) Notify the selling holders of Registrable Securities, the
Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such Person) confirm such notice in writing:
(i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to a Registration
7
<PAGE>
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information (provided, that
the Company shall not be required to notify the holders or the Special Counsel
of all "comment" letters or the Company's responses thereto to the holders or
the Special Counsel unless such letters request information from or about the
holders),
(iii) of the issuance by the SEC or any other Federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties of
the Company contained in any agreement contemplated by Section 6(n) (including
any underwriting agreement) below cease to be true and correct,
(v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose,
(vi) of the happening of any event that makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue or that
requires the making of any changes in a Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and
(vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction.
8
<PAGE>
(e) If requested by the managing underwriters, if any, or any
holder of Registrable Securities being sold, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, and such holder reasonably agree should be
included therein as may be required by applicable law, (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as the Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment, and (iii) supplement or
make amendments to any Registration Statement; PROVIDED, HOWEVER, that the
Company shall not be required to take any actions under this Section 6(e) that
are not, in the opinion of counsel for the Company, in compliance with
applicable law.
(f) Furnish to each selling holder of Registrable Securities,
the Special Counsel and each managing underwriter, if any, without charge, at
least one conformed copy of the Registration Statement or Statements and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated therein by reference or deemed
incorporated therein by reference and all exhibits, unless requested in writing
by such holder, Special Counsel or underwriter).
(g) Deliver to each selling holder of Registrable Securities,
the Special Counsel and the underwriters, if any, without charge, as many copies
of the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may request; and the Company hereby consents to the use of such
Prospectus or each amendment or supplement thereto by each of the selling
holders of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
use its reasonable best efforts to register or qualify or cooperate with the
selling holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; PROVIDED, HOWEVER,
that the Company will not be required to
9
<PAGE>
(i) qualify generally to do business in any jurisdiction where it is not then
so qualified or (ii) take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject.
(i) Cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends; and enable such Registrable
Securities to be registered in such names as the managing underwriters, if any,
shall request at least two business days prior to any sale of Registrable
Securities to the underwriters.
(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling holder's
business, in which case the Company will cooperate in all respects with the
filing of such Registration Statement and the granting of such approvals, as may
be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
6(c)(vi) or 6(c)(vii) above, prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(l) Use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be (i) listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) authorized to be quoted on The Nasdaq Stock Market National
Market if the securities so qualify; in each case, if requested by the holders
of a majority of shares of the Registrable Securities covered by such
Registration Statement or the managing underwriters, if any.
(m) Prior to the effective date of the Registration Statement
relating to the Registrable Securities, (i) provide the transfer agent with
printed certificates for the Registrable Securities in a form eligible for
deposit
10
<PAGE>
with The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities.
(n) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the holders
of a majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
(i) make such representations and warranties to the
holders of such Registrable Securities and the underwriters, if any, with
respect to the business of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and,
if true, confirm the same if and when requested;
(ii) use its reasonable best efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority of the Registrable
Securities being sold) addressed to each selling holder of Registrable
Securities and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such holders and underwriters,
including without limitation the matters referred to in Section 6(n)(i) above;
(iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each selling holder of
Registrable Securities (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and
11
<PAGE>
(iv) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable Securities
being sold, the Special Counsel and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(o) Make available for inspection by a representative of the
holders of Registrable Securities being sold, any underwriter participating in
any disposition of Registrable Securities, if any, and any attorney or
accountant retained by such selling holders or underwriter, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; PROVIDED, HOWEVER, that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such records, information or documents shall be kept
confidential by such Persons unless (i) such records, information or documents
are in the public domain or otherwise publicly available, (ii) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities or (iii)
disclosure of such records, information or documents, in the opinion of counsel
to such Person, is otherwise required by law (including, without limitation,
pursuant to the requirements of the Securities Act). Without limiting the
foregoing, no such information shall be used by such Person as the basis for any
market transactions in securities of the Company or its subsidiaries in
violation of law.
