SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 31, 1998
TEARDROP GOLF COMPANY
(Exact name of Registrant as specified in its Charter)
Delaware 0-29014 52-105660
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(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification
1080 Lousons Road, Union, New Jersey 07083
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(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (908) 688-4445
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Not Applicable
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(Former name and former address, as changed since last report)
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Item 5. Acquisition or Disposition of Assets
On August 31, 1998, TearDrop Golf Company, a Delaware corporation (the
"Company"), entered into a non-binding letter of intent to acquire certain of
the assets of Lynx Golf, Inc. of Carlsbad, California ("Lynx"). The acquisition
is subject to numerous conditions, including the signing of a definitive
agreement and approval of the Bankruptcy Court for the Southern District of
California having jurisdiction over the bankruptcy proceedings involving Lynx
Golf, Inc. Lynx has submitted to the Bankruptcy Court overbid procedures
pursuant to which the proposed sale to the Company will be subject to higher and
better bids that may be made by competing bidders at an auction of the assets to
be held at the sale hearing for the transaction in Bankruptcy Court to be held
no later than October 16, 1998. The overbid procedures are subject to the
approval of the Bankruptcy Court. The terms of the proposed acquisition are set
forth in the letter of intent, inclusive of the proposed overbid procedures, all
as set forth in Exhibit A to the letter of intent, a copy of which is attached
hereto as Exhibit 99.3 and incorporated herein by reference. No assurance can be
given that a definitive agreement will, in fact, be negotiated and executed,
that the transaction will be consummated or that another bidder will not make a
higher and better offer for the assets. It is a condition to the Company's offer
that the overbid procedures be approved by the Bankruptcy Court.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
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99.3 Letter of Intent
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
TEARDROP GOLF COMPANY
Dated: September 4, 1998 By: /s/ Rudy A. Slucker
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Name: Rudy A. Slucker
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
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99.3 Letter of Intent
Confidential Letter of Intent
August 31, 1998
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey
Re: Proposed Asset Purchase
Ladies and Gentlemen:
The purpose of this letter of intent (the "Letter") is to set forth certain
nonbinding understandings and certain binding agreements between Teardrop Golf
Company ("Buyer") and Lynx Golf, Inc. ("Seller"), with respect to the proposed
acquisition by Buyer of substantially all of the assets of Seller on the terms
and subject to the conditions set forth below (the "Acquisition"). Subject to
the provisions hereof, Buyer and Seller mutually intend to negotiate in good
faith towards execution of a mutually satisfactory agreement in an expeditious
manner. Capitalized terms used herein without definition shall have the meanings
set forth in Exhibit "A" attached hereto.
1. Purchase and Sale of Assets; Assumption of Liabilities.
(a) On the terms and subject to the conditions to be set forth in a
definitive legally binding, written agreement to be negotiated and entered into
by Buyer and Seller (the "Definitive Agreement") with regard to the Acquisition,
Buyer will purchase substantially all of the operating assets of Seller (the
"Assets"), constituting the business of designing, assembling and marketing golf
clubs and related golf equipment (the "Business") at the closing (the
"Closing"), which shall be specified in the Definitive Agreement to occur no
later than three Court days after entry of an order of the Bankruptcy Court
approving the Acquisition. The Assets shall include all goods, inventory,
general intangibles, customer lists, intellectual property, all molds, dyes,
tools and other equipment, except for any agreed-upon changes contemplated by
the parties and enumerated in the Definitive Agreement and as except for the
Excluded Assets (as defined below). The following assets of Seller related to
the Business shall be excluded from the Assets to be purchased by Buyer
(collectively, the "Excluded Assets"): (i) all of Seller's cash and cash
equivalents, including, but not limited to, bank accounts and temporary cash
investments; (ii) the real property lease for Seller's headquarters premises in