(p) Comply with all applicable rules and regulations of the SEC
and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering, and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
12
<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v), 6(c)(vi) or 6(c)(vii) hereof, such holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(k) hereof, or until
it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
7. REGISTRATION EXPENSES
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or selling
holders in connection with Blue Sky qualifications of the Registrable Securities
pursuant to Section 6(h) hereof)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the holders of a
majority of the Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of all independent certified
public accountants referred to in Section 6(n)(iii) hereof (including the
expenses of any "cold comfort" letters required by this Agreement), (vi) the
fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Section 3 of
Schedule E to the By-laws of the National Association of Securities Dealers,
Inc. and (vii) fees and expenses of all other Persons retained by the Company.
In addition, the Company shall pay its internal expenses
13
<PAGE>
(including without limitation all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and the fees and expenses of
any Person, including special experts, retained by the Company.
In addition, whether or not any of the Registration Statements become
effective, the Company shall pay the reasonable fees and disbursements of a
Special Counsel for each of the Simons Parties, the Turner Parties, the MCIT
Parties and the Jordan Parties, in each case, together with appropriate local
counsel.
The Company shall not be required to pay any underwriter's fees and
expenses (including discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals) relating
to the distribution of Registrable Securities.
8. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each holder of Registrable Securities whose Registrable
Securities are registered pursuant to this Agreement, the officers, directors,
agents and employees of each of them, each Person who controls such holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of any such
controlling person, from and against all losses, claims, damages, liabilities,
costs (including, without limitation, the costs of preparation and reasonable
attorneys' fees) and expenses (collectively, "Losses") to be reimbursed
promptly, as incurred, arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or form of Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based solely upon information furnished in writing to the Company by
such holder expressly for use therein; PROVIDED, HOWEVER, that the Company shall
not be liable to any holder of Registrable Securities to the extent that (A) any
such Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus if
(i) such holder failed to send or deliver a copy of the Prospectus with or prior
to the delivery of written confirmation of the sale by such holder of a
Registrable Security to the person
14
<PAGE>
asserting the claim from which such losses arise and (ii) the Prospectus would
have corrected in all material respects such untrue statement or alleged untrue
statement or such omission or alleged omission; or (B) any such Losses arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission in the Prospectus, if (x) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in all material
respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such holder thereafter fails to
deliver such Prospectus as so amended and supplemented, prior to or concurrently
with the sale of a Registrable Security to the Person asserting the claim from
which such Losses arise.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities shall furnish
to the Company in writing such information relating to such holder, as such, or
the Registrable Securities being sold by such holder (the "Holder Information")
as the Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any Holder
Information so furnished in writing by such holder to the Company expressly for
use in such Registration Statement or Prospectus and that such Holder
Information was solely relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event shall
the liability of any selling holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such holder directly from the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution to the same extent as provided above with respect to information so
furnished in writing by such Persons expressly for use in any Prospectus or
Registration Statement.
15
<PAGE>
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Person shall
be entitled to indemnity hereunder (an "indemnified party"), such indemnified
party shall give prompt notice to the party from which such indemnity is sought
(the "indemnifying party") of any claim or of the commencement of any Proceeding
with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; PROVIDED, HOWEVER, that the delay or failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such delay or failure. The indemnifying party
shall have the right, exercisable by giving written notice to an indemnified
party promptly after the receipt of written notice from such indemnified party
of such claim or Proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or Proceeding, with counsel reasonably satisfactory to
such indemnified party; PROVIDED, HOWEVER, that an indemnified party shall have
the right to employ separate counsel in any such claim or Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (1) the indemnifying
party agrees to pay such fees and expenses; (2) the indemnifying party fails
promptly to assume the defense of such claim or Proceeding or fails to employ
counsel reasonably satisfactory to such indemnified party or (3) counsel for the
indemnified party advises the indemnifying party in writing that there are
issues that raise conflicts of interest between the indemnified party and the
indemnifying party; in which case the indemnified party shall have the right to
employ counsel and to assume the defense of such claim or proceeding; PROVIDED,
HOWEVER, that the indemnifying party shall not, in connection with any one such
claim or Proceeding or separate but substantially similar or related claims or
Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable.
Whether or not such defense is assumed by the indemnifying party, such
indemnified party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). All
such fees and expenses (including any fees and expenses incurred in connection
with investigating or preparing to defend such action or proceeding) shall be
paid to the indemnified party, as incurred, within five days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party shall not consent to entry of any judgment
or enter into any settlement or otherwise seek to terminate any Proceeding in
which any indemnified party is or could be a party and as to which
indemnification or contribution could be sought by such indemnified party under
this Section 8, unless such judgment, settlement
16
<PAGE>
or other termination includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release, in form and
substance reasonably satisfactory to the indemnified party, from all liability
in respect of such claim or litigation for which such indemnified party would be
entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to an indemnified party under Section 8(a) or 8(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall, jointly and severally, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the net proceeds (after deducting the
aggregate underwriters' discount) received by such indemnifying party from the
sale of such Registrable Securities exceeds the amount of any damages which such
indemnifying party has otherwise been required to pay (including, without
limitation, pursuant to any other indemnification or contribution obligation
such indemnifying party may have) by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
17
<PAGE>
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 8 shall
survive so long as Registrable Securities remain outstanding, notwithstanding
any transfer of the Registrable Securities by any Stockholder or any termination
of this Agreement.
9. RULE 144
The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act, and will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144. Upon the request of any holder of Registrable
Securities, the Company shall deliver to such holder a written statement as to
whether it has complied with such filing requirements.
10. UNDERWRITTEN REGISTRATIONS
If any Demand Registration is an underwritten offering, the holders of
a majority of the Registrable Securities included in such offering shall select
the investment banker or bankers and managers to administer the offering;
provided, that such investment banker or bankers and managers shall be
reasonably satisfactory to the Company. If any Piggyback Registration is an
underwritten offering, the Company shall have the right to select the investment
banker or investment bankers and managers to administer the offering.
11. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the
18
<PAGE>
provisions hereof may not be given, unless the Company has obtained the written
consent of holders of a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
holders of Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other holders of Registrable Securities may be given by holders of at
least a majority of the Registrable Securities being sold by such holders;
PROVIDED, HOWEVER, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing and shall be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(x) if to a holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect
to each Holder, the address set forth on his respective signature page
attached hereto; and
(y) if to the Company, at 401 Charcot Avenue, San Jose,
California 95131, Telecopier Number (408) 232-7496, Attention: Chief
Financial Officer;
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) OWNER OF REGISTRABLE SECURITIES. The Company will maintain,
or will cause its registrar and transfer agent to maintain, a stock book with
respect to the Common Stock, in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem
and treat the person in whose name Registrable Securities are registered in the
stock book of the Company as the owner thereof for all purposes, including
without limitation, the giving of notices under this Agreement.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each holder of any Registrable
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each holder of any Registrable Securities.
19
<PAGE>
Notwithstanding the foregoing, no transferee shall have any of the rights
granted under this Agreement (i) until such transferee shall acknowledge its
rights and obligations hereunder by a signed written statement of such
transferee's acceptance of such rights and obligations (any such transferee, a
"Permitted Transferee") or (ii) if the transferor notifies the Company in
writing on or prior to such transfer that the transferee shall not have such
rights.
(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(i) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
(k) ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by
20
<PAGE>
the court, shall be entitled to recover reasonable attorneys' fees in addition
to any other available remedy.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ROCKSHOX, INC.
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
22
<PAGE>
THE SIMONS PARTIES
---------------------------------------------
Stephen W. Simons
---------------------------------------------
Debra W. Simons
THE SIMONS REVOCABLE TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
DEBRA W. SIMONS GRANTOR RETAINED
ANNUITY TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
STEPHEN W. SIMONS GRANTOR RETAINED
ANNUITY TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
THE SIMONS CHILDREN IRREVOCABLE TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notice:
c/o RockShox, Inc.
401 Charcot Avenue
San Jose, California 95131
23
<PAGE>
THE TURNER PARTIES
---------------------------------------------
Paul Turner
TURNER FAMILY LP
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notice:
c/o RockShox, Inc.
401 Charcot Avenue
San Jose, California 95131
24
<PAGE>
THE MCIT PARTIES
MCIT PLC
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notice:
c/o Jordan/Zalaznick Advisors, Inc.