Carlsbad, California (the "Premises"), including all buildings and improvements
located thereon, all of the fixtures attached thereto, all prepaid rent,
security deposits and options to renew or purchase in connection therewith,
(iii) all furniture, fixtures and equipment owned by Seller, including, but not
limited to, all furniture, fixtures and equipment located at the Premises (but
excluding molds, dyes, tools and equipment necessary to the production of
Seller's products having a fair market value not to exceed $50,000)
(collectively, "Excluded FF&E"), (iv) all rights to or claims for refunds of
taxes and other charges for periods ending on or prior to the
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TearDrop Golf Company
August 31, 1998
Page 2
Closing and the benefit of net operating loss carryforwards or other credits of
Seller, and (v) all insurance policies of Seller existing as of the Closing,
(vi) all prepayments and deposits of any kind whatsoever, including Seller's
rental deposit for the Farnsworth facility, (vii) all notes and other amounts
payable to Seller by current or former employees or independent contractors,
(viii) all golf course memberships, including Seller's memberships at Loma Santa
Fe and Fairbanks Ranch, and (ix) all actions assertable by Seller under title 11
of the United States Code. In addition to the foregoing, through and including
September 17, 1998, Buyer shall have the right to negotiate with Seller for the
purchase of any or all of the Excluded FF&E, the purchase price of which will
increase the Cash Payment and the Purchase Price accordingly. The Acquisition
shall be subject to the parties' obtaining the approval of the United States
Bankruptcy Court for the Southern District of California (the "Bankruptcy
Court").
(b) At the Closing, as consideration for the purchase of the Assets,
Buyer shall (i) pay to Seller Four Million Five Hundred Thousand Dollars
($4,500,000) in cash including the Deposit (as defined below) (the "Cash
Payment"), (ii) issue to Seller redeemable convertible preferred stock of Buyer
(the "Stock") with face value of Three Million Five Hundred Thousand Dollars
($3,500,000) (the "Face Value"), as more particularly described below, (iii)
assume the liabilities set forth under subparagraph (d) below, (iv) irrevocably
assign to Seller all rights to payments under the Sumikin Contracts (as defined
below) or equivalent rights, in the manner set forth under subparagraph (e)
below, and (v) issue to Seller the option to acquire 20,000 shares of Buyer's
common stock ("Buyer Common Stock") at a price of $10.00 per share, exercisable
in whole or in part at any time for a period of five years after the Closing.
The Stock or any portion thereof shall be convertible by Seller at any time
after the date that is 18 months following the Closing into that number of
shares of Buyer Common Stock equal to the dollar amount of the Face Value
divided by $16.66. The Stock (to the extent some or all of the Stock has not
been converted to Buyer Common Stock) shall be redeemable by Buyer in whole, but
not in part, at the Face Value (A) at any time following the date that is 24
months after the Closing and (B) manditorily on the date that is 36 months after
the Closing. The Stock shall contain customary anti-dilution provisions and
Buyer shall grant Seller demand registration rights with respect to all shares
of the Stock which is converted, which registration rights shall be exercisable
at any time following the date that is 18 months after the Closing, with all
costs of such demand registration to be paid by Buyer, except that if at any
time, the closing price for the Buyer Common Stock exceeds $16.66 per share for
ten (10) consecutive trading days, Buyer may, at its option, on thirty (30) days
notice to the holder(s) thereof, redeem the Stock (to the extent some or all of
the Stock has not been converted to Buyer Common Stock) for a price equal to
Face Value (the "30-Day Redemption Notice"). During the 30-Day Redemption Notice
period, the holder(s) of the Stock shall have the conversion and demand
registration rights set forth above notwithstanding that the 30-Day Redemption
Notice is given by Buyer earlier than the date that is 18 months following the
Closing. The Stock and the Options shall be transferable by Seller to existing
creditors and/or interest holders of Seller all as may be provided for in any
future plan of reorganization proposed and confirmed in Seller's pending chapter
11 bankruptcy case, subject to the satisfaction of federal and state securities
laws, if and
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TearDrop Golf Company
August 31, 1998
Page 3
to the extent applicable. Collectively, the consideration to be paid by Buyer to
Seller shall be defined as the "Purchase Price."
(c) The Face Value of the Stock to be delivered at the Closing shall
be subject to adjustment at the Closing as follows: if the net recorded book
value of Seller's inventory and trade accounts receivable as of the Closing is
less than $6.8 million, as calculated in accordance with a formula to be agreed
upon and set forth in the Definitive Agreement (the "Shortfall"), then the Face
Value of the Stock to be delivered at the Closing shall be reduced on a
dollar-for-dollar basis in an amount equal to the Shortfall. The "net recorded
book value" of Seller's inventory and trade accounts receivable as used herein
shall be calculated in accordance with a formula to be agreed upon and set forth
in the Definitive Agreement and shall apply, at least, the same accounting
covenants and principals as used by Seller in the ordinary course of business
consistent with past practice.
(d) As additional consideration for the Assets, at the Closing,
Buyer shall assume the following liabilities of Seller (the "Assumed
Liabilities"): (i) all of Seller's product warranty and product return
obligations, whether arising before or after the Closing; (ii) all of Seller's
obligations, whether arising before or after the Closing, under the following
contracts (including the cure-and-compensate obligations set forth in Paragraph
3(c), below): (A) that certain Endorsement Agreement dated August 1, 1996, and
amended May 9, 1997, between Seller and Fred Couples (the "Couples Contract"),
(B) that certain Trademark License Agreement (Clothing) dated March 1, 1997,
between Seller and Sumikin Bussan Corporation, and (C) that certain Trademark
License Agreement (Clothing) dated May 15, 1998 between Seller and Sumikin
Bussan Corporation (the agreements under (B) and (C) are referred to herein as
the "Sumikin Contracts"), and (iii) all obligations under all other contracts of
Seller specifically assumed by Buyer which obligations arise after the Closing.
In addition, Seller shall arrange to make Buyer the beneficiary of any insurance
related to any such warranty claims to the extent Seller retains or obtains any
such policy of insurance after the Closing, which Seller shall have no
obligation to do. Any costs or expenses not specifically assumed by Buyer which
are incurred by Seller prior to the Closing but billed after the Closing shall
not be assumed by Buyer. Buyer shall assume no other liabilities or obligations
other than those specifically set forth in the Definitive Agreement.
(e) As additional consideration for the Assets, at the Closing,
Buyer shall agree in the Definitive Agreement (i) to take all actions necessary
to cause the right to all royalty and other payments required to be made by
Sumikin under the Sumikin Contracts to be assigned to Seller pursuant to the
original terms thereof and for the original term thereof, with all such payments
to be made by Sumikin directly to Seller, (ii) to fully and timely fulfill all
obligations assumed by Buyer under the Sumikin Contracts following the Closing,
(iii) not to amend or modify the Sumikin Contracts in any manner that could
adversely affect Seller's rights to payments from Sumikin without the prior
written consent of Seller, (iv) in the event that any payment due under the
Sumikin Contracts is not made due to the termination of either agreement
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TearDrop Golf Company
August 31, 1998
Page 4
as a result of Buyer's breach thereunder, to make such payment to Seller as if
the agreement or agreements had not terminated, through the original termination
date of the Sumikin Contracts, (v) if either or both of the Sumikin Contracts
terminate for any reason prior to the original termination dates thereof through
no fault of Buyer, to use its best efforts to relicense the same or
substantially similar rights granted Sumikin under the Sumikin Contracts and, if
Buyer enters into any new such licensing agreement(s), to irrevocably assign all
amounts due Seller up to an amount not to exceed the payments that Seller would
have received if either of the Sumikin Contracts had not been terminated
prematurely, and (vi) if either or both of the Sumikin Contracts are terminated
as a result of a breach by Sumikin, as real party in interest, to have the right
to prosecute any and all actions necessary to enforce such agreements against
Sumikin.