9 West 57th Street
New York, New York 10019
THE JORDAN PARTIES
JAMES E. JORDAN JR. PROFIT SHARING
PLAN & TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
---------------------------------------------
David W. Zalaznick
---------------------------------------------
Adam E. Max
---------------------------------------------
A. Richard Caputo, Jr.
---------------------------------------------
Jonathan F. Boucher
25
<PAGE>
---------------------------------------------
John R. Lowden
---------------------------------------------
Thomas H. Quinn
26
<PAGE>
---------------------------------------------
A. Richard Caputo Jr.
---------------------------------------------
Paul A. Rodzevik
JOHN W. JORDAN II REVOCABLE TRUST
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notice:
c/o The Jordan Company
9 West 57th Street
New York, New York 10019
LEUCADIA INVESTORS, INC.
By:
---------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Address for Notice:
315 Park Avenue South
New York, New York 10010
27
<PAGE>
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement, dated ____, 1996, is made and entered into by and
between ROCKSHOX, INC., a Delaware corporation (the "Company"), and ________
("Indemnitee").
WHEREAS, Indemnitee is currently serving as a director, officer, employee
or agent of the Company or, at the Company's request, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise;
WHEREAS, the Amended and Restated Bylaws (the "Bylaws") of the Company
provide that the Company will indemnify, in the manner and to the fullest extent
permitted by the Delaware General Corporation Law (the "DGCL"), certain persons
against specified expenses arising out of certain threatened, pending or
completed actions, suits or proceedings; and
WHEREAS, in order to induce Indemnitee to continue to serve the Company in
his or her present capacity, and to provide Indemnitee with specific contractual
assurance that the protection authorized by the Bylaws will be available to
Indemnitee, the Company wishes to enter into this Agreement.
NOW THEREFORE, the Company and Indemnitee hereby agree as follows:
SECTION 1. DEFINITIONS. The following terms, as used herein, shall
have the following meanings:
(a) "Covered Claim" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
PROVIDED, that (1) such claim is not for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Company within the meaning
of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar
provisions of any state law and (2) Indemnitee shall not be indemnified by the
<PAGE>
Company if, with respect to such action, suit or proceeding, a Determination (as
defined below) is made that:
(i) Indemnitee did not act in good faith in a manner
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company;
(ii) in the case of any criminal action or proceeding,
Indemnitee had reasonable cause to believe his or her conduct was unlawful;
or
(iii) Indemnitee intentionally breached his or her duty
to the Company or its stockholders.
(b) "Determination" shall mean a determination, based upon the
facts known at the time, made by:
(i) the Board of Directors of the Company, by the vote
of a majority of the directors who are not parties to the action, suit or
proceeding in question, even though less than a quorum;
(ii) if there are no such disinterested directors, or
if such disinterested directors so direct, by independent legal counsel in
a written opinion;
(iii) the stockholders of the Company; or
(iv) a court of competent jurisdiction in a final,
nonappealable adjudication.
(c) "Payment" shall mean all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with a Covered Claim.
SECTION 2. INDEMNIFICATION. The Company shall indemnify and hold
harmless Indemnitee against and from any and all Payments to the extent
that:
2
<PAGE>
(a) the Company shall not have advanced expenses to Indemnitee
pursuant to Article VIII, Section 6 of the Bylaws or otherwise and no
Determination shall have been made pursuant to such bylaw or the DGCL that
Indemnitee is not entitled to indemnification;
(b) Indemnitee shall not already have received payment on account
of such Payments from any third party, including, without limitation, pursuant
to one or more valid and collectible insurance policies; and
(c) such indemnification by the Company is not unlawful.
Notwithstanding anything contained in this Agreement to the contrary, except for
proceedings to enforce rights to indemnification or advancement of expenses
pursuant to Section 4 hereof, the Company shall have no obligation to indemnify
Indemnitee in connection with a proceeding (or part thereof) initiated by
Indemnitee unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Company. Further, the Company shall have no
obligation to indemnify Indemnitee under this Agreement for any amounts paid in
a settlement of any action, suit or proceeding effected without the Company's
prior written consent, which consent shall not be unreasonably withheld. The
Company shall not settle any claim in any manner that would impose any
obligation on Indemnitee without Indemnitee's prior written consent, which
consent shall not be unreasonably withheld.
SECTION 3. INDEMNIFICATION PROCEDURE; ADVANCEMENTS OF EXPENSES.