(f) The Acquisition shall be subject to the overbid procedures set
forth in Exhibit "A" attached hereto and incorporated herein by this reference.
Upon the execution of the Definitive Agreement, Buyer shall provide Seller with
a deposit in the amount of Two Hundred Fifty Thousand Dollars ($250,000) (the
"Deposit"). Such Deposit shall be nonrefundable except as set forth in Exhibit
"A" attached hereto and shall be applied as a credit towards the Purchase Price
upon the Closing.
2. Definitive Agreement. The Definitive Agreement shall contain terms and
conditions customary and appropriate for a transaction of the type contemplated,
including those summarized herein. Furthermore, the parties agree that the
Definitive Agreement will provide that Seller will use its good faith efforts to
conduct its operations according to its present ordinary and usual course of
business. (Buyer acknowledges that the fact that Seller is operating in a
pending Chapter 11 bankruptcy case is with limited access to operating funds
necessarily impacts on the manner in which Seller ordinarily and usually
conducts its business.) Notwithstanding the foregoing, the parties acknowledge
and agree that the Assets shall be sold on an "as is, where is" basis and that
no warranties or representations shall be made by Seller or will be implied in
the Acquisition.
3. Conditions. The Closing will be subject to mutually satisfactory
conditions, including but not limited to:
(a) obtaining, to the extent required, consents or approvals of
governmental bodies, lenders, lessors and other third parties with respect to
material matters, including, but not limited to, the Bankruptcy Court and the
Ontario Securities Commission, and compliance with any and all other legal or
contractual requirements for or preconditions to the execution and consummation
of the Definitive Agreement;
(b) satisfactory completion of Buyer's due diligence investigation
of Seller, in the reasonable discretion of Buyer, which shall be deemed
satisfied or waived if Buyer does not notify Seller of the disapproval of any
matter in writing within on or before September 17, 1998 (the "Contingency
Period");
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TearDrop Golf Company
August 31, 1998
Page 5
(c) the Couples Contract shall have been assigned to Buyer; all
outstanding defaults under such agreement shall have been cured by Seller as of
and through July 24, 1998 and Buyer shall have assumed all obligations
thereunder from July 24, 1998 forward;
(d) delivery of mutually satisfactory legal opinions, closing
certificates and other documentation;
(e) no broker, finder or similar agent will be entitled to a
commission or other fee in respect of the Acquisition;
(f) the respective Boards of Directors of Buyer and Seller shall
have approved the Definitive Agreement by September 17, 1998;
(g) there shall have been no material adverse changes in the
business of Seller from the date of the completion of Buyer's due diligence
through the Closing; and
(h) Buyer shall use its reasonable good-faith efforts to obtain a
no-action letter or similar ruling or advisement from the Securities and
Exchange Commission exempting Buyer from having to file audited financial
statements of Seller after the Closing. If Buyer is unable to obtain such a
letter, ruling or advisement despite Buyer's efforts to do so, Seller shall
provide to Buyer within seventy (70) days of the Closing financial statements of
Seller for the year ended July 31, 1998, in a form suitable for filing with the
Securities and Exchange Commission, with the cost of such audit to be shared
equally by both Buyer and Seller. Notwithstanding the foregoing, Seller shall
instruct Lynx Golf Europe to prepare audited financial statements at the expense
of Lynx Golf Europe.
4. Binding Provisions. Upon execution of a counterpart of this Letter by
you, the following lettered paragraphs will constitute legally binding and
enforceable agreements of Buyer and Seller, in recognition of the significant
costs to be borne by Buyer and Seller in pursuing the Acquisition and further in
consideration of their mutual undertakings as to the matters described herein.
(a) Access. Subject to the terms set forth in Section 3(b) above,
paragraph (f) below and the Confidentiality Agreement dated as of July 10, 1998,
between Buyer and Seller, Seller will permit Buyer's employees, auditors, legal
counsel, potential financing sources and other authorized representatives access
to the officers, employees, agents, advisors, properties, records and documents
of Seller or any of its affiliates relating to the Business, the Assets,
Liabilities, contracts, and operations. Buyer will conduct this inspection,
investigation and audit in a reasonable manner during regular business hours.