(a) If at the time of receipt of any notice pursuant to Section 9
hereof the Company has directors' and officers' liability insurance in effect,
the Company shall give prompt notice of the commencement of such action, suit or
proceeding to the insurers in accordance with the procedures set forth in the
respective policies in favor of Indemnitee. The Company shall thereafter take
all necessary or desirable action to cause such insurers to pay, on behalf of
Indemnitee, all Payments payable as a result of such action, suit or proceeding
in accordance with the terms of such policies.
(b) All expenses, including attorneys' fees, incurred by
Indemnitee in defending any Covered Claim shall be paid by the Company in
advance of the final disposition of such Covered Claim upon an undertaking by or
on behalf of Indemnitee to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Company as
authorized
3
<PAGE>
herein. Indemnitee hereby undertakes to and agrees that he or she will repay
the Company for any expenses advanced by or on behalf of the Company pursuant to
this Section 3(b) if it shall ultimately be determined by a court of competent
jurisdiction in a final, nonappealable adjudication that Indemnitee is not
entitled to indemnification under this Agreement.
(c) If the Company shall advance the expenses of any such action,
suit or proceeding pursuant to Section 3(b) hereof, it shall be entitled to
assume the defense of such action, suit or proceeding, if appropriate, with
counsel reasonably satisfactory to Indemnitee, upon delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, the
Company shall not be liable to Indemnitee under this Agreement for any expenses
subsequently incurred by Indemnitee in connection with such defense other than
reasonable expenses of investigation; PROVIDED, HOWEVER, that:
(i) Indemnitee shall have the right to employ separate
counsel in any such action, suit or proceeding provided that the fees and
expenses of such counsel incurred after delivery of notice by the Company
of its assumption of such defense shall be at Indemnitee's own expense; and
(ii) the fees and expenses of counsel employed by
Indemnitee shall be at the expense of the Company if (x) the employment of
counsel by Indemnitee has previously been authorized by the Company, (y)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense (PROVIDED, that the Company shall not be required to pay for more
than one counsel to represent two or more Indemnitees where such
Indemnitees have reasonably concluded that there is no conflict of interest
among them in the conduct of such defense) or (z) the Company shall not, in
fact, have employed counsel reasonably satisfactory to Indemnitee to assume
the defense of such action, suit or proceeding.
(d) All payments on account of the Company's advancement
obligations under Section 3(b) hereof shall be made within 20 days of
Indemnitee's written request therefor. All other payments on account of the
Company's obligations under this Agreement shall be made within 60 days of
Indemnitee's written request therefor, unless a Determination is made that the
4
<PAGE>
claims giving rise to Indemnitee's request are not payable under this Agreement.
Each request for payment hereunder shall be accompanied by evidence reasonably
satisfactory to the Company of Indemnitee's incurrence of the expenses for which
such payment is sought.
SECTION 4. ENFORCEMENT OF INDEMNIFICATION; BURDEN OF PROOF. If a
claim for indemnification or advancement of expenses under this Agreement is not
paid in full by or on behalf of the Company within the time period specified in
Section 3(d) hereof, Indemnitee may at any time thereafter bring suit against
the Company to recover the unpaid amount of such claim. In any such action, the
Company shall have the burden of proving that indemnification is not required
under this Agreement.
SECTION 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some
portion of any Payments, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of any such
Payments to which Indemnitee is entitled.
SECTION 6 INTERPRETATION. All references in this Agreement to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any employee
benefit plan; and references to "serving at the request of the Company" shall
include any service by Indemnitee as a director, officer, employee or agent of
the Company that imposes duties on, or involves services by, Indemnitee with
respect to an employee benefit plan, its participants or beneficiaries. If
Indemnitee acts in good faith and in a manner he or she reasonably believes to
be in the interests of the participants and beneficiaries of any employee
benefit plan, then, for purposes of Section 1(a) hereof, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company."
SECTION 7. RIGHTS NOT EXCLUSIVE. The rights to indemnification and
advancement of expenses provided hereunder shall not be deemed exclusive of any
other rights to which Indemnitee may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office.