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TearDrop Golf Company
August 31, 1998
Page 6
(b) Good-Faith Efforts. Buyer and Seller will negotiate in good
faith and use their reasonable good-faith efforts to obtain Bankruptcy Court
approval of the bidding procedures set forth in Exhibit "A" hereto as soon as
reasonably practicable and to arrive at a mutually acceptable Definitive
Agreement for approval, execution, and delivery on the earliest reasonably
practicable date. Subject to the Company's obligation to secure consent to this
transaction from Union Planters Bank and/or LGILC, LLC, as the case may be,
Buyer and Seller will, upon the execution of the Definitive Agreement, use their
reasonable good faith efforts to obtain approval of the Definitive Agreement
from the Bankruptcy Court to effect the Closing and to proceed with the
transactions contemplated by the Definitive Agreement as promptly as is
reasonably practicable.
(c) Costs. Buyer and Seller will each be solely responsible for and
bear all of its own respective expenses, including, without limitation, expenses
of lenders, legal counsel, investment bankers, consultants, accountants and
other advisors, incurred at any time in connection with this Letter or pursuing
or consummating the Definitive Agreement, the Acquisition and the transactions
contemplated thereby. Notwithstanding the above, Buyer shall be entitled to
receive a breakup fee as set forth in Paragraph 4 of Exhibit "A" to this Letter
under the circumstances enumerated therein.
(d) Public Disclosure. Neither Buyer nor Seller shall (i) make any
disclosure with respect to the proposed Acquisition or the existence of
discussions with respect thereto without the prior consent of the other party or
(ii) release information regarding the matters contemplated herein except that a
joint press release in agreed form may be issued by Buyer and Seller after the
execution of this Letter. Notwithstanding the foregoing, after consultation with
the other party, the parties may make disclosure regarding the Acquisition as
required by the federal, state and foreign securities laws and the rules of any
stock exchange and bankruptcy laws and rules, including disclosure of the
proposed Acquisition to creditors and potential bidders for the Assets.
(e) Confidentiality. Buyer agrees to continue to abide by the terms
of the Confidentiality Agreement.
(f) Termination. Except as described in the last sentence of this
Paragraph, this Letter and the obligations and rights of the parties hereunder
shall terminate as follows: (a) on September 18, 1998 without any further action
of the parties; (b) at any time by mutual written consent of both parties or (c)
by either Buyer or Seller by written notice to the other party if there has been
a material breach of this Letter by such other party. Upon such a termination
this Letter shall have no force and effect other than Paragraphs 4(c), 4(d),
4(e) and 4(h) and Paragraph 5, which shall survive any such termination.
(g) Governing Law. This Letter and the Definitive Agreement shall be
governed by and construed in accordance with the laws of the State of
California, with the sole
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TearDrop Golf Company
August 31, 1998
Page 7
venue for the adjudication of any matter relating to this Letter being the
Bankruptcy Court for the Southern District of California.
5. Non-Binding Intent. This letter is not intended to, and does not,
constitute a complete statement of, or a legally binding or enforceable
agreement or commitment on the part of Seller or Buyer with respect to, the
matters described herein and Seller and Buyer agree not to assert any argument
to the contrary. Any such agreement would arise only as a result of the
negotiation, execution and delivery of a formal definitive written agreement
containing terms and conditions satisfactory to each of Seller and Buyer. The
parties specifically covenant and agree that no person shall bring any claim
against any other person based upon this Letter as a result of a failure to
agree on or enter into a Definitive Agreement, or for any other reason related
to the Acquisition, other than pursuant to the aforementioned Definitive
Agreement if one is executed and delivered or pursuant to breach of any of the
binding provisions set forth below. The foregoing shall not affect the
provisions of Paragraph 4 and this Paragraph 5 which are intended to be binding
in accordance with their respective terms.