SECTION 8. SUBROGATION. In the event of payment under this Agreement
by or on behalf of the Company, the Company shall be subrogated to
5
<PAGE>
the extent of such payment to all of the rights of recovery of Indemnitee, who
shall execute all papers that may be required and shall do all things that may
be necessary to secure such rights, including, without limitation, the execution
of such documents as may be necessary to enable the Company effectively to bring
suit to enforce such rights.
SECTION 9. NOTICE OF CLAIM. Promptly after receipt by Indemnitee of
notice of the commencement or threat of commencement of any civil, criminal,
administrative or investigative action, suit or proceeding, Indemnitee shall, if
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company thereof in writing at its principal office and
directed to the Corporate Secretary (or such other address as the Company shall
designate in writing to Indemnitee); notice shall be deemed received if sent by
prepaid mail properly addressed, the date of such notice being the date
postmarked. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
SECTION 10. CHOICE OF LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
without giving effect to the principals of conduct of laws thereunder.
SECTION 11. JURISDICTION. The Company and Indemnitee hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action, suit or proceeding that arises
out of or relates to this Agreement, and agree that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
SECTION 12. COVERAGE. The provisions of this Agreement shall apply
to Indemnitee's service as a director, officer, employee or agent of the Company
or at the Company's request, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise with respect to all periods of such service prior to and after
the date of this Agreement, even though Indemnitee may have ceased such service
at the time of indemnification hereunder.
SECTION 13. ATTORNEYS' FEES. If any action, suit, or proceeding is
commenced in connection with or related to this Agreement, the prevailing party
shall be entitled to have its costs and expenses, including, without limitation,
6
<PAGE>
reasonable attorneys' fees and reasonable expenses of investigation, paid by the
losing party.
SECTION 14 SEVERABILITY. In the event that any provision of this
Agreement is determined by a court to require the Company to do or to fail to do
an act that is in violation of any applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to avoid
a violation of law, and, as so limited or modified, such provision and the
balance of this Agreement shall be enforceable in accordance with their terms.
SECTION 15 SUCCESSORS AND ASSIGNS. The Agreement shall be binding
upon all successors and assigns of the Company, including any transferee of all
or substantially all of its assets and any successor by merger or otherwise by
operation of law, and shall be binding upon and inure to the benefit of the
heirs, executors and administrators of Indemnitee.
SECTION 16 DESCRIPTIVE HEADINGS. The descriptive headings in this
Agreement are included for the convenience of the parties only and shall not
affect the construction of this Agreement.
SECTION 17 COUNTERPARTS. This Agreement may be executed in two
counterparts, both of which taken together shall constitute one document.
SECTION 18 AMENDMENT. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in writing and
signed by each of the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the date first written above.
ROCKSHOX, INC.
By:
--------------------------------
Name:
---------------------------
Title:
---------------------------
INDEMNITEE
-----------------------------------
8
<PAGE>
, 1996
-------------- ---
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robertson, Stephens & Company LLC
Jefferies & Company, Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, NY 10281-1209
Ladies and Gentlemen:
Reference is hereby made to the Purchase Agreement of even date herewith
(the "Purchase Agreement") among RockShox, Inc., a Delaware corporation, the
stockholders of the Company named in Schedule B thereto, and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robertson, Stephens &
Company LLC and Jefferies & Company, Inc., as representatives of the several
underwriters named in Schedule A thereto, with respect to the issue and sale by
the Company of its common stock, par value $.01 per share. All capitalized
terms used, but not defined, herein shall have the meanings given to them in the
Purchase Agreement.
Notwithstanding anything to the contrary contained in the Purchase
Agreement, the parties hereto agree that $______ of expenses otherwise payable
by the Company pursuant to Section 4(a) of the Purchase Agreement shall be paid
by the several Underwriters.
Very truly yours,
ROCKSHOX, INC.
By:
------------------------------
Stephen W. Simons
President
[CUSTODIAN]
By:
-----------------------------
-
Attorney-in-Fact
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC
JEFFERIES & COMPANY, INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By -----------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A to the Purchase Agreement.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(Registration Number 333-8069) of our report dated May 21, 1996, except for Note
14, as to which the date is August 23, 1996, on our audits of the financial
statements and the financial statement schedule of RSx Holdings, Inc. and
Subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
August 30, 1996