Please sign and date this Letter in the space(s) provided below to confirm our
mutual understandings and agreements as set forth in this Letter and return a
signed copy to the undersigned. An executed telecopy of acceptance must be
received by that time, whereupon this Letter shall be deemed executed and
delivered by both of us.
Very truly yours,
LYNX GOLF, INC.
By: /s/ Christopher R. Barclay
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Name: Christopher R. Barclay
Title: Responsible Natural Person
AGREED TO AND ACKNOWLEDGED
this August 31, 1998 by:
TEARDROP GOLF COMPANY
By: /s/ Rudy A. Slucker
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Name: Rudy A. Slucker
Title: Chairman and CEO
<PAGE>
EXHIBIT A
OVERBID PROCEDURES
Capitalized terms used herein without definition shall have the meanings
assigned to them in the Letter.
1. Bankruptcy Sale. The Seller currently intends to propose a sale of some or
all of the Assets and/or any Excluded Assets pursuant to Bankruptcy Code Section
363 (the "Sale") in the Bankruptcy Court that, if confirmed, will result in the
sale of the Assets to the highest bidder following an auction (the "Auction")
which will take place in open court at the sale hearing no later than October
16, 1998, or sooner if reasonably practicable.
2. Selection of Opening Bid. Upon the execution by Buyer and Seller of the
Definitive Agreement, (i) $10,000,000 shall be defined as the "Opening Bid" and
(ii) Buyer shall be defined as the "Opening Bidder." The Opening Bidder shall
have certain bidding protections which are identified below.
3. Contract. Upon execution of the Definitive Agreement, the Opening Bidder
shall immediately deliver to Seller a cashier's check or wire transfer in an
amount equal to the Deposit. After the Contingency Period, the Deposit shall be
nonrefundable unless Seller is in material default of the Definitive Agreement,
the Opening Bidder is not the successful bidder at the Auction or Seller's Sale
is not confirmed by the Bankruptcy Court for any reason whatsoever
(collectively, "Performance Waiver Conditions"). In addition, the Deposit may be
refunded to the Opening Bidder during the Contingency Period if the Opening
Bidder, in the exercise of its reasonable discretion, provides written notice to
Seller of its disapproval of any matter in connection with its due diligence
investigation of Seller.
4. Auction. The Assets shall be sold at the Auction with the Closing to occur as
provided below. Except as otherwise set forth in the Definitive Agreement, the
sale shall be free and clear of all liens, claims and interests pursuant to
Bankruptcy Code ss.363(f) or other relevant provisions of the Bankruptcy Code.
(a) Bidding Protection: Subject to the provisions of this Paragraph 4 and
its subparts, the Letter shall constitute the Opening Bid at the Auction and is
subject to overbid. Any parties wishing to purchase the Assets at the Auction
will be required to qualify and bid in accordance with the terms set forth
below.
(i) In the event that Buyer is overbid at the Auction of the Assets,
for a price equal to or greater than the Initial Overbid (such that Buyer is not
the successful bidder),and if Seller and Buyer have executed a Definitive
Agreement, Buyer remains at all times ready, willing, and able to close the Sale
at the Opening Bid, Buyer is not in breach of the Definitive
<PAGE>
Agreement, and Buyer agrees to be confirmed as a back-up bidder at the Auction
pursuant to the same terms and conditions as the Definitive Agreement (except
that the Purchase Price shall be Buyer's last bid at the Auction, if such bid
exceeds the Purchase Price set forth in the Letter), or
(ii) If Seller and Buyer do not execute a Definitive Agreement on or
before September 17, 1998, and the reason that a Definitive Agreement is not
executed is that Seller does not negotiate the terms of the Definitive Agreement
in good faith and during that period or within two weeks thereafter negotiates a
Sale with a third party,
then the Opening Bidder shall be entitled to a breakup fee of $500,000, which
breakup fee shall be paid immediately from, and upon receipt of, the Overbid
Deposit. The Opening Bidder shall be refunded its Deposit plus interest accrued
thereon, if any, immediately once the Opening Bidder, as confirmed back-up
bidder, no longer has an obligation to close.
(b) Qualification of Bidders: As a condition to bid at the Auction, all
bidders, other than the Opening Bidder, (i) shall bring with them to the auction
a cashier's check in an amount equal to ten percent (10%) of the Opening Bid
(the "Overbid Deposit") made out to "Lynx Golf, Inc."; (2) shall submit to
Seller Proof of Sufficient Funds (defined below) at least two (2) business days
prior to the Auction; and (3) shall acknowledge that neither Seller, nor
Seller's bankruptcy estate shall pay any broker's fees in connection with the
sale of the Property. "Proof of Sufficient Funds" means a letter addressed to
Seller signed by an officer of a federal or state chartered financial
institution, or by a broker of a nationally recognized United States brokerage
firm, dated not earlier than ten (10) days prior to the Auction, certifying that
the bidder maintains an account(s) with such financial institution or brokerage
firm, as applicable containing Liquid Funds (defined below) in an amount not
less than Ten Million Dollars ($10,000,000). "Liquid Funds" means demand
deposits, money market accounts, corporate securities traded on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ corporate bonds traded
on the New York Exchange and U.S. Treasury Bills, Notes and Bonds. Seller shall
have the right to disapprove any bidder based upon its reasonable belief that
the bidder will not be able to perform its obligations under the Definitive
Agreement in the event such bidder has the successful bid. A bidder who complies
with the provisions of this paragraph and is otherwise acceptable to Seller
shall be referred to as a " Qualified Bidder".
(c) Auction Bidding Procedure: The Assets shall be sold by auction to the
highest bidder in open court no later than October 1, 1998 (or sooner if
possible) who is either the Opening Bidder or a Qualified Bidder. The Auction
shall be conducted by Seller at a hearing before the Bankruptcy Court. Bids by
Qualified Bidders must be non-contingent. Any Qualified Bidder wishing to
purchase the Assets at the Auction shall be required to bid a minimum of
$600,000 in excess of the Opening Bid (the "Initial Overbid"). Subsequent bids
after the Initial Overbid must be in minimum increments of $25,000 or more over
the previous bid. Immediately upon confirmation of a bid as the winning bid, the
winning bidder must deliver the Overbid Deposit (if the winning bidder is the
Opening Bidder, the Overbid Deposit will have previously been paid through
delivery of the Deposit) plus five percent (5%) of the amount by which the
winning bid exceeds the Opening Bid (collectively, the "Purchase
<PAGE>
Deposit") to Seller. Bidding shall be limited to Qualified Bidders. If the
successful bidder is anyone other than the Opening Bidder, the successful
bidder, shall immediately execute the Definitive Agreement and the Closing shall
be within two business (2) days following the date thereof. All proceeds of the
Auction, including any Purchase Deposit, shall be paid to escrow and shall be
distributed upon the closing of the Sale.
(d) Failure to Close: If the successful bidder (including the Opening
Bidder, if the Opening Bidder makes the winning bid) fails to close the purchase
in accordance with the Definitive Agreement or fails to immediately execute the
Definitive Agreement, then such bidder's Purchase Deposit will be forfeited in
accordance with the Definitive Agreement and the Assets shall be offered to the
next highest bidder. If the next highest bidder does not accept such offer by
executing the Definitive Agreement and depositing the Purchase Deposit within
one (1) business day following receipt of such offer, then Seller shall repeat
this offer procedure with the next highest bidder, and so on, until an offer is
accepted in the manner set forth above. The Bankruptcy Court shall confirm the
amount and source of the winning bid at the close of the Auction and shall also
confirm up to three "back-up" bids as alternate winning bids in the event that
the first winning bid is withdrawn prior to the closing of the sale for any
reason.
